Home  >  Investor Relations  >  Interview with Kunio Noji, President and CEO

• Financial Data
• Business Results
• Annual Reports
• IR Library

• Sales and Profits Gains Reports
• SEC Filings
• Semi-Annual Reports
• Fact Book
• Environmental & Social Reports

• IR Calendar
• Corporate Governance
• Share and Rating

• Stock Information
• Cash Dividends
• Ratings

• FAQ

• Stance on Information Disclosure and Cautionary Statement

Interview with Kunio Noji, President and CEO

From Annual Report 2008

Q:Against the backdrop of an expanding market for construction and mining equipment around the world, Komatsu has achieved the sixth consecutive year of growth in both sales and profits. How do you evaluate the results for the year ended March 31, 2008?

Noji: For the fiscal year under review, we were able to expand both sales and profits for six straight fiscal years and renew record-high profits for four consecutive years with substantial increases from the previous fiscal year. I am very pleased to report further improvement of Komatsu’s corporate value to our shareholders and investors. This is precisely the direct result of support from employees of the Komatsu Group and our partner distributors and suppliers all around the world. In other words, it’s the result of global teamwork.

In addition to accomplishing record-high sales and profits following the previous fiscal year, we also further improved profitability for the fiscal year under review. We were able to increase operating income ratio to 14.8%, a little short of the 15% goal of our mid-range management plan “Global Teamwork for 15�Ewhich we developed last year. In the construction and mining equipment business which accounts for about 85% of our total sales, we were able to boost sales in Latin America, Europe & CIS, Asia & Oceania, China, and Middle East & Africa, while demand in North America, the largest market of the past, and that in the Japanese market remained slack. I believe that our distribution of regional sales around the world has become evenly balanced, having gotten away from performance being affected by economic fluctuations of a given region.

Q:The fourth quarter results (January through March 2008) of your construction and mining equipment business show a segment profit ratio of 16.7%, even when the Japanese currency appreciated by 15 yen against the US dollar compared to the same period last year. Would you explain the factors which enabled such high profitability?

Noji: In the fourth quarter under review, the Japanese currency appreciated by 15 yen to 104 yen, compared to 119 yen in the corresponding fourth quarter a year ago. However, a big gain from expanded sales volume easily covered the yen’s appreciation, particularly because of an impressive increase in demand in China during the sales season following the Chinese New Year.

Fundamentally, I believe our results show that we have been able to establish an operational framework in which we are much less volatile to foreign exchange fluctuations, reflecting our efforts over the years in global procurement and cross-sourcing activities, reinforcement of product competitiveness, as represented by our DANTOTSU products, and reduction of fixed costs.

Q:Could you tell us about your projections for a market outlook of construction and mining equipment for the current fiscal year and mid- to long-range demand outlook?

Noji: Certainly. For the fiscal year under review, a drop in demand in North America was well compensated for by growth in demand in emerging economies. As a result, with respect to seven major products, global demand increased by 15% on a unit basis from the previous fiscal year. Also, for the current fiscal year, which will end on March 31, 2009, we are projecting an increase of over 10% in global demand, driven by demand in regions other than Japan, North America and Europe.

From 1980 to 2000, global demand kept changing, mainly affected by demand in Japan, North America or Europe. Since 2003, however, global demand has been driven upward by emerging economies, as represented by BRICS* such as China.

Demand for commodities is fueled by the Chinese economic expansion and the countries with natural resources step up their investments in infrastructure development, which results in demand for more commodities. A new cycle is clearly developing, centering on emerging economies. In this light, I believe demand for construction and mining equipment should continue to grow for some more years to come.

* In addition to Brazil, Russia, India and China, we include South Africa.

Q:Now, what is your projection of business results for the current fiscal year? Based on the announcement made together with the business results for the fiscal year just ended, Komatsu is anticipating a smaller growth rate of profits compared to that of sales. Could you elaborate on that?

Noji: As you have pointed out, on April 30 we projected a 15% increase in sales, 8% growth in operating income and about 5% in net income. We are anticipating the seventh straight year of growth in both sales and profits, and therefore we will continue to renew the recordhigh sales and profits, following the fiscal year just ended. There are two factors for smaller profits. First, it’s an adverse effect of foreign exchange rates. We are anticipating the Japanese yen’s appreciations by 11 yen and 2 yen per the US dollar and Euro, respectively, from the fiscal year just ended. The effects on our operating income are 3.2 billion yen and 900 million yen for a full year, when the Japanese currency appreciates by 1 yen per the US dollar and Euro, respectively. By including the foreign exchange effects of other currencies, we are estimating 43 billion yen on our operating income for the current fiscal year. Second, it’s growth of materials costs. Although we are expecting a substantial increase in the prices of raw materials, we are working to offset this increase of materials costs with our efforts in price hikes of our products and cost reduction. After putting these external and internal factors together, we are planning to make a gain. However, as this gain was quite large for the fiscal year just ended, the growth rates of profits will be smaller.

Q:How about other risks that you are assuming in your projections for the business results for the current fiscal year?

Noji: In addition to foreign exchange rates and materials costs, there are other external risk factors, such as delayed shipment of our products resulting from a lack of available cargo vessels. Internally, it is also important to manage the Komatsu Group in such a way that a lax mindset will not develop.

While we have recorded good results for the last few years, we nevertheless have a variety of tasks that have been left behind. Therefore, it is very important that each and every employee of the Komatsu Group work on and clear his or her own tasks one by one according to The KOMATSU Way.

Q:Please explain the progress you have made in the mid-range management plan "Global Teamwork for 15."

Noji: As you know, last year we announced the plan with the goal year set for the fiscal year ending March 31, 2010. For figurative targets, we are working to obtain 15% or higher for operating income ratio, maintain a 20% level of ROE, attain 0.2 or less for net debt-to-equity ratio, and 20% or higher for consolidated payout ratio. I think we made good progress toward these targets in the fiscal year just ended. In particular, we were able to increase our operating income ratio to 14.8% for the year under review, just very short of the target of 15%. When each and every employee working in different business units of the Komatsu Group diligently clears his or her tasks one by one through the seven activities of importance defined in the mid-range management plan, I believe we will be able to achieve the targets of the plan, which should consequently lead to our sustainable growth.

Q:Could you please discuss the expansion of production capacities?

Noji: Sure. We have been expanding our production capacities in tandem with the expansion of regional demand around the world without experiencing any major problem or causing a bottleneck. I believe that this is a successful, direct result of teaming up with our partner suppliers for expansion of our production capacities. In the last fiscal year, we boosted our production capacity for construction and mining equipment by about 20% so that we could supply our products to all regions of the world. We are also going to expand it by about 20% again in the current fiscal year. To accomplish this task, we are planning to step up Japan-concentrated production of engines, hydraulic units and other key components more than the assembly capacity.

We are also planning to further upgrade our global cross-sourcing operation. As our flagship medium-sized hydraulic excavators are being produced at eight plants worldwide, we have already established an operational framework in which we can supply them to different markets around the world in tune with demand changes by positioning Bangkok Komatsu in the center of the framework. We are going to build a global cross-sourcing framework for wheel loaders in the near future.

Komatsu has recently made NIPPEI TOYAMA a consolidated subsidiary. Please explain your efforts in the creation of synergy with NIPPEI TOYAMA.

Noji: In December 2006, we acquired 29.3% of their outstanding shares, and since then we have been promoting the generation of collaborative effects in purchasing, production, sales and service in the industrial machinery business. To achieve more synergy effects, we have made NIPPEI TOYAMA a consolidated subsidiary after implementing tender offer for its shares. In August this year, we are going to make NIPPEI TOYAMA a wholly owned subsidiary through share exchange. With NIPPEI TOYAMA as a wholly owned subsidiary, we will be better positioned to strengthen the collaborative relationship and generate more synergy in research and development as well as joint development of new business domains which transcend the scope of our existing businesses by capitalizing on NIPPEI TOYAMA’s advanced technologies and overseas business capability. In April this year, we created the Industrial Machinery General Headquarters as the organization to oversee the industrial machinery business of the Komatsu Group, including NIPPEI TOYAMA. We have established the Planning Department at NIPPEI TOYAMA, to which we have assigned some of our employees to work routinely. I hope that we will build on a win-win relationship as the two companies work flexibly and speedily on business challenges one by one.

Q:Now, can you tell us about your social responsibility efforts in the environmental area?

Noji: Yes. Generally speaking, construction equipment uses diesel fuel and therefore emits carbon dioxide (CO₂). We hope to make our share of contributions to CO₂ reduction by developing products of excellent fuel economy. Last year, we launched the world’s first hybrid electric forklift trucks, and this year we led the industry with the market introduction of hybrid hydraulic excavators.

The PC200-8 hybrid hydraulic excavator achieves about 25% reduction of CO₂ emissions on average compared to standard models in its class. In our user tests, the PC200-8 hybrid has recorded a maximum of 41% reduction of CO₂ emissions, depending on the type of work conditions. With respect to our hybrid electric forklift trucks, they achieve about 80% reduction of CO₂ emissions compared to internal combustion models, and about 20%, compared to standard electric models. Our hybrid electric forklift truck received the Minister’s Award, Ministry of Economy, Trade and Industry (METI) of Japan, that is the highest award of the Superior Energy-Saving Machinery Award for Fiscal 2007 which was sponsored by the Japan Machinery Federation. We are determined to develop innovative products which are even more environmentally friendly as a leader of the industries in the environmental protection area.

* Both PC200-8 hybrid hydraulic excavator and hybrid electric forklift truck are also described in the Feature Section "INNOVATION THROUGH TEAMWORK" on pages 13 through 21.

Q:Can you tell us about your policies on capital?

Noji: Certainly. Our basic policy calls for investment to reinforce our businesses and redistribution of profits to shareholders. Main elements of the business reinforcement investment are R&D and facilities. With respect to R&D expenses, we used 49.6 billion yen for the fiscal year just ended and plan to use 57 billion yen for the current fiscal year. As for facilities investments, we committed 145.7 billion yen for the fiscal year just ended, and about 180 billion planned for the current fiscal year. In the R&D area, for example, we continue to invest in technology development aiming at the Tier 4 emission standards for construction equipment to be effective in 2011. In the area of facilities, we will also continue to invest in our production capacities for the assembling of equipment and manufacturing of parts and components, as we anticipate that demand will continue to expand, especially in emerging economies. In the fiscal year ending March 31, 2010, we will launch production of large hydraulic excavators at a new plant adjacent to the Port of Kanazawa along the Japan Sea, and in the fiscal year ending March 2011, construction equipment and forklift trucks at a new manufacturing subsidiary in Russia. So, we are keeping an aggressive stance in investments for a while.

Concerning the redistribution of profits to shareholders, our basic policy calls for cash dividends which reflect consolidated business results. More specifically, we have set a consolidated payout ratio of 20% or higher based on operating income after excluding nonoperating income. We would like to continue our efforts in the redistribution of profits to shareholders by emphasizing stable cash dividends.

Terms and Conditions    Inquiry    Site map