KOMATSU REPORT 2020 Contents Komatsu’s Business Model Resolution of ESG Issues through 01 Management Principle Growth Strategies 02 History of Business Reforms in Response to Changes in 32 Komatsu’s CSR Themes and Mid-Term the Operation Environment Management Plan KPIs 04 Overview of Business 34 Enhancing Quality of Life 06 Special Feature 1: Business Model Characteristics –Initiatives Based on TCFD Framework –Ever-Evolving DANTOTSU Initiatives 40 Developing People –Reman and Rebuild Operations 42 Growing with Society –Flexible Global Production and Procurement Systems –Social Contribution Activities 11 Business Segments 44 Corporate Governance Komatsu’s Growth Strategies Corporate Profile 12 Message from the President 54 Directors and Audit & Supervisory Boad Members 16 Message from CFO 58 11-Year Summary 22 Special Feature 2: Value Creation Story 60 Non-Financial Highlights –SMARTCONSTRUCTION 61 External Evaluations and Index Inclusion –Forestry Machinery Business 62 Corporate Information 28 Mid-Term Management Plan (FY2019–FY2021) 63 About KOMATSU REPORT DANTOTSU Value FORWARD Together for Sustainable Growth 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 available at the time of publication. Factors that may cause actual results to differ materi- ally 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, 2019–March 31, 2020 issues through its business. In preparation of • T his report also includes information on activities after the report- this report, we referenced the International ing period in order to provide readers with the latest information. Integrated Reporting Framework released by • “FY2019” refers to the period from April 1, 2019 to March 31, the International Integrated Reporting 2020, unless otherwise noted. Council and the Guidance for Integrated Corporate Disclosure and Company-Investor Editorial Policy Dialogue for Collaborative Value Creation: KOMATSU REPORT 2020 was published for the purpose of provid- ESG Integration, Non-Financial Information ing clear explanations for all stakeholders on Komatsu’s medium- to Disclosure, and Intangible Assets into Investment released by the long-term business strategies and the virtuous cycle generated as Ministry of Economy, Trade and Industry. the Company resolves environmental, social, and governance (ESG) Resolution of ESG Issues Komatsu’s Business Model Komatsu’s Growth Strategies Corporate Profile through Growth Strategies Komatsu’s Business Model Management Principle The cornerstone of Komatsu’s management principle is to commit ourselves to quality and reliability and maximize the total sum of trust given to us by all stakeholders and society, which it defines as corporate value. Maximizing trust requires corporate activities that are founded on social responsibility along with efforts to strengthen corporate gover- nance and enhance manufacturing competitiveness. With the addition of Komatsu Brand Management into this princi- ple, we are promoting awareness reforms that inspire all Komatsu Group employees to adopt the perspective of the customer from their standpoint in the Company as we move forward with human resource development to become a stronger company. Implementation Enhancing the of management trust placed in us principle by society Contributing to society Further growth Management Maximizing the trust given to us by our stakeholders and society through a commitment to quality Policy and reliability Is management in line with societal needs? Management Strategy Always monitor “DANTOTSU Value – FORWARD Mid-term Management Plan for securing Together for Sustainable Growth” sustainable growth Mid-Term Management Plan Defines Komatsu’s Values, basic attitudes, and patterns of behavior The KOMATSU Way 1. Leadership/Top Management 2. “Monozukuri” for all employees 3. Brand Management 1. Komatsu’s Worldwide Code of Business Conduct 2. Policies, standards, and principles 3. Komatsu’s CSR Themes Corporate Citizenship Enhancing Quality of Life/Developing People/Growing with Society Global principles and international standards • The U.N. Global Compact Resolution of Needs • ISO 26000 of Society • Keidanren (Japan Business Federation) Charter of Corporate Behavior • The U.N. Sustainable Development Goals (SDGs) All Stakeholders and Society Society Investors and Distributors Suppliers Employees Customers Shareholders Mass media Communities Analysts 01 Komatsu’s Business Model History of Business Reforms in Response to Changes in the Operation Environment Net Sales and Demand for 7 Major Products Japan North America Europe Other China Consolidated net sales (right scale) (Demand, Units) (Net sales, Billions of yen) 600,000 1990s Maturity of 450,000 Japanese, U.S., and European Markets 1980s Japan and Western Europe Era 300,000 1970s United States Era 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 1999 2000 2001 Competition with Foreign Companies Expansion of Exports Expansion of Overseas Production Selective Focus and Global Consolidated Management Diversification (DANTOTSU Product DANTOTSU Service DANTOTSU Solution) Chapter 1 1960s Chapter 2 1970s Chapter 3 1980s–1990s Era of Competition with Foreign Era of Growing Exports Expansion of Overseas Production Companies in the Domestic Market Improvement of Durability and Reliability, and Diversification Prioritization of Quality, Exhaustive Product Establishment of Sales Systems in European 3G Management Strategy Research on Rival Bulldozers and U.S. Markets In the 1980s, Komatsu accelerated local production in overseas markets in conjunction with the growth of Trade deregulation prompted world-leading manufac- As it began a full-fledged expansion into global mar- demand in these markets. However, from the 1990s, turers of construction equipment, Caterpillar Tractor kets, it became necessary for Komatsu to bring the demand grew stagnant in the Japanese, European, Co. to enter into the Japanese market. Komatsu thus performance and functionality of its large-sized bull- and U.S. markets as these markets matured in the found itself faced with a pressing need to improve dozers, a mainstay product at the time, up to world- latter half of the decade. In preparation for the inevi- the quality of its products. The Company therefore leading levels. To this end, we rolled out campaigns table intensification of global competitiveness, commenced quality control measures and launched to earn greater levels of reliability based on perfor- Komatsu enacted its 3G (Global, Growth, Groupwide) a Companywide quality control program. We also mance data from the markets we served. These management strategy in which it sought to become kicked off an exhaustive product research campaign campaigns were advanced side-by-side with efforts a global group with a solid manufacturing base that targeting the bulldozers of our rivals. These efforts to improve systems in areas spanning from develop- was resilient to fluctuations in construction equip- culminated in the September 1963 launch of the ment to sales and services. The result was improved ment demand. This strategy led us to diversify our Model D50A-11 Super Bulldozer. At this time, we reliability in the European and U.S. markets for major business by expanding operations in electronics and also doubled our warranty period, effectively cutting products and the reinforcement of the foundations of other non-construction equipment businesses. complaints to one-third. our export platforms. Hydraulic Power Excavator 15H-1 Silicon wafers produced by Komatsu Electronic Metals Co., Ltd. Bulldozer D50A-11 02 Resolution of ESG Issues Komatsu’s Business Model Komatsu’s Growth Strategies Corporate Profile through Growth Strategies History of Business Reforms in Response to Changes in the Operation Environment Net Sales and Demand for 7 Major Products Japan North America Europe Other China Consolidated net sales (right scale) Chapter 7 2019~ (Demand, Units) (Net sales, Billions of yen) 2000s (2002~) 3,000 Era of Resource-Rich DANTOTSU Value and Emerging Countries Realization of the safe, highly productive, 2,250 smart, and clean workplaces of the future Digital Transformation of Entire Construction Workplaces 1,500 750 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 (FY) Selective Focus and Global Consolidated Management (DANTOTSU Product DANTOTSU Service DANTOTSU Solution) Chapter 4 2001~ Chapter 5 2007~ Chapter 6 2013~ 1st Structural Reforms 2nd Structural Reforms Innovation and Reinforcement of Mining Selective Focus and Introduction of Promotion of Global Cross-Sourcing Equipment Business Introduction of DANTOTSU Solutions DANTOTSU Products Through these reforms, we promoted global cross- In its mining equipment business, Komatsu’s Komatsu enacted its 1st structural reforms in sourcing to reform our value chain through the optimiza- Autonomous Haulage System (AHS) has received high response to the stagnant construction equipment tion of the production, sales,