Mining Equipment and Aggregate & Cement Sector Businesses
September 16, 2016
Hisashi ShinozukaDirector and Senior Executive Officer
President of Construction and Mining Equipment Marketing DivisionKomatsu Ltd.
<Komatsu IR Day 2016 Meeting>
Mining Equipment Business
1
Mining equipment Construction equipment Utility equipmentCustomers’ businesses
Limited to regions with resourcesGlobal operation
Global operation is rare. Country or region specific.
Mainly in smaller areas
Hours of machine operation
24/7Over 5,000 hrs/year
8-16 hrs/day and 5-6 days/week1,000--3,000 hrs/year
8 hrs/day (max) and 5 days/weekUp to 1,500 hrs/year
Locations of machine use
Remote areas (in main)Almost no relocation of machines
Urban, suburbia and remote areasRelocation of machines for each project
Urban and suburbiaFrequent relocation of machines
Customers’ expectations
SafetyProductivity/machine utilization,$/ton, and lifecycle costs
Machine performance/reliability,Model range and ample attachments Initial costs
Versatility,Ample attachmentsInitial costs
Customer service Maker/distributor Distributor/maker Distributors
Machine ownership Customers (relatively high %) Customers and rental companies ←
Competitors A few Many Extensively many(esp. mini excavators)
Market Characteristics (1/2) 2
Estimated by Komatsu350
300
250
200
150
100
50
0Annu
al pr
oduc
tion v
olum
e (in
dex)
The ratio of underground mining equipment to increase
Underground
Breakers
Crushing & conveyingequipment
Underground truck
Surface
Komatsu’s offering
Fleet control system
Roof support
Bulldozer
Motor graderDump truck
Wheel loader
Hydraulic excavator
Market size in FY2014 Source:Estimated by Komatsu from materials published by relevant companiesMining machines and our product offering
Komatsu
Joy GlobalSurface
Joy GlobalUnderground
Market size: JPY3 tnSurface: JPY1.9 tn (64%)
Underground: JPY1.1 tn (36%)
About JPY1.4 tnapplicable to Komatsu’s offering
Production volume of minerals: surface and underground mining
Shearer
LHD
Continuous miner
Hydraulic jumbo drill
Drag line
Drill
Rope shovel
Market Characteristics (2/2)
Underground: small and medium-sized mines
Underground: major mines (supercaves)
Underground: major mines (excl. supercaves)
Surface mines
Year
3
0
500
1,000
1,500
2,000
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Market Trends (1/2)• All commodity prices peaked out in 2011. They appear to have bottomed out in 1Q, FY2016.• We anticipate that commodity prices will head for slow recovery, although they won’t recover to the peak level.
2011/Feb.$187.18
$57.50
0
50
100
150
200
250Ja
nAp
rJu
lO
ctJa
nAp
rJu
lO
ctJa
nAp
rJu
lO
ctJa
nAp
rJu
lO
ctJa
nAp
rJu
lO
ctJa
nAp
rJu
lO
ctJa
nAp
rJu
lO
ctJa
nAp
rJu
l
2009 2010 2011 2012 2013 2014 2015 2016
US$/MT Iron ore
2011/Sep$1,771.88 $1,327.80
0
500
1,000
1,500
2,000
Jan
Apr
Jul
Oct
Jan
Apr
Jul
Oct
Jan
Apr
Jul
Oct
Jan
Apr
Jul
Oct
Jan
Apr
Jul
Oct
Jan
Apr
Jul
Oct
Jan
Apr
Jul
Oct
Jan
Apr
Jul
2009 2010 2011 2012 2013 2014 2015 2016
GoldUS$/Ounce
As of Sep. 9
Source: Kitco
Source: International Monetary Fund
$69.60
0
50
100
150
Jan
Apr Ju
lO
ctJa
nA
pr Jul
Oct
Jan
Apr Ju
lO
ctJa
nA
pr Jul
Oct
Jan
Apr Ju
lO
ctJa
nA
pr Jul
Oct
Jan
Apr Ju
lO
ctJa
nA
pr Jul
2009 2010 2011 2012 2013 2014 2015 2016
Thermal coalUS$/MT
Source: World Bank (Monthly ave.)Description: Australian Thermal Coal FOB New Castle., 12000 btu/pound
As of Sep. 9
2011Feb$137.53c
0.000.501.001.502.002.503.003.504.004.505.005.50
0
2,000
4,000
6,000
8,000
10,000
12,000
Jan
May Sep
Jan
May Sep
Jan
May Sep
Jan
May Sep
Jan
May Sep
Jan
May Sep
Jan
May Sep
Jan
May Sep
2009 2010 2011 2012 2013 2014 2015 2016
CopperUS$/MT 2011/Feb$9,880.94
Source: World Bank (Monthly ave.)Description: grade A LME spot price CIF European
US$/lb
$4,615.00 US$/ton$2.09 US$/lbAs of Sep. 9
As of Sep. 9
x: 2000 = 100
Thermal coalIron oreCopper
Gold
*data after 2016 is estimated by Komatsu
Long-range price trend of main commodities
4
0
50
100
150
200
250
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
1990199119921993199419951996199719981999200020012002200320042005200620072008200920102011201220132014201520162017201820192020
2.2%
6.1%
6.9%0.0%
3.0%
Market Trends (2/2)• While the business environment of the mining equipment industry remains challenging in the short range, we project that
demand for mining equipment will gradually recover to a 4,000-unit level in the mid to long term, supported by an increase of consumption of major minerals and corresponding increase in their production volume.
Mining Equipment Demand and Index of Major Commodity Consumption
(Units)Consumption
(Indexed)
Mining Equipment Demand *1
Indexed Major Commodity Consumption (Production in 2000 indexed to 100) *2
Annual Growth Rate of Indexed Major Commodity Consumption *3
*1: For Komatsu’s mining product lines only *2: Major Commodity=Thermal coal, met coal, iron ore, copper *3: Average of annual growth rate over the period
Source: Komatsu Estimate
5
196.1 214.9
194.3
96.3 91.7 84.2
206.8 140.6
115.6
+22%+18%
-14%
+15%+33%
+11%
-18%-1% -10% -12%
-50%
0%
50%
0
200
400
600
800
FY07FY08FY09FY10FY11FY12FY13FY14FY15FY16 FY14FY15FY16
356.5
422.0
361.5
554.0
614.5
417.0
506.3499.3
447.3
54.9 52.7
56.9
50.4 45.7
23.5 22.9 23.2
22.1 19.4
37.5 34.4
33.6
35.0 33.2
+24%+20%
+4%-1%
-17%-27% -23%
-4% -7%-3%
+20%
-19%
-4%
-4%-12%
-12%
-15%
-50%
0%
50%
0
50
100
150
200
250
FY12/1Q2Q 3Q 4Q FY13/1Q2Q 3Q 4Q FY14/1Q2Q 3Q 4Q FY15/1Q2Q 3Q 4Q FY16/1Q
FY15/1Q2Q 3Q 4Q FY16/1Q
Middle East & Africa OceaniaAsia ChinaEurope & CIS Latin AmericaN. America Y-o-Y change
139.1157.0163.4
129.6119.2
155.2
107.2115.9
150.5120.9
118.7128.8
130.8
110.1113.7
394.1
107.598.3
Sales of Mining Equipment and Outlook
Annual sales of mining equipment (incl. parts and service) Quarterly sales of mining equipment (incl. parts and service)
Y-o-Y change
Billions of yenBillions of yen
Y-o-Y change
PartsEquipm
entService, etc
Equipment
PartsService, etc.
Initial projection Initial projection
• For the first 3-Month period of FY2016, sales declined by 15% from the corresponding period a year ago, to JPY98.3 billion, as affected by the Japanese yen’s appreciation and reduced sales of parts.
• We project that full-year sales for FY2016 will decrease from FY2015, as affected by a decline in demand for new equipment and the Japanese yen’s appreciation.
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1. Growth Strategies Based on Innovation
In response to our surrounding environment and tasks, we will work to achieve sustainable growth by focusing efforts and through open innovation, when applicable, in 1) Growth strategies based on innovation, 2) Growth strategies of existing businesses, and 3) Structural reforms designed to reinforce the business foundation, centering on DANTOTSU products, service and solutions.
. Growth Strategies of Existing Businesses
3. Structural Reforms Designed to Reinforce the Business Foundation
• Development of next-generation construction and mining equipment as well as next-generation components
• Deployment of AHS*1 and reinforcement of platform for mining solutions
• Contributions to expanding sales by developing new products, incl. DANTOTSU products• Expansion of earnings in the value chain• Expansion of the mining equipment business• M&A
• Continuous reduction of costs (production and fixed costs)• Reforms of spare parts operation• Lean and powerful development• Development of human resources with global perspective and framework to promote diversity for
sustainable growth
Basic Strategies of Mid-range Management Plan(part for mining)
*1: AHS stands for Autonomous Haulage System and means a system to operate unmanned dump trucks.
IoT at Komatsu IoT enables connection and sharing of real-time information concerning all processes from production to sales.
IoT enables connection and sharing of real-time information concerning all processes from production to sales.
Production being connected Plants being connected to market information
DANTOTSUProducts
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Western Australia: Riot Tinto s iron ore mines• Began operation in 2008.• Total of over 70 units in operation at Nummuldi,
Yandicoogina and HopeDown4.
Growth Strategies Based on Innovation: AHS• We have delivered 100 AHS autonomous dump trucks (cumulative) to mines in Australia and Chile. • We have been controlling an AHS autonomous dump truck fleet from urban area located over 1,500km away from the mine
in Australia. • AHS has proven a high degree of flexibility capable of operating 24/7 in different work conditions, such as iron, coal and
other mines. • We hauled 1,000,000,000 tons (cumulative) of earth as of September 2016.
Chile: Codelco’s copper mine• Began operation in 2008.• 18 units in operation at Gaby mine.
Conceptual diagram of AHSCentral control room GPS satellite
Fleet control
Dumping siteLoading site
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Growth Toward Our 100th Anniversary and BeyondAlthough we assume that demand will remain sluggish for the time being, we will achieve our growth above the industry’s average by promoting growth based on innovation and of existing businesses.
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Growth acceleration with the acquisition of Joy GlobalSales: U$ 3.0〜3.5 BnOp. margin: 10〜15%
Aggregate and Cement Sector
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Characteristics of Aggregate and Cement Sector1. Market characteristics[Customers: distributed worldwide] [Main machines: mostly made in Japan]
2. Machines for use and production process
Mining
Aggregate/cement
Loading and hauling of ore Transportation End productsSmall no. of machines
Large no. of machines
Buildings, automobiles,smart phones, etc.
Super-large machines
Large & medium-sized machines
Foreign demand: exports
Domestic demand: Transport within 50-70km
Refining
Products
BlastingProcessing
Crushed stone, gravel, sand
Cement
Iron, copper, gold, coal, etc.
BlastingCementplants Concrete
plants
LimestoneBuildings, homes, etc.
Roadbed material, etc.
Positioned in the middle of mining and construction sectors.
Site operation resembles mining. Compared to mining, more sites, smaller
scale and relatively smaller machines. Locally produced and consumed due to
low unit price, and limited distance of transportation.
, /
Mining customers Aggregate/cement customers Construction customersNo. of customers
Hours of machine use
Site locationProduct destination
Customer needs
Few (global players) Many
10-16hrs/day, 6days/week
Cities & suburbsFew (locally produced & consumed)Safety, environment, $/ton
Extensively many
24/7Over 5,000hrs/yr
8-16hrs/day, 5-6days/week
Mainly remote areas Cities & suburbsMany N/A
Safety, $/ton Initial cost, trade-in value, fuel cost
11
4.5
5.8 10
.4 18.0 23
.5
9.8
10.2
12.7
15.0
17.5
31.436.4
45.0 54.557.3
01020304050607080
05
1015202530
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Cement production in China and other countries100Mn. tons %
Soaring in ChinaGradually increasing in other countries
Reference: World Bank
Market Environment
0.0
1.0
2.0
3.0
4.0
5.0
6.0
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Cement production by region (excl. China)AsiaCISEuropeLatin AmericaMiddle East etc.North AmericaJapan
100Mn. tons
Middle East
Asia
EuropeL. AmericaN. America
CIS Japan
Soaring in emerging countriesStable in advanced countries
1. Expanding cement productionStable expansion supported by economic growth centering on emerging countries
2. Structural change of the industry (M&A and emerging global majors)
14.2 16.023.1
33.0
41.0
0
2000
4000
6000
8000
10000
0
10
20
30
40
50
1995 2000 2005 2010 2015
Global production, GDP, Urbanization rate
産量
均)
100Mn. tons USD
Urbanization rate: 53.8%
Urbanization rate: 44.6%
Large companies becoming larger and global, mainly reflecting low interest rates.
● Lafarge Holcim established (2015)● Heidelberg Cement acquires Italcement (2016)
Per capita GDP (world average)
Cement production volume
China (%)OthersChina
12
We position the aggregate & cement sector as the third important market segment, following mining and construction.
Basic policy
3) We will take full advantage of our global network of distributors.
2) To expand business, we will capitalize on our know-how in building customer relationships and global operations, accumulated in the mining equipment business.
1) By creating an exclusive unit in the head office in Tokyo we will make efforts as a company-wide project
Reinforcing Global Presence in the Aggregate & Cement Sector13
Thank you for your interest in Komatsu.
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