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1 Construction and Mining Equipment Business in Latin America September 16, 2014 Hishashi Shinozuka Director and Senior Executive Officer President of the Construction and Mining Equipment Marketing Division Investors Meeting (September 16, 2014)

Construction and Mining Equipment Business in Latin America · Construction and Mining Equipment Business in Latin America September 16, ... Komatsu Cummins Chile Ltda. (KCC)

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1

Construction and Mining Equipment Business in Latin America

September 16, 2014Hishashi Shinozuka

Director and Senior Executive OfficerPresident of the Construction and Mining

Equipment Marketing Division

Investors Meeting (September 16, 2014)

2

1. Outline of Komatsu’s Latin American Business1) Positioning2) Footprints3) Operations4) Operation by country

2. Other operations in Latin America1) Panama Stock Operation (PSO)2) Next-generation mining equipment: Autonomous Haulage System (AHS)3) CSR activities

Contents【Pages】

3-8

9-11

3

0FY11 FY12 FY13

554.0

・ While Latin American demand accounted for only about 8% of global demand in 2013, our sales in Latin America represented about 15% of total sales, translating into the third important market after Japan and North America.・In terms of breakdown of sales of mining equipment by region, Latin America represented the largest share of all regions.

(About 34% for FY2013)

1-1) Positioning

Sales of mining equipment by region: Latin America(to outside customers)

614.5

506.3

34%

Demand for major 7 products

‐60.00%

‐40.00%

‐20.00%

0.00%

20.00%

40.00%

60.00%

0

100000

200000

300000

400000Units

8%

Breakdown of sales by product for FY2013

Estimated by Komatsu

0

25,000

FY10 FY11 FY12 FY13

15%

1,677.01,739.3 1,749.7

1,615.6

EuropeLatin America Japan

YoY change: global

North AmericaOthers

YoY change: Latin AmericaChina

JPY82.5/USD JPY79.0/USD JPY82.5/USD JPY99.6/USD JPY82.5/USDJPY79.0/USD JPY99.6/USD

JPY in bn

2,000

1,500

1,000

500

600

400

200

JPY in bnAfrica

Middle East

Oceania

Asia

China

CIS

Europe

North America

Japan

Latin America

Global

Latin America

Construction equipment Mining eqpt Parts

Service

Others

OthersServicePartsMining eqptConstruction eqpt

Sales of construction & mining equipment by region (to outside customers)

41-2) Footprints

0

2000

4000

6000

8000

10000

0

5000

10000

15000

20000

USD/Ton*Estimated by Komatsu

Units Brazilian

crisis

Brazilian currency

crisis

Production

Sales

Local production Reinforcement of distributors Expansion of mining equipment business

Expansion of aftermarket business

Distribution

Mercosurfounded

“Lehman Shock”

1980s1970s

NAFTAin effect

Argentinean currency crisis

1990s 2000s 2010 and forward2010 and forward

Latin American demand for 7 major products*

73 Brazil: Began production ofconstruction equipment(together with sales function)

74 Mexico: Began production of construction equipment(together with sales function)

55 Exported graders to Argentina

(09 Discontinued)

99: Established distributor through equity participation.

05 Chile: EstablishedReman plant for parts

09: Made equity participation in distributor in Peru.

10 Miami: Closed down and transferred southern Latin America marketingfunction to Chile.

11 Chile: Acquired truck vessel maker

12: Made equity participation in distributor of mining equipment in Colombia.

12: Established service subsidiary in Panama.

Mexican debt crisis

85 Miami: Transferred sales base.

72 Panama:Established sales subsidiary (Coordinating Latin American sales

except for Mexico & Brazil)

80s: Built distribution network to cover entire Latin America.

13 Brazil: Established Reman plant for parts

98 Established sales subsidiary in Brazil

10 Miami: Closed down and transferred northern Latin America marketingfunction to Komatsu America Corp.

13 Mining equipmentAcquired distributor.

95 Miami: EstablishedLatin America regional HQ company.

(Coordinating Latin American sales except for Brazil)

71 Opened Panama office (-- 72)73 Opened Mexico office (-- 74) 78 Opened Bogota office (-- 84)

75 Opened Lima office (-- 83)

76 Opened Caracas office (-- 83)

10 Opened Mexican office. ( -- 13)

90s: Established the current distribution network. 13: Made distributor of mining

equipment a subsidiary in Brazil.

Establishment of distributors

Demand Copper price

5

Komatsu Brasil International Ltda.Brazilian marketing HQ for construction equipment

Komatsu CumminsChile Ltda.(KCC)

Komatsu Chile S.A.(KCH)Distributor of construction & mining equipment

1-3) OperationsOperating production bases in Brazil, logistic base in Panama and powerful distribution network, especially in Chile.

Only Komatsu and CAT maintain powerful distribution networks, covering entire Latin America.

No. of distributors: 26 companiesIncl. 3 companies (Komatsu equity)

(Chile, Brazil and Colombia)

Komatsu do Brasil Ltda.Plant to produce construction equipmentPlant to remanufactureparts

Komatsu Holding S.A. (KHSA)Latin American HQ for mining equipmentSouthern Latin American HQ for construction equipmentTecpalsa in ColombiaDistributor of construction & mining equipment

Tecmap in PanamaMining equipment service

Komatsu Mitsui Maquinarias Peru S.A. (KMMP) in PeruDistributor of construction & mining equipment

Road Machinery in MexicoDistributor of mining equipment

Igaretta in ArgentinaDistributor of construction & mining equipmentTiesa in PanamaDistributor of construction & mining equipment

Distributor: MB Comércio de Peças e Serviços Ltda. (MB)

10 dealers of construction equipment

Komatsu Reman Center Chile (KRCC)Plant to remanufacture parts

Majority equity held bythe Komatsu Group

Major market of mining equipment

IndependentDistributor

Komatsu America Corp. NLAD

Northern Latin America marketing HQ

Makomex in MexicoDistributor of construction equipment

Equinova in MexicoDistributor of construction equipment

Diteca in Ecuador Distributor of construction & mining equipment

Mega/Makint in VenezuelaDistributor of construction & mining equipment

Others

(As of August 2014)

Panama:Logistic base for construction & mining equipment

6

Komatsu’s stronghold base in Latin America. Sales of mining equipment drive sales, accounting for about 60% of total sales in the region for FY2013. Expanding business based on aftermarket revenues against the backdrop of stable growth of Komatsu machine population.

1-4) Operation by Country: Chile

Sales by industrial sector (USD)

Population of mining equipment and maintenance service contracts

【Merits for customers】 Stable machine operation and improved

productivity Fixed running costs and easy budgeting Streamlined operation

【Merits for distributors】 Stable earnings Increased sales of genuine parts

No. employees of employees by country (consolidated) (excl. Japan)

Provision of sophisticated service(incl. service contracts)

Remanufacturing of parts

Sales and rental of construction equipmentSales of used equipment

Retail finance

Functions in Chile

Conceptual

Construction equipmentOther equipmentServiceService contracts

Mining equipmentOthersParts

Index: FY04=100

Komatsu

Customers

Periodic inspection, maintenance and repairs Planned overhaul of keycomponents

(Service differs depending on the contract.)

Payment of fixed fees

No maintenance contract(Repair and overhaul fees, when provided)

Cumulative repair expenses

Maintenance contract(fixed amount)

Operating hours

1st overhaul 2nd overhaul

Start

Population of mining equipment% of service contracts

Population index: FY04=1

No. of employees (consolidated) as of March 31, 201435 countries: 51,279 (incl. 22,117 in Japan)

Chile China USA Indonesia Australia Brazil Germany Thailand S. Africa Others

71-4) Operation by Country: BrazilThe largest market for construction equipment in Latin America (about 50% of the total) In response to the government’s preferential policy for products made in Brazil, Komatsu has production plants and engages in integrated operation of production and sales.

Demand for construction equipment* Organization

WarehouseSales/service baseMajor mining region

Southern branch of KBI(incl. parts warehouse) in 2013

KBI head office

Parts warehouse of KDB in Sao Paulo in 2013

Northern branch of KBI(incl. parts warehouse) in 2013

KDB’s Reman plant for parts in Sao Paulo in 2013

Market conditions of mining equipment

Demand for mining equipment*

• World’s second largest production of iron ore

Characteristics of production: KDB

2013:Established sales and service company of mining equipment (100% equity of the Komatsu Group): MB Comércio de Peças e Serviços Ltda. (MB)

2013:Established sales and service company of mining equipment (100% equity of the Komatsu Group): MB Comércio de Peças e Serviços Ltda. (MB)

High growth potentials

*Estimated by Komatsu

*Estimated by Komatsu

% of Brazil

Latin America Brazil Sales function

Construction eqptwholesale

Mfg function Construction eqptfor domestic and export sales

MB: sales/service distributor of mining equipment

Construction equipment:10 sales/service distributors

Reman & salesof parts

No. of models made by KDB 12 models

Domestic salesDomestic sales% of KDB-made productsNo. of KDB-made models

Establishment of mining equipment business organization

Units

Units

8

In 2009, Komatsu made equity participation in Komatsu Mitsui Maquinarias Peru S.A. (KMMP), a distributor in Peru. By capitalizing on its know-how of the mining equipment business accumulated in Chile, Komatsu is responding to an expanding market for mining equipment in Peru.

1-4) Operation by Country: Peru

Demand for mining equipment*

Sales recorded by KMMP (USD)

2009: Our equity participation

Major mining customers & new mines

1,235.3 1,298.6 3 3

1,256.4 1,281.0 3 3

230.2 248.7 4 4

166.2 161.3 6 6

3,418.5 3,478.7 3 3

28.9 26.1 3 3

=

Source: JOGMEC Mineral Resource Report (2014/3)

Provision of sophisticated service (incl. service contracts)

Reman of parts

Sales and rental of construction equipment and sales of used equipment

Retail finance

KMMP’s basesTransfer and use of know-how accumulated in Chile

Minerals2011Production

2011WorldRank2012

Production

2012WorldRank

Copper (K tons)

Zinc (K tons)

Tin (tons)

Lead (K tons)

Gold( tons)

Silver (tons)

World’s top 3 minerals

CopperZincGoldMining (exploration/development projects)Smelter

Production of copper expanded 150% in Perufrom 2003 to 2012.

Units

Drove expansion of the mining equipment market.

Equipment

Aftermarket

Index: 2005 = 1

Head officeBranch

Callao Workshop/Parts depot

Lima head office

92-1) Use of Panama Stock Operation (PSO)By having stock at Panama, the hub port of Latin America, Komatsu is achieving short-term delivery and reducing inventory burden of distributors.

Characteristics of Latin American market

Advantages of PSO

1) Short-term deliveryTime needed from distributors’ placement of orders to arrivals at the port of destinationIn case of Chile: 120 10 days

・Dynamic changes in demand resulting from large-scale projects and economic changes. ・Chronic, high interest rates

2) Distributors’ inventoryDistributors’ inventories have dropped by about 60% since the start of PSO operation.

Marine transport (Panama Chile): 10 days

Distributor in Chile

Marine transport (Japan Chile): 30 days

Stock and re-export

Marine transport (Japan Panama): 20 days

Production & shipment: 90 days

Plants in Japan PSO

Production & shipment: 90 days Orders

from distribut

or

Before

PSO

<PSO operation: conceptual>

(PSO stockyard)

Komatsu (Made in Japan) Panama

Exporting from the hub port of Panama to other countries of Latin America

Subsidiary distributor

Distributor under NLAD

Distributor under KHSA

Japan

102-2) Next-generation Mining EquipmentKomatsu introduced Autonomous Haulage System for the first time in the world to Chile, where the Komatsu Group has a wealth of product support experience of mining equipment. Komatsu is promoting AHS introduction in other regions based on experiences gained in Chile.

e of deployment] ving high

ance and reliability of matsu have begun

ng it to other major ompanies. , he 150-unit project

truck with Rio Tinto alia.) in 2011.

World’s first commercial introduction of AHS dump trucks: Gaby mine fleet

・In 2008, Komatsu led the world by making commercial introduction of 11 super-large930E dump trucks to Gaby mine of CODELCO, the world’s largest producer of copper.・Since then Komatsu has increased the fleet, and 18 units were in operation as of March 2014. ・ Under the lump-sum subcontract agreement, Komatsu maintains all these dump trucks,which are in operation round the clock.

World’s first commercial introduction of AHS dump trucks: Gaby mine fleet

・In 2008, Komatsu led the world by making commercial introduction of 11 super-large930E dump trucks to Gaby mine of CODELCO, the world’s largest producer of copper.・Since then Komatsu has increased the fleet, and 18 units were in operation as of March 2014. ・ Under the lump-sum subcontract agreement, Komatsu maintains all these dump trucks,which are in operation round the clock. PC8000 excavator loading 930E dump truck

Development and deployment of AHS: HistoryLevel of AHS technology

Began R&DIn 1990

GPS became available to the private sector in 1996

Applied to 290-ton dump truck (930E) in 2002

Tested in CODELCO’s RadmiroTomic mine in 2006

AHS market: expandingAHS technology: advancing

Commercial operation at CODELCO’s Gabymine in 2008

Trial operation begun in Rio Tinto’s West Angelas mine in 2009

112-3) CSR Activities (in case of Chile)

Use technological and human resources and other assets of the company to contribute to the growth of society.

Promote healthy lifestyle of employees and their families.

Be responsible for business impact on the natural environment.

Offer opportunities for education and support the development of skills.

Environment

Social contribution

Education

Health

Rehabilitation support program for young peopleKCC assists young people, who have committed crime, to learn KCC-related technical skills and acquire a high school diploma.

Support of rebuilding schools in Haiti which suffered a massive earthquakeSupport to Haiti which suffered a massive earthquake in 2010.In collaboration with the Chilean government and NPO, Komatsu Chile has worked on the project to rebuild school buildings which had been destroyed by the earthquake.

Under the following four principles, Komatsu Cummins Chile Ltda. (KCC) makes social contribution efforts in a Under the following four principles, Komatsu Cummins Chile Ltda. (KCC) makes social contribution efforts in a variety of areas and encourages its employees to participate in social contribution activities voluntarily and proactively.

Thorough recyclingIn FY 2013 KCC recycled waste equivalent of 5,100 kilograms, which was generated in house. It is continuing its recycling efforts.

Komatsu Chile sponsors the Family RunVolunteer employees of the head office in Santiago and their families hold a running event.

12

Thank you for your interest in Komatsu.