Komatsu Ltd Q2 2025 Earnings Presentation Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Yoshinao Ibara - Morgan Stanley - Analyst : Hello. I'm Ibara from Morgan Stanley. Thank you for taking my question. The first question is about your view on North America. Inclusive of currency impact, you revised the outlook down by approximately JPY80 billion. Mr. Hishinuma mentioned earlier that the rental market is weak. So partially, the revision was due to weaker than expected end market, I believe. And then there were also moves to reduce inventory on the distributor side due to their policies. So can you share with us what that breakdown looks like, roughly? How much is an impact from the end market? What led to the downward revision? And what's happening with current distributor inventory and so forth? So you also mentioned earlier that interest rates have started to fall. But are distributors planning to lower inventory levels further in the second half or are they not planning to make any major changes as current levels are optimal? Please share your view on these trends. This is my first question. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 29, 2024 / NTS, 6301.T - Q2 2025 Komatsu Ltd Earnings Presentation

Question: Yoshinao Ibara - Morgan Stanley - Analyst : Thank you. I just wanted to confirm one thing. You said that for the year, it should be the same as at the end of last year. So are you saying that you are expecting no significant change in inventory in the first half or second half and you are not expecting a decline?

Question: Yoshinao Ibara - Morgan Stanley - Analyst : And you started this from the first half?

Question: Yoshinao Ibara - Morgan Stanley - Analyst : Thank you. My second question is about mining equipment. It seems that sales in Latin America is brisk. And at the recent expo briefing, you said that you are still looking at a positive increase for capital investment next year. And Mr. Ogawa also said in the past that high levels are likely to continue. So can you tell us the backdrop to why you are seeing a higher than expected trend? And I may be rushing a little about the future, but I'm sure you are also talking with mining companies about next fiscal year already. So if you could share with us what kind of outlook you have, that would be appreciated. Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 29, 2024 / NTS, 6301.T - Q2 2025 Komatsu Ltd Earnings Presentation

Question: Yoshinao Ibara - Morgan Stanley - Analyst : Thank you.

Question: Kentaro Maekawa - Nomura - Analyst : This is Maeka of Nomura Securities. Thank you very much for your explanation. I have two questions. First, regarding the page on causes of difference and the part about volume and product mix. You have revised your outlook for the year, so can you confirm the details of volume and product mix? I presume you have revised down your outlook for sales volume for the year. So can you walk us through the key factors?

Question: Kentaro Maekawa - Nomura - Analyst : I see. You mentioned that part of the worsening product mix impact was attributed to mining. But is this something that will only happen this fiscal year or is it likely to continue?

Question: Kentaro Maekawa - Nomura - Analyst : Okay. Thank you. One more thing I'd like to ask about is about volume. It looks like volume impact alone is a little positive when you just look at the September quarter, and negative volume impact is contracting gradually in the second half. You also talked about Indonesia picking up. I wonder whether volume impact will gradually turn positive over the next fiscal year. Looking at the full-year forecast, many regions have been revised downwards including the US and Europe. But if we look at the quarterly trends, it looks like the negative volume impact is gradually shrinking. So I guess this is a matter of how you view demand. However, I would like to ask whether management is expecting wholesale volume to head towards a gradual recovery or not.

Question: Kentaro Maekawa - Nomura - Analyst : Thank you for that. Regarding your second point, it's more about next fiscal year. But during this fiscal year, you said that mining volume will catch up. But for example, in the US, there is talk that interest rates will fall down from here. So are you assuming that demand will pick up next fiscal year? I also presume you are holding back on production right now. But when are you going to accelerate production? Can you share your current view on this about your policies?

Question: Kentaro Maekawa - Nomura - Analyst : Thank you.

Question: Yuichiro Isayama - Goldman Sachs Research - Analyst : Thank you for your presentation. I'm Isayama of Goldman Sachs. First, I'd like to ask about the production cost and causes of different analysis. The negative figure contracted from the initial negative figure, but Mr. Horikoshi and Mr. Hishinuma talked about the production cut, and the impact of utilization was already considered? You seem to have larger production reduction. Where did the negative impact of production cost decrease? So please share the magnitude of production reduction. And I also asked about the inventory in the balance sheet. Because of the very volatile effects, it is hard to see the level. Is your current inventory level in the balance sheet heresy or do you think it better to reduce a bit? Please comment on this point.

Question: Yuichiro Isayama - Goldman Sachs Research - Analyst : Thank you. You talked about the target production reduction by about JPY150 billion. Well, it's hard to describe. But do you expect to achieve that by any means in the tough demand environment to lower the huddle of the following year or do you regard it as a mere target?

Question: Yuichiro Isayama - Goldman Sachs Research - Analyst : Thank you. The second question is about selling prices also in the causes of different analysis. I assume this is partly because of tough demand in the United States, and we revised it from JPY105.1 billion to JPY90.6 billion this time. The price increase is less than 3% or so, according to the penetration of the price adjustment which is explained by segment of mining and construction equipment. In the US local market, it is said that dealers of Japanese construction machinery makers are pushing with the depreciation of yen and I don't think that your wholesale is declining. However, there are various views. So would you let us know the reason why it is down? Would you comment on price trend of construction equipment and mining equipment, respectively?

Question: Yuichiro Isayama - Goldman Sachs Research - Analyst : Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 29, 2024 / NTS, 6301.T - Q2 2025 Komatsu Ltd Earnings Presentation

Question: Satoshi Taninaka - SMBC Nikko Securities Inc. - Analyst : Thank you. I am Taninaka of SMBC Nikko Securities. On page 18, production cost impact is shown as minus JPY22.2 billion. I wonder if there was any change in your view of steel. Steel prices are down to the lowest since the beginning of the year. Do you have the positive impact by this or negative? Please let me know about any changes in the status quo and the future projection.

Question: Satoshi Taninaka - SMBC Nikko Securities Inc. - Analyst : Thank you. I have one more question. You talked about refraining from price hikes in North America with declined demand. So would you comment on the share change, positive or negative? Any story with that regard, please?

Question: Satoshi Taninaka - SMBC Nikko Securities Inc. - Analyst : Thank you. That is all from me.

Question: Tomohiko Sano - JPMorgan - Analyst : I'm Sano of JPMorgan. Do you hear me?

Question: Tomohiko Sano - JPMorgan - Analyst : I have two questions. First, I'd like to ask about SANY in Indonesia and the competitive environment. You said that in Papua New Guinea, you and SANY take half of the project, respectively. Then please tell me about the price difference. And in terms of the C Series and after-sales services, how they appeal to win project? My interest is not so much about the current project, but the competitive environment to foresee the future. I would appreciate if you can give us additional comment.

Question: Tomohiko Sano - JPMorgan - Analyst : Thank you. Second, I see page 30 now. I think it is hard to foresee the demand environment. But the proportion of aftermarket, including parts and services, has been steadily increasing to a high level. Would you comment again on the profitability of parts and services and the background of this move centering on (inaudible) And I'd like to have a comment from Mr. Horikoshi on free cash flow. As we see the growth of aftermarket business to this level, I think the conventional business model of Komatsu may be changing. So would you help us understand this?

Question: Tomohiko Sano - JPMorgan - Analyst : Understood. That is all from me. Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 29, 2024 / NTS, 6301.T - Q2 2025 Komatsu Ltd Earnings Presentation

Question: Sho Fukuhara - Jefferies - Analyst : I'm Fukuhara of Jefferies Securities. Thank you very much. I have two questions. First, I see the BB ratio of mining. Up to September, it has been up in some regions. And after October, you talked about Indonesia before, but how about the latest situation in other regions? I'd like to have your comment on this point first. And for the next year, would you give us any colors for hard rock and soft rock separately, if you can, please?

Question: Sho Fukuhara - Jefferies - Analyst : Understood. Thank you. Second, it might be a bit too early. But when we look at the causes of difference in the next year, mining equipment will be presumably increasing. But talking about construction equipment and others, which item, including production cost and fixed cost, will be increasing and decreasing? Would you give us some colors, please?

Question: Sho Fukuhara - Jefferies - Analyst : Thank you very much.

Question: Graeme McDonald - Citi - Analyst : Thank you for this occasion today. Well, I would like to confirm page 25 and your comment on Indonesia. On page 25, it says that China's domestic market seems to be recovering, although it may be temporary. However, looking at the numbers, it seems that exports from China are declining. That's what I see there. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 29, 2024 / NTS, 6301.T - Q2 2025 Komatsu Ltd Earnings Presentation President Ogawa made his comments earlier about the competitive landscapes by referring to (inaudible) and SANY and others. What are you thinking about the situation of competition with Chinese companies in other places besides Indonesia, such as Asia, Latin American, and perhaps Africa? I wonder if there are any situations and the deals you are aware of. Are there any signs for changes?

Question: Graeme McDonald - Citi - Analyst : Well, if you look at the numbers, export from China seems to be declining in terms of the data, but you are telling us that you don't get that impression at all that the competitive situation has eased since the beginning of this year.

Question: Graeme McDonald - Citi - Analyst : I see. Sorry, I would like you to further expand here. Unfortunately, I wasn't able to go to the MINExpo, but what do you think? Are there any signs that China is becoming more prominent in the mining industry?

Question: Graeme McDonald - Citi - Analyst : Regarding the acquiring-related matter that you just mentioned, Mr. Ogawa, this was within China or were you referring to the situations in each country?

Question: Graeme McDonald - Citi - Analyst : Understood. Thank you, indeed. And now allow me to ask a different topic. It relates to Mr. Horikoshi's portion. You showed us ups and downs analysis. There were many items, including one-time cost, first half as well as on the full year basis. Mr. Horikoshi, what I would like to know here is what are included in the one-time expenses besides production costs and product and regional differences?

Question: Graeme McDonald - Citi - Analyst : Understood. Finally, one more thing. I think Mr. Sano raised this question earlier. I think you said six months earlier, your cash flow forecast was about JPY370 billion. I'd like to know what's the exact amount now.

Question: Graeme McDonald - Citi - Analyst : Understood.

Question: Graeme McDonald - Citi - Analyst : Sorry, talking about the GHH for H1, you have JPY13.5 billion for the acquisition of subsidiaries and equity method and affiliates. But is this JPY13.5 billion coming from GHH? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 29, 2024 / NTS, 6301.T - Q2 2025 Komatsu Ltd Earnings Presentation

Question: Graeme McDonald - Citi - Analyst : Okay, understood. Thank you.

Question: Hirosuke Tai - Daiwa Securities Capital Markets - Analyst : Yes, this is Tai. Thank you, indeed. I have two questions. First, I'm sorry to ask something a little trivial question to Mr. Horikoshi. But like, you helped me in Q1. I'm wondering if you could give us an analysis of how the actual sales and operating profit compared to the company's plan. If you have such analysis, please share it with me.

Question: Hirosuke Tai - Daiwa Securities Capital Markets - Analyst : Yes.

Question: Hirosuke Tai - Daiwa Securities Capital Markets - Analyst : I'm just wondering if you have annual numbers? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 29, 2024 / NTS, 6301.T - Q2 2025 Komatsu Ltd Earnings Presentation

Question: Hirosuke Tai - Daiwa Securities Capital Markets - Analyst : Thank you, indeed, for the explanation. Well, Europe only has about one-third of sales compared to the United States. So its impact is not that big, but the outlook for H2 has gone down a little bit. And what about next year? Do you really need -- not need to worry too much? Well, I guess you need to worry, but is the atmosphere not so serious?

Question: Hirosuke Tai - Daiwa Securities Capital Markets - Analyst : Yes, understood. Just one more thing, changing the subject a little bit. I think you previously mentioned that you wanted to implement a strategy that considered the pricing in the parts business. But since there are many changes like extended warranties for the main unit and the way life cycle business is conducted, it may not be rather difficult for you to launch this program immediately. But I wonder if you could share the latest updates in this space. That's my last question.

Question: Hirosuke Tai - Daiwa Securities Capital Markets - Analyst : Yes, well understood. Thank you, indeed. I look forward to our future opportunities.