Medium-Term Business Plan Outline "FY2019 MTBP" (FY2019 - FY2021)

May 20, 2019

Kawasaki Heavy Industries, Ltd.

Yoshinori Kanehana, President and Chief Executive Officer

Table of Contents

1.FY2016 MTBP(Medium Term Business Plan) Review

2.FY2019 MTBP Positioning

3.FY2019 MTBP Policies

4.FY2019 MTBP Quantitative Goals

5.Long-TermDirection Until FY2030

6.Future Reports on the Progress of FY2019 MTBP

P3-7

P8

P9-16

P17-19

P20-28

P29

© 2019 Kawasaki Heavy Industries, Ltd. All Rights Reserved

2

1. FY2016 MTBP review

FY2016 MTBP: Evaluation of Major Measures

(Summary of Actions to Promote ROIC Operation)

① Profitability significantly decreased in several businesses. It is urgently required to strengthen financial bases

② Harvest times are arriving, after continuous investments in growing businesses

Plan/implement growth Action 1 strategies through enforcement

of core competence per BU

Set appropriate financial Action 2 indicators (primarily with ROIC)

while developing achievement scenarios

【Results】

Action 1:

Harvest times are arriving after continuously devoting resources to growing fields

Completed a new plant for 777X / Started shipment

Made one round for new product development of aircraft engine

Medical robots are being developed (currently in the final phase)

Action 2:

Marked deficits from big projects with several businesses. Also due to other factors, most quantitative goals (including ROIC) were not achieved

Pursue synergy effects through Action 3 integrated operation to create

new value

Clear reduction/withdrawal Action 4 strategies with detailed

breakdowns per Sub-BU/product

Build business portfolios placing Action 5 importance on profitability,

stability, and growth potential

Action 3:

"Contrivances" for the synergy effects of growing businesses goes smoothly in part. However, need to unlock its potential throughout the organization

The CO2-free hydrogen supply chain is moving towards demonstration tests in FY2020

Organizations were integrated to create synergies in aerospace-related businesses

Action 4:

Insufficient priority criteria/speed to "select and concentrate" on certain businesses

Already withdrew from offshore vessels

Action 5:

Insufficient organizational functions/systems to implement " total optimization"

© 2019 Kawasaki Heavy Industries, Ltd. All Rights Reserved

3

1. FY2016 MTBP review

Achievement Status: Quantitative Goals

The primary cause of failure to achieve pre-tax ROIC targets: decline in profitability

Goal in

Result in

FY2018

FY2018

Pre-Tax ROIC

11.0%

4.5%

Operating Profit

1,000

640

(100 million yen)

Cash flow from operation

1,400

1,097

(100 million yen)

Net D/E Ratio

70~80%

76.6%

Pre-Tax ROIC(%)

During FY2013

During FY2016

MTBP

MTBP

10.4%

9.4%

Plan: 11

8.1%

(8.0%)**

5.0%

3.9%

4.5%

2013

14

15

16

17

2018

*EBIT (earnings before interest and taxes) = Pre-Tax Interest Income + Interest Expenses **When there were no losses in big projects (FY2018 shown as an example)

© 2019 Kawasaki Heavy Industries, Ltd. All Rights Reserved

EBIT* Margin (%)

During FY2013

During FY2016

MTBP

MTBP

5.9%

Plan: 5.8

4.7%

5.1%

(4.6%)**

2.6%

2.7%

2.3%

2013

14

15

16

17

2018

Invested Capital Turnover

During FY2013

During FY2016

MTBP

MTBP

1.76x

1.86x

1.81x

Plan: 1.89x

1.72x

1.72x

1.74x

2013

14

15

16

17

2018

4

1. FY2016 MTBP review

Primary Causes of Low Profitability

We must resolve the following issues. Business growth scenarios towards FY2030 have been kept almost unchanged from the FY2016 MTBP.

Loss from

big projects

Unclear

positioning of

business portfolios

Insufficient

development/ growth of new businesses

Marked deficits in the offshore vessel business, the rolling stock business in North America, overseas plant contracts, and commercial aircraft engine

Insufficient risk control on risk asset

Due to limited understanding on individual businesses from the view point of mega-trends, most of business conducted investment for expansion

Management resources could not be shifted efficiently/speedily due to partial organization restructure, resulting in limited synergy effects

Insufficient set up for cross organizational functions such as organization structure, management system and mindset to achieve total optimization

Could not escape from a low-profitable business domain (sales of goods) / Insufficient business model innovations

Slow development of new businesses due to sticking to in-house development and production

© 2019 Kawasaki Heavy Industries, Ltd. All Rights Reserved

5

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Kawasaki Heavy Industries Ltd. published this content on 20 May 2019 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 20 May 2019 04:37:07 UTC