Progress on Kawasaki ROIC Management envision stable market expansion through 2020-2030 and will...
Transcript of Progress on Kawasaki ROIC Management envision stable market expansion through 2020-2030 and will...
Progress on Kawasaki ROIC Management - Group Management Model 2018 -
October 29, 2014
Kawasaki Heavy Industries, Ltd.
© 2014 KAWASAKI HEAVY INDUSTRIES, LTD. All Rights Reserved 2
Group Management Model 2018
KHI applies Kawasaki ROIC Management (hereafter, ROIC Management) throughout the Group to achieve sustainable growth and improve enterprise value into the future while monitoring the growth of Group businesses on a business unit (BU) basis, from a medium- to long-term perspective, at least three to five years down the road.
KHI recently established Group Management Model 2018 as a part of ROIC Management. This model shows where KHI should be by fiscal 2018, focusing on enterprise value improvement and achieving an ideal business portfolio.
Highlights of Group Management Model 2018
Shows where KHI should be for the medium to long term (fiscal 2018) Identifies suitable financial indicators, focusing on enterprise value improvement
• Sets targets for ROIC, operating income margin, net debt-to-equity ratio and total asset turnover Reviews BU-based strategies for growth matched to the specific nature of each business sectorVerifies our business portfolio from the perspective of profitability, stability and growth
© 2014 KAWASAKI HEAVY INDUSTRIES, LTD. All Rights Reserved 3
Targets for Group Management Model 2018
Group Management Model 2018
Current (as of fiscal 2013)
Before-tax ROIC 12% or higher 8.1%
Operating income margin 6% or higher 5.2%
Net debt-to-equity ratio 70%-80% 109.3%
Total asset turnover 1.00 times or more 0.89 times
(Reference: Net sales) (¥1,800.0 billion) (¥1,385.4 billion)
Group Management Model 2018Assumed exchange rate: ¥100/$
Notes:• Before-tax ROIC = EBIT (income before income taxes + interest expense) / Invested capital at year-end
(interest-bearing debt + shareholders’ equity)• Total asset turnover = Net sales / Total assets at year-end
© 2014 KAWASAKI HEAVY INDUSTRIES, LTD. All Rights Reserved 4
131.9%
109.3%
100.0%
0%
20%
40%
60%
80%
100%
120%
140%
0.0
100.0
200.0
300.0
400.0
500.0
600.0
Fiscal 2012 Fiscal 2013 Fiscal 2015 Fiscal 2018
Interest-bearing debt Shareholders' equity Net debt-to-equity ratio (right axis)(Billion yen)
• Investment capacity exceeding ¥100.0 billion
• Use this to accelerate growth and engage in M&A and other opportunities for growth
Operating cash flowMore than ¥110.0
billion/year
Investment cash flow¥70.0-¥80.0 billion/year
Payout ratio30%
Secure investment
capacity
Toward further growth
Cash Flow ManagementUnder Group Management Model 2018, KHI targets net sales of ¥1.8 trillion or more and cash flow from operating activities at ¥110.0 billion or more. KHI will utilize capital for investment for future growth and ensure return to shareholders, while allocating cash for further investment and using it to accelerate growth and engage in M&A and other opportunities.
© 2014 KAWASAKI HEAVY INDUSTRIES, LTD. All Rights Reserved 5
Business Sectors
KHI will maintain an internal company structure. However, we have categorized our businesses into four sectors―Air Transportation Systems, Land/Sea Transportation Systems, Energy & Environmental Engineering, and Industrial Equipment―to clarify strategies for future growth projected in Group Management Model 2018.
Air Transportation
Systems
Land/Sea Transportation
Systems
Energy & Environmental
Engineering
Industrial Equipment
Ship & Offshore Structure 〇 〇
Rolling Stock 〇 〇
Aerospace 〇
Gas Turbine & Machinery 〇 〇 〇
Plant & Infrastructure 〇 〇
Motorcycle & Engine 〇 〇
Precision Machinery 〇
© 2014 KAWASAKI HEAVY INDUSTRIES, LTD. All Rights Reserved 6
Growth Strategy 《Air Transportation Systems》
We envision stable market expansion through 2020-2030 and will therefore draw on technological strengths in both aircraft and aircraft engine fields, concentrating management resources into these fields, to grow associated businesses into core operations.
Aircraft1) Growth strategy
We will push ahead with mass production of large aircraft (P-1, C-2) but also utilize extensive technological strengths accumulated to date to tap into demand for modernized, derivative and successor models. To meet private-sector demand, we will increase production of component parts for the 787 and pursue the development of derivative models while dealing with new project requests, such as components for the 777X. We will strive to expand business with customers in the defense sector as well as the private sector in our quest to sustain high profitability.
2) Allocation of management resourcesWe will continually implement relatively large-scale capital investment programs, including a new factory at the Nagoya Works, to deal with new private-sector products (787 production increase and its derivative models, and the 777X).
Priority investment looking 10 years or more down the road
Aircraft Engines1) Growth strategy
Through participation in international collaboration of new engine projects with major engine manufacturers by taking responsibility of key modules, we willimprove life cycle profitability of our products including aftermarket services. The business initially requires front end investment in development but in the long term we will enter into MRO* business and secure high profitability and growth.
2) Allocation of management resourcesWe will actively participate in new projects, especially for key modules.
* Maintenance, repair and overhaul
2018
Large-capacity power generation systems for aircraft
Large aircraft engines©2014 Rolls-Royce plc.– Reproduced with Permission – All Rights Reserved
Next-generation high-efficiency aircraft engines
787-9 composite material fuselage
XC-2 Transport AircraftRegional jet engines©2014 United Technologies Corporation – Reproduced with Permission – All Rights Reserved
P-1 Maritime Patrol Aircraft
Participate in development of future civilian aircraft such as the 777X
© 2014 KAWASAKI HEAVY INDUSTRIES, LTD. All Rights Reserved 7
Growth Strategy 《Land/Sea Transportation Systems》Assuming a self-sustaining cycle of investment and returns, we will achieve higher profitability through an enhanced global business operating structure and a strategy for high added value.
Ship & Offshore Structure1) Growth strategy
Achieve differentiation through strengthened GOOD—gas (G), offshore (O),* overseas (O), defense (D)—strategy; development of marine gas engines and propulsion systems for offshore vessels; and high-value-added technology.
2) Allocation of management resourcesIn Japan, we are concentrating on investment to support the expansion of our fleet ofsubmarines. We may revisit our investment plan for commencing production at No. 2 dock at DACKS, our joint venture in China, depending on the level of recovery in the market and whether or not ship prices rally.
Enhanced global structureStrategy for high added value
Rolling Stock1) Growth strategy
We will draw on leading-edge technology, quality and contract fulfillment capability to boost our reputation for reliability in Japan and overseas markets of North America and Asia. We will seek synergy with other business fields, including air transportation systems, especially for rolling stock bogie (efWING®) using composite materials, to outshine the competition in terms of technology and products.
2) Allocation of management resourcesWe will continuously invest human resources into design and production technology pursuits to meet diverse customer needs in Japan as well as local requirements in North America and Asia.
Motorcycles1) Growth strategy
With a premium brand strategy fine-tuned to global market characteristics and a highly efficient supply-and-demand chain structure, we will be the clear frontrunner in the industry and achieve higher profitability.
2) Allocation of management resourcesWe will selectively invest in development of supercharged engines and electric and fuel cell powersport models, such as high-speed utility vehicles and next-generation motorcycles. We will debut a supercharged engine in the high-output class, equipped in models beginning in 2015, followed by wider application of expertise in engines with enhanced fuel economy and environmental performance.
* “Offshore” falls under energy & environmental engineering.2018
Propulsion system powered by natural gas
Liquefied hydrogen carriers
Marine gas engine
Hybrid propulsion system for vessels
Superconducting propulsion system
Rolling stock bogie (efWING® [*1]) using composite materials
High-speed rail vehicles for overseas markets
Supercharged Ninja H2R
Railway system
Newly developed LNG carriers
Next-generation motorcycles
Free gauge train
*1 environmentally friendly Weight-SavingInnovative New Generation truck
© 2014 KAWASAKI HEAVY INDUSTRIES, LTD. All Rights Reserved 8
Growth Strategy 《Energy & Environmental Engineering》
Distributed Power: Oil & Gas1) Growth strategy
We will enhance our engineering capabilities, deploy solution businesses with our diverse product base, including gas turbines, gas engines, steam turbines and boilers, and expand the distributed power generation and oil and gas businesses.
2) Allocation of management resourcesWe will concentrate management resources into key areas, such as promoting further product and technology development, strengthening international operations including aftermarket services, and accelerating globalization through collaboration with other companies. In addition, we will emphasize the skill development of our engineering personnel.
3) Establishing business base for the futureWe will promote the development of a broad product range, such as hydrogen production and storage tanks and hydrogen power generation systems for a future “hydrogen society.” We will apply technology-driven synergies cultivated companywide through participation in natural gas and LNG projects to establish a hydrogen supply chain and build an overwhelming competitive superiority in the business.
Strengthen solutions businessLay business foundation for the future
Against a backdrop of power system reform in Japan and heightened demand for electricity and other energy, particularly in emerging nations, we will roll out solutions that combine a diverse range of products and technologies with plant engineering capabilities. Furthermore, in the oil and gas business and the hydrogen energy field, we will not only provide a fusion of products and technologies but also enhance partnerships to grow Energy & Environmental Engineering into a core business of the future.
2018
Distributed power systems
FLNG [*4] marine boilers
GTG [*2] plant
Hydrogen-fueled gas turbines
Liquefied hydrogen storage systems
*2 Gas to gasoline*3 CONCH Kawasaki Kiln*4 Floating liquefied natural gas
High-end offshore support vessels
FLNG/FPSO
LNG tanks
Liquefied hydrogen bases
Environmentally friendly waste gasification (CKK [*3]) systems
Compressed hydrogen trailers
© 2014 KAWASAKI HEAVY INDUSTRIES, LTD. All Rights Reserved 9
Growth Strategy 《Industrial Equipment》
We will accelerate global expansion, underpinned by domestic mother factories. We will pursue synergies through greater sharing of management resources among the machinery and robot divisions and sustain ROIC at the top of the industry. Looking for further growth, we will seek to cultivate new markets, such as medical-use robots, where growth is likely.
Hydraulic Components1) Growth strategy
Taking advantage of globally recognized, leading-edge product development capabilities in the excavator field, we will establish a presence in the construction machinery and agricultural machinery fields—notable for such products as wheel loaders, bulldozers and tractor loaders—and expand sales with an emphasis on HST* systems. * Hydrostatic transmission: Hydraulic adjustable speed drive consisting of pump
and motor2) Allocation of management resources
We will continue to differentiate constituent technology, particularly for core parts,* and invest in new product development as we endeavor to cultivate demand in emerging markets, such as India, and expand sales through the introduction of new products. * Basic parts for hydraulic components, requiring sophisticated precision-processing technology; production is concentrated in Japan
Robots1) Growth strategy
We will accelerate sales to emerging markets, especially China, by emphasizing mass production of standard products at facilities in China. In addition, we will actively promote the production line builder operations by reinforcing system solution capabilities and expand the business. We will also cultivate new demand through the application of technology from a helpful, coexistent perspective to enhance the efforts of humans, with our sights set on the field of medical-use robots.
2) Allocation of management resourcesWe will effectively utilize management resources by integrating robot operations with the hydraulic components business and push ahead with increased automation in robot production. We will also actively engage in investment geared toward the cultivation of new business fields.
Cultivating new fieldsGreater sharing of management resources
2018
Robots to support global production
HST systems
Line builder business
Medical robots
Human-robot-cooperation system
Hydraulic components for construction machinery
Automated cell culture system
© 2014 KAWASAKI HEAVY INDUSTRIES, LTD. All Rights Reserved 10
0%
10%
20%
30%
Air TransportationSystems
Land/SeaTransportation
Systems
Energy &EnvironmentalEngineering
IndustrialEquipment
ROIC (Fiscal 2013)
Business Portfolio (Profitability, Stability, Growth)
0%
10%
20%
30%
Air TransportationSystems
Land/SeaTransportation
Systems
Energy &EnvironmentalEngineering
IndustrialEquipment
ROIC (Fiscal 2018)
0.0
100.0
200.0
300.0
Air TransportationSystems
Land/SeaTransportation
Systems
Energy &EnvironmentalEngineering
IndustrialEquipment
Invested Capital (Fiscal 2013)(Billion yen)
0.0
100.0
200.0
300.0
Air TransportationSystems
Land/SeaTransportation
Systems
Energy &EnvironmentalEngineering
IndustrialEquipment
Invested Capital (Fiscal 2018)(Billion yen)
《Profitability》
© 2014 KAWASAKI HEAVY INDUSTRIES, LTD. All Rights Reserved 11
Business Portfolio (Profitability, Stability, Growth)
Air Transportation
Systems27%
Land/Sea Transportation
Systems37%
Energy & Environmental Engineering
18%
Industrial Equipment
18%
Fiscal 2018《Stability》
Domestic-Defense-sector
demand16%
Domestic-Private-sector
demand27%Developed
nations41%
Emerging markets
16%
Fiscal 2013
Domestic-Defense-sector
demand16%
Domestic-Private-sector
demand23%
Developed nations40%
Emerging markets
21%
Fiscal 2018
Net S
ales Com
position
(by field
of bu
siness)
Net S
ales Com
position
(by reg
ion)
Air Transportation
Systems 28%
Land/Sea Transportation
Systems42%
Energy & Environmental Engineering
12%
Industrial Equipment
18%
Fiscal 2013
© 2014 KAWASAKI HEAVY INDUSTRIES, LTD. All Rights Reserved 12
0.0
500.0
1,000.0
1,500.0
2,000.0
Fiscal 2013 Fiscal 2018
Air Transportation Systems Land/Sea Transportation SystemsEnergy & Environmental Engineering Industrial EquipmentOther
(Billion yen)
Business Portfolio (Profitability, Stability, Growth)
《Growth》 Consolidated net sales growth of 6% a year.
Scale of Air Transportation Systems sales is large and will exceed 6% in the long term.
Energy & Environmental Engineering sales should show annual growth of 15%, mainly from distributed power and oil and gas businesses.
Annual net sales growth: 6%0.0
200.0
400.0
600.0
800.0
Fiscal 2013 Fiscal 2018 Around fiscal 2025
Air Transportation Systems Sales Growth
Annual net sales growth exceeding 6%
Annual net sales growth: 5%
(Billion yen)
0.0
200.0
400.0
Fiscal 2013 Fiscal 2018
Energy & Environmental Engineering Sales Growth
Annual net sales growth: 15%
(Billion yen)
© 2014 KAWASAKI HEAVY INDUSTRIES, LTD. All Rights Reserved 13
2018
Hydrogen energy infrastructure
*1: environmentally friendly Weight-SavingInnovative New Generation Truck
*2: Gas To Gasoline*3: CONCH Kawasaki Kiln*4: Floating Liquefied Natural Gas*5: HydroStatic Transmission
Energy & Environmental Engineering
©2014 United Technologies Corporation – Reproduced with Permission –All Rights Reserved
©2014 Rolls-Royce plc.– Reproduced with Permission –All Rights Reserved
New Value Creation Through Pursuit of Technology Synergies
Participate in development of future civilian aircraft such as the 777X
Large-capacity power generation systems for aircraft
Next-generation high-efficiency aircraft engines
XC-2 Transport Aircraft
Regional jet engines
787-9 composite material fuselage
P-1 Maritime Patrol Aircraft
Large aircraft engines
Industrial Equipment
Medical robots
Human-robot-cooperation system
HST [*5] systems
Hydraulic components for construction machinery
Line builder business
Robots to support global production
Automated cell culture system
FLNG marine boilers
Distributed power systemsCompressed hydrogen trailers GTG [*2] plant
CKK [*3] systems
FLNG [*4] platformLiquefied hydrogen bases
Liquefied hydrogen storage systems Hydrogen-fueled
gas turbines
Land/Sea Transportation Systems
Railway system
Next-generation motorcycles
Hybrid propulsion system for vessels
Superconducting propulsion system
Liquefied hydrogen carriers
High-speed rail vehicles for overseas markets
Free gauge train
Marine gas engine
Propulsion system powered by natural gas
Rolling stock bogie (efWING® [*1]) using composite materials
Supercharged Ninja H2R
Aerospace
Newly developed LNG carriers
Strengths Through Group Integrated Management
Gas Turbine & Machinery
Precision Machinery
Plant & InfrastructureShip & Offshore
Structure
Motorcycle & Engine
Rolling Stock
Air Transportation Systems
High-end offshore support vessels
© 2014 KAWASAKI HEAVY INDUSTRIES, LTD. All Rights Reserved 14
Figures recorded in the business forecasts are forecasts that reflect the judgment of the Company based on the information available at the time of release and include risks and uncertainties. Accordingly, the Company cautions investors not to make investment decisions solely on the basis of these forecasts.
Actual business results may differ materially from these business forecasts due to various important factors resulting from changes in the external environment and internal environment. Important factors that may affect actual business results include, but are not limited to, economic conditions, the yen exchange rate against the U.S. dollar and other currencies, the tax system, and laws and regulations.
Figures presented in the business forecasts are forecasts that reflect the judgment of the Company based on the information available at the time of release and include risks and uncertainties. Accordingly, the Company cautions investors not to make investment decisions solely on the basis of these forecasts.
Actual business results may differ materially from these business forecasts due to various important factors resulting from changes in the external environment and internal environment. Important factors that may affect actual business results include, but are not limited to, economic conditions, the yen exchange rate against the U.S. dollar and other currencies, the tax system, and laws and regulations.