Kawasaki Report 2016 - Making history anew - Kawasaki Heavy Industries, Ltd.

 
Kawasaki Report 2016 - Making history anew - Kawasaki Heavy Industries, Ltd.
Kawasaki
                                                                 Report
                                                                 2016
                                                                 Year ended March 31, 2016

                                                                                             Making history anew......

                   This Report can be accessed
                   from the QR code on the left.

Printed in Japan                                   August 2016
Kawasaki Report 2016 - Making history anew - Kawasaki Heavy Industries, Ltd.
River Mark: Used as the corporate emblem, this stylized version of the Japanese character for “river”
           —the first character in the name “Kawasaki”—was adopted by the Company’s founder, Shozo Kawasaki.
                                                                                                                                                                                                   Making history anew…                       1   …by continuously moving society forward
                                                                                                                                                                                                                                              3    120 Years of Value Creation: A History of Providing Social
                                                                                                                                                                                                                                                   Value and Enhanced Enterprise Value Firmly Rooted in
                                                                                                                                                                                                                                                   Technological Innovation
                                                                                                                                                                                                                                              5    Kawasaki Group Mission Statement
                                                                                                                                                                                                                                              6    To Our Stakeholders
                                                                                                                                                                                                                                              7    Directors and Corporate Auditors
                                                                                                                                                                                                                                              9    Performance Highlights

                                                                                                                                                                                                                                            11    …by taking steps to increase enterprise value
                                                                                                                                                                                                                                            12     Message from the Top Management

                                                                                                                                                                                                                                            19    …by uniting to expand possibilities
                                                                                                                                                                                                                                                   Initiatives to Realize a Hydrogen Society

                                                                                                                                                                                                                                            25    …by utilizing our strengths to accelerate growth
                                                                                                                                                                                                                                            27       Ship & Offshore Structure
                                                                                                                                                                                                                                            29       Rolling Stock
                                                                                                                                                                                                                                            31       Aerospace
                                                                                                                                                                                                                                            33       Gas Turbine & Machinery
                                                                                                                                                                                                                                            35       Plant & Infrastructure
                                                                                                                                                                                                                                            37       Motorcycle & Engine
                                                                                                                                                                                                                                            39       Precision Machinery

......by            continuously                                                                                                                          moving                              society forward
                                                                                                                                                                                                                                            41    …by realizing growth that benefits all
                                                                                                                                                                                                                                                   CSR Activities of the Kawasaki Group
                                                                                                                                                                                                                                            43     Corporate Governance/Compliance/Risk Management
                                                                                                                                                                                                                                            47     Developing and Utilizing Human Resources
                                                                                                                                                                                                                                            49     Collaboration with Business Partners/Human Rights
      Editorial Policy                                                         Period                                                                                                                                                       50     Social Contribution
      This report focuses on activities undertaken in fiscal 2016 and key      This report covers fiscal 2016 (April 1, 2015 to March 31, 2016),
      aspects of strategies for the future as well as the new medium-term      but some fiscal 2017 content is also included.
                                                                                                                                                                                                                                            51     Environmental Approach
      business plan that guides the Kawasaki Group from fiscal 2017. Also,
      because Kawasaki is celebrating a corporate milestone—our 120th          Scope
      anniversary – we offer a look back at the technologies and expanding     The report covers Kawasaki Heavy Industries, Ltd., its 99
                                                                                                                                                                                                                                            54     Directors, Corporate Auditors and Executive Officers
      business footprint that characterize our growth into today’s Kawasaki    consolidated subsidiaries (49 in Japan and 50 overseas) and                                                                                                  55     Management Discussion & Analysis
      Group.                                                                   20 equity-method non-consolidated subsidiaries. Some data,
           The purpose of this report is to update all our various stake-      however, refer to the parent company alone.                                                                                                                  59     Consolidated Financial Statements
      holder groups on the status of our efforts to create value for society                                                                                                                                                                67     Notes to the Consolidated Financial Statements
      and to boost enterprise value, our management policies, our business     Guidelines
      environment and strategic responses, and major environmental, social     In preparing the report, the editorial office referred to the Sus-                                                                                           97     Corporate Profile/Stock Information
      and governance (ESG)-related content. We hope that this information      tainability Reporting Guidelines (G4 ver.)* issued by the Global
                                                                                                                                                                                                                                            98     Base/Major Subsidiaries Introduction
      will enable everyone to acquire a deeper understanding of what we        Reporting Initiative (GRI) and the Environmental Reporting Guide-
      do and what we aim to achieve as the Kawasaki Group.                     lines (2012 Edition) issued by the Ministry of the Environment.
           For more information on many of the topics touched upon in this     *The Sustainability Reporting Guidelines (G4 ver.) follows the reporting
      report, please visit our website and follow the appropriate links.        principles of the GRI G4 Sustainability Reporting Guidelines; however,
      Financial information:                                                    our reporting is not yet in accordance with the GRI G4 Guidelines.
                                                                                                                                                          Disclaimer
      http://global.kawasaki.com/en/corp/ir/
                                                                               Frequency of Publication                                                   Figures in this report appearing in forecasts of future business performance or similar contexts represent forecasts made by the Company based on information
      CSR information:                                                                                                                                    accessible at the time, and are subject to risk and uncertainty. Readers are therefore advised against making investment decisions reliant exclusively on these
                                                                               Annually, in general
      http://global.kawasaki.com/en/corp/sustainability/                                                                                                  forecasts of business performance. Readers should be aware that actual business performance may differ significantly from these forecasts due to a wide range
                                                                               Previous number — Issued in July 2015
      Environmental information:                                               Following number — Expected to be issued in August 2017                    of significant factors arising from changes in the external and internal environment. Significant factors that affect actual business performance include economic
      http://global.kawasaki.com/en/corp/sustainability/environment/                                                                                      conditions in the Company’s business sector, the yen exchange rate against the U.S. dollar and other currencies, and developments in taxation and other systems.
                                                                               Contact us                                                                 This report not only describes actual past and present conditions of the Kawasaki Group but also includes forward-looking statements based on plans, forecasts,
                                                                               Please make inquiries through the inquiry form on our website              business plans and management policy as of the publication date. These represent suppositions and judgments based on information available at the time.
                                                                               http://global.kawasaki.com/en/corp/profile/contact/                        Due to changes in circumstances, the results and features of future business operations may differ from the content of such statements.

  1                                                                                                                                                                                                                                                                                                                            2
Kawasaki Report 2016 - Making history anew - Kawasaki Heavy Industries, Ltd.
Shozo Kawasaki, founder of what eventually grew into the Kawasaki Group, established Kawasaki Tsukiji Ship-
                                                                                                                                                                                                                                                                yard in 1878 and ventured into the shipbuilding business, believing strongly that the construction of modern
    120 Years of Value Creation: A History of Providing Social Value and Enhanced Enterprise                                                                                                                                                                    ships was essential for Japan to develop and prosper and that his mission in life was to support this process.
                                                                Value Firmly Rooted in Technological Innovation                                                                                                                                                 His philosophy “contributing to the nation—to society—through expertise” was embraced by Kojiro Matsukata,
                                                                                                                                                                                                                                                                the first president of the incorporated company, Kawasaki Dockyard, who also guided the company into the
                                                                                                                                                                                                                                       Improve
                                                                                                                                                                                                                                   enterprise value             rolling stock, aircraft, shipping and steel businesses and developed the company into one of Japan’s leading
                                                                                                                                                                                                                                        ROIC                    heavy industry enterprises. Later, to meet the needs of society and customers of the day, the company evolved
                                                                                                                                                                                                                   Technological         Social value of        flexibly, through active introduction of technology and the enthusiastic pursuit of innovation and application.
                                                                                                                                                                                                                     value               businesses             Adapting to changing times, the company has continued to grow, and enjoys a high profile in land, sea and air
                                                         Kojiro Matsukata
                                                                                                                                                                                                           (innovative technology)                              transportation systems as well as energy & environmental engineering and ROBO-MECH. In 2016, Kawasaki cel-
                                                         First president following transition to incorporated company in 1896                                                                                                                                   ebrates its 120th anniversary. Going forward, today’s Kawasaki Group will continue to provide social value
                                                         Guided company into rolling stock, aircraft and shipping/steel businesses
                                                         Implemented Japan’s first eight-hour day system                                                                                                                                                        through its business activities, underpinned by innovative technology, and pursue synergies derived among
                                                                                                                                                                                                                                                                business segments to raise enterprise value to an even higher level.
    Shozo Kawasaki
    Established Kawasaki Tsukiji Shipyard in 1878                                                                                                                                                                                                                                                                                                     Please refer to pages 25–40 for details on the
    Believed in “contributing to the nation—to society—through expertise”                                                                                                                                        Current business                Split off/transferred             Technology expansion
                                                                                                                                                                                                                                                                                                                                                      activities of each internal company.

                                                   Cargo-passenger                                           Stock boat manufacturing                                                                                                                 Oyashio,                                                                                                                  Ship & Offshore
                                                   ship Iyomaru                                              Matsukata, anticipating a shortage
    1878                                           Kawasaki Dockyard’s                                       of vessels given the circum-
                                                                                                                                                                                                                                                      first domestic
                                                                                                                                                                                                                                                      submarine
                                                                                                                                                                                                                                                                                                                                                                                Structure
        Shipbuilding                               first vessel after                                        stances of World War I, took the                                                                                                         made after
                                                   becoming a publicly                                       decisive step to build stock boats,                                                                                                                                             The 10th
                                                                                                                                                                                                                                                      World
                                                   traded company                                            and by 1926 the company had                                                                                                                                                 Toyotamaru,
                                                                                                                                                                                                                                                      War II                                                                   First Japan-built
                                                                                                             constructed 96 vessels                                                                                                                                             first Japan-built pure
                                                                                                                                                                                                                                                                                                                               LNG carrier
                                                                                                                                                                                                                                                                                           car
                                                                                                                                                                                                                                                                                           ca
                                                                                                                                                                                                                                                                                            ar carrier

                                                                Know-how, particularly related to welding and internal
                                                1906            combustion engines, provide basis for realizing domestic
                                                                                                                                            1928             192
                                                                                                                                                             1929
                                                                                                                                                               29           Auto
                                                                                                                                                                            Automo
                                                                                                                                                                              tom bi
                                                                                                                                                                                mob le
                                                                                                                                                                                    less                                                                                                                                                                                        Rolling Stock
                                                                                                                                                                                                                                   Business express train
                                                    Rolling                                production of steam locomotives                  Split off into To meet the social needs of the day,                                    Kodama
                                                                                                                                                                                                                                   Kod
                                                                                                                                                                                                                                    o ama                                                              Series 0 Shinkansen
                                                    Stock                                       Made Japan’s first steel-cast               independent began production of automobiles using
                                                                                                                                                           rolling stock manufacturing technology
                                                                                                electric train in 1925, marking             company
                                                                                                                                                             *Suspended production in 1942 by order of
                                                1906            The
                                                                 he e company’s
                                                                      compa
                                                                      company’
                                                                        mpa       first
                                                                                    r t elec-
                                                                            ny’ss firs
                                                                            ny’                 first step toward improved rail-
                                                                                                way system in Japan and wider
                                                                                                                                            (reintegrated
                                                                                                                                            in 1969)
                                                                                                                                                              the Department of War, as emphasis shifted
                                                                                                                                                              from automobiles to greater production of
                                                                tric-drive
                                                                tri
                                                                 riic-d
                                                                    c-driv
                                                                    c-drive wooden
                                                                       rive wood
                                                                             ooden    ccoach
                                                                                  en coa
                                                                                  en      ch
                                                    Steel       Nankai Railway Type 1           use of rail transportation                                    aircraft (some operations resumed later)

                                                    Casting     wooden coach
                                                    Division                                                            Company’s first airplane:             Split off into independent
                                                                                                                                                            1937                                                                                                                                                                                                                Aerospace
                                                                            1918                                        Type Otsu 1
                                                                                                                        surveillance airplane
                                                                                                                                                              company (reintegrated in 1969)
                                                                                 Aircraft                               With interest piqued by thriving aircraft industry in the United States
                                                                                                                        and Europe, introduced technology from abroad along with structural                                             commercial
                                                                                                                                                                                                                             Domestic com mmer
                                                                                                                                                                                                                                            mercia   aircraft
                                                                                                                                                                                                                                                ci l aircraf
                                                                                                                                                                                                                                                           ft YS
                                                                                                                                                                                                                                                               YS-11
                                                                                                                                                                                                                                                                  1
                                                                                                                        technology used in shipbuilding to launch aircraft production                                        Participated from the planning   g              First helicopter
                                                                                                                                                                                                                             stage, in charge of manufacturingring           developed in Japan
                                                                                                                                                                                                                             the main wings and nacelle parts                Kawasaki BK117 Helicopter             P-1 Maritime Patrol Aircraft

                                                                                                                                                             1942            Jet Engines                                                              1969
                                                                                                                                                                                                                                                  Industrial                                                                                                                    Gas Turbine &
                                                   1907                                                                                                                 Japan’s first jet engine:                       1956                      Gas Turbines                                                                                                                  Machinery
                                                       Marine Steam Turbines                                                                                                                                                Land-use Steam Turbines
                                                               Began production of                                                                                      Ne-0                                                 Marine-use turbine technology directed toward rd
                                                                                                                                                                                                                                                                            d                      Kawasaki GPS200,
                                                               steam turbines for use                                   Marine steam                                                                                         land-use applications to meet rapid increase in
                                                                                                                                                                                                                                                                           n                       First Japan-madeeg gas
                                                                                                                                                                                                                                                                                                                       as
                                                               as main engines of ships                                 turbine                                                                                              demand for power in the industrial sector                             turbine generatorr

        1880                                                                     Land-use applications                                                      1937        Boilers (land-use)
                                                                                                                                                                                                                                                                       Cement plant for
                                                                                                                                                                                                                                                                                                                                                                                Plant &
                                                                                                                                                                                                                                                                       customer in Algeria
             Boilers (marine-use)                                                Diversified into environmental plant engineering, utilizing                                                                                                 1960                                                                                                                               Infrastructure
            Began production of                                                  cornerstone heat-transfer/combustion technology, to
            marine-use boilers
                                                  1907                           expand energy-related engineering activities                     1932                                                                                           Environmental Plants,
                                                       Steel Stru
                                                               ruct
                                                                 ctur
                                                                   ure
                                                                     es                                                                                                                                                                                                                                             Tunnel boring machines used
                                                                                                                                                       Cement Plants                                                                             Chemical Plants, LNG Tanks                                         to excavate the Channel Tunnel,
                                                  Embarked on                                      Eitaibashi, bridge over                         Used steel structure/engineering technology                                                   and Shield Machines                                                linking France and the U.K.
                                                  production of steel                              Sumida River                                    as a cornerstone to diversify range of indus-
                                                  bridges, utilizing                               Many bridges, which collapsed                   trial equipment, adding chemical plants, LNG
                                                  construction/                                    in the Great Kanto Earthquake,                  tanks, shield machines and other products
                                                  welding technology                               were replaced                                   derived from cement equipment
                                                                                                                                                                                                                                                                                                                                                                                Motorcycle &
                                                                                                   *Withdrew from bridge business in 2006
                                                                                                                                                                                                           1949                                 1955                                                                                                                            Engine
                                                                                                                                                                                                               Motorcycles
                                                                                                                                                                                                                        ess                           Motorcycles
                                                                                                                                                                                                               (Engines)                            (Finished)
                                                                                                                                                                                                                                    KE-1 engine                          Began producing
                                                                                                                                                                                                                                    Activities started after the war     finished motorcycles                       Z1
                                                                                                                                                                                                                                    when production of aircraft          Meihatsu 125-500
                                                                                                                                                                                                                                    was not allowed
                                                                                                                                                                                                                                                                                                                                                                                Precision
                                                                         1916                                                                                                                                                                                               1968          Robots
                                                                                                                                                                                                                                                                                                                                                                                Machinery
                                                                              Hydraulic
                                                                              Machineryy
                                                                                                Began producing                       Incorporated                    Began producing screw pumps                     Low-speed                 KV Series axial                        Kawasaki-Unimate 2000, first
                                                                                                Hele-Shaw electro-hydraulic           Hele-Shaw radial piston         through technology alliance                     high-torque radial        piston pump                            Japan-made industrial robot
                                                                                                steering gears                        pumps                           with Sweden’s IMO AB                            piston motors                                                    Introduced technology from                                     The Kawasaki Group is currently working to
                                                                                                with technology acquired                                                                                                                                                               Unimation Inc., a U.S. company,         Dual-arm SCARA
                                                                                                                                                                                                                                                                                                                               Robot “duAro”          create new products and quickly and efficiently
                                                                                                from England                                                                                                                                                                           and began domestic production
                                                                                                                                                                                                                                                                                                                                                      improve enterprise value by deriving synergies
                                                                                                                                                                                                                                                                                                                                                      across internal company lines and covering the
                                                                                                                                                                                                                                                                                                                                                      extensive range of business activities that have
                                                                                                                                                                                                                                                                                                                                                      emerged to date.
    1880                     1890                      1900                          1910                         1920                            1930                         1940                              1950                            1960                              1970                     1980                  1990
                                                                                                                                                                                                                                                                                                                                                      For details on
                                                                                                                                                                                                                                                                                                                                                      hydrogen projects,
       Modernization of                                       Railway                World War I                           Great Kanto              Great Depression         World War II                    First exchange rate:                              Opening of the Tokaido           Nixon Shock                                           please refer to pages
       Japanese industry                                      Nationalization                                              Earthquake                                        (initiatives to rebuild         ¥360 to U.S. dollar                               Shinkansen line                  (Dollar Shock)
                                                                                                                                                                                                                                                                                                                                                      19–24.
       (rapidly expanding demand for                          Act                                                          (buildings/bridges                                after the war)
3      transportation infrastructure)                                                                                      collapsed)                                                                                                                                                                                                                                                                    4
Kawasaki Report 2016 - Making history anew - Kawasaki Heavy Industries, Ltd.
Kawasaki Group Mission Statement                                                                                                       To Our Stakeholders

                   In 2007, Kawasaki formulated the “Kawasaki Group Mission Statement” as a compass
                   directing the activities of the Kawasaki Group. The statement incorporates the social                                   Working to Realize the Group Mission
                   mission that the Group must fulfill in the 21st century, a shared sense of values to                                    Kawasaki—and by extension, the Kawasaki Group—got its start in the shipbuilding business and, by responding to social
                   increase Kawasaki brand value, the underlying principles of management activities,                                      needs of the day, has grown into an integrated provider of heavy industry products and services over a diverse range of
                                                                                                                                           business sectors, including land, sea and air transportation systems, energy and environmental engineering (infrastructures)
                   and guidelines for daily conduct that each and every member of the organization is
                                                                                                                                           and various kinds of industrial equipment. Throughout our history, we have consistently endeavored to improve enter-
                   required to follow.                                                                                                     prise value, developing along with our stakeholders, which includes shareholders, customers and local communities.
                                                                                                                                               Our mission, as a corporate group, is to fulfill the Group Mission: “Kawasaki, working as one for the good of the
                          Group Mission                                                                                                    planet (Enriching lifestyles and helping safeguard the environment: Global Kawasaki).” This is, essentially, our
                                                                                                                                           role in society, and to address this role, we must provide products and services that meet the varied needs of
                                                                                                                                           our customers as well as their customers around the world while seeking a harmonious balance with the
                   Kawasaki, working as one for the good                                                                                   environment. Toward this end, we prioritize technology, and are thus on an enduring quest for originality
                                                                                                                                           and innovation in technology.

                   of the planet                                                                                                               In Kawasaki Report 2016, which you have kindly taken the time to read, we offer our thoughts on
                                                                                                                                           carrying out the Group Mission as well as information on business strategies, daily activities that
                                                                                                                                           ensure Kawasaki meets its social responsibilities as a good corporate citizen, and the relationship
                   •We are the Kawasaki Group, a global technology leader with diverse integrated                                          the Company maintains with stakeholders. We hope this report enables you to gain a better
                    strengths.                                                                                                             understanding of what we do.
                   •We create new value-for a better environment and a brighter future for
                     generations to come.                                                                                                  Shigeru Murayama
                                                                                                                                           Chairman of the Board
                                                                                                                                           ((Representative
                                                                                                                                            (R
                                                                                                                                             Rep
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                                                                                                                                                          ve Di
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                                                                                                                                                                   ctor))
                                                                                                                                                             Director)

                          Kawasaki Value
                   •We respond to our customers’ requirements
                   •We constantly achieve new heights in technology                                                                        Yoshinori Kanehana
                   •We pursue originality and innovation                                                                                   President
                                                                                                                                           ((Representative
                                                                                                                                            (R
                                                                                                                                             Rep
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                                                                                                                                                                  ector)
                                                                                                                                                               Director)
                          The Kawasaki Group Management Principles
                   1 Trust
                     As an integrated technology leader, the Kawasaki Group is committed to providing high-performance products and
                     services of superior safety and quality. By doing so, we will win the trust of our customers and the community.
                   2 Harmonious coexistence
                     The importance of corporate social responsibility (CSR) permeates all aspects of our business. This stance reflects
                     the Kawasaki Group’s corporate ideal of harmonious coexistence with the environment, society as a whole, local
                     communities and individuals.
                   3 People
                     The Kawasaki Group’s corporate culture is built on integrity, vitality, organizational strength and mutual respect
                     for people through all levels of the Group. We nurture a global team for a global era.
                   4 Strategy
                     The Kawasaki Group pursues continuous enhancement of profitability and corporate value based on three
                     guiding principles-selectively focusing resources on strategic businesses; emphasizing quality over quantity;
                     and employing prudent risk management.

                          The Kawasaki Group Code of Conduct
                   1. Always look at the bigger picture. Think and act from a long-term, global perspective.
                   2. Meet difficult challenges head-on. Aim high and never be afraid to try something new.
                   3. Be driven by your aspirations and goals. Work toward success by always dedicating yourself to your tasks.
                   4. Earn the trust of the community through high ethical standards and the example you set for others.
                   5. Keep striving for self-improvement. Act on your own initiative as a confident professional.
                   6. Be a part of Team Kawasaki. Share your pride and sense of fulfillment in a job well done.

5                                                                                                                                                                                                                                                                         6
Kawasaki Report 2016 - Making history anew - Kawasaki Heavy Industries, Ltd.
Directors and Corporate Auditors
    (As of June 24, 2016)

                                                              Corporate Auditor                  Outside Director         Outside Director        Corporate Auditor
                                                              Takafumi Shibahara                 Yoshihiko Morita         Michio Yoneda           Katsuyoshi Fukuma

                                  Outside Corporate Auditor                                                                                                                          Outside Corporate Auditor
                                                              Senior Vice President              Senior Vice President    Senior Vice President   Senior Vice President
                                  Nobuyuki Fujikake                                                                                                                                  Takashi Torizumi
                                                              Toshiyuki Kuyama                   Kazuo Hida               Kenji Tomida            Kazuo Ota

                                  Senior Vice President                                                                                                                              Senior Vice President
                                                              Senior Executive Vice President*   Chairman of the Board*   President*              Senior Executive Vice President*
                                  Makoto Ogawara                                                                                                                                     Tatsuya Watanabe
                                                              Joji Iki                           Shigeru Murayama         Yoshinori Kanehana      Munenori Ishikawa

                 *Representative Director

7                                                                                                                                                                                                                8
Kawasaki Report 2016 - Making history anew - Kawasaki Heavy Industries, Ltd.
Performance Highlights

                         Net sales
                                                                                   95.9            Net cash provided by operating activities                                               CO2 emissions from business sites (non-consolidated)*1                          Distribution of Value to Stakeholders (FY2016)
                         Operating income                                                          Net cash used for investing activities                                               (103t-CO2)
                                                                          87.2                                                                                                                                                                                             Value delivered (Net sales)
                                                                                                   Free cash flow
                   (Billions of yen)
                                                                                   1,541.0      (Billions of yen)                                                                                                                          318       325                   (Billions of yen)
                                                                                                                                                                                                                                                                                                                    Business partners 1,226.8
                                                         72.3        1,486.1                                                          151.7
                                                                                                                                                                                                               284                                                                                                  Business costs
                                                                1,385.4                                                                              127.6
                            1,303.7        1,288.8                                                                                                                                                                           263                                                                                    (excluding costs for employees, society,

                                    57.4
                                                                                                          84.7                               74.1
                                                                                                                                                                   86.0                          252                                                                                                                and government)
                                                                                                                                                            60.2
                                                                                                                                                                                                                                                                                      Net sales
                                                                                                                                                                                                                                                                                           Net sales

                                                  42.0
                                                                                                                18.7     28.1                                           11.8                                                                                                          1,541.0
                                                                                                                                                                                                                                                                                           1,541.0

                                                                                                                                                                                                                                                                                                              Employees 241.9
                                                                                                                                                                                                                                                                                                              Salaries, bonuses, etc.
                                                                                                                      –53.0
                                                                                                                                                                                                                                                                                                   Society 0.7
                                                                                                           –65.9                                        –67.3                                                                                                                                      Social contribution expenses
                                                                                                                          –81.1         –77.5
                                                                                                                                                                   –74.1
                                                                                                                                                                                                                                                                                                  Administration and government 20.1
                             2011          2012          2013         2014          2015 (FY)             2011            2012         2013            2014           2015 (FY)                 2011           2012          2013          2014          2015 (FY)                                Income taxes-current
                                                                                                                                                                                        *1 For details, please refer to page 52.                                           Value created 51.3 Value created minus expenses for business partners,
                                                                                                                                                                                                                                                                           (Billions of yen)      employees, society, and government
                                                                                                                                                                                                                                                                                                   Creditors 3.6 Interest expense
                         Return on invested capital                                                Net interest-bearing debt                             Net debt equity ratio             CO2 emission reduction with our products*2
                   (%)                                                                             Shareholders’ equity                                                           (%)   (103t-CO2)
                                                                                                (Billions of yen)
                                                                      10.4%
                                                                                   9.4%                                 131.9%
                                                                                                                                                                                                                             741                     745                                 Value created
                                                                                                                                       109.3%                                                                                                                                                                  Shareholders 21.6
                                                                                                          121.8%                                                                                                                                                                             51.3              Non-controlling interests plus
                                                         8.1%
                                                                                                                                                                                                                                                                                                               dividends paid
                              7.4%
                                                                                                                                                      83.9%        82.5%                                       504                         513
                                            6.1%
                                                                                                                                                                                                                                                                                                         Company internal, etc. 26.0
                                                                                                                        446.1
                                                                                                                                     396.6
                                                                                                                                                         431.9          431.3                    321                                                                                                     Increase in retained earnings during period
                                                                                                        372.8                              363.0
                                                                                                                                338.2
                                                                                                                306.0                          362.7
                                                                                                                                                                356.2
                                                                                                                                                                                                                                                                           Socially Responsible Investment (SRI)-related
                                                                                                                                                                                                                                                                           Evaluations that Included Kawasaki
                             2011          2012          2013         2014          2015 (FY)             2011            2012         2013            2014           2015 (FY)                 2011           2012          2013          2014          2015 (FY)
                                                                                                                                                                                                                                                                                                                     The Brand of Companies
                   Return on invested capital = EBIT (Income before income taxes and            Net debt equity ratio = Net interest-bearing debt (Interest-bearing debt -              *2 Estimates based on actual delivery record
                   non-controlling interests + Interest expense) / Invested capital             Cash on hand and in banks) / Shareholders’ equity                                                                                                                                                                    Enhancing Corporate Value  ue
                   (Interest-bearing debt + Shareholders’ equity)                                                                                                                                                                                                                                                    through Health and Pro-
                                                                                                                                                                                                                                                                                                                     ductivity Management
                         Capital investments                                                       Net income per share                                                  ROE               Expenditure on social                            Recurring profit ratio                                                   (Health and Productivity
                         R&D expenses                                                              Dividends per share                                      (Return on equity)             contribution activity                                                     (%)   The Dow Jones Sustainability              Stock Selection) is a list of companies
                                                                                                                                                                                  (%)
                                                                                                                                                                                        (Millions of yen)                                                                  Index is a leading SI index which         chosen jointly by Japan’s Ministry
                   (Billions of yen)                                                            (Yen)
                                                                                                                                                       12.9%                                     796
                                                                                                                                                                                                                                           759       773                   assesses and selects leading              of Economy, Trade and Industry
                                                         87.7                                                                          11.0%                       10.6%                                       687
                                                                                                                                                                                                                                                                           sustainability-driven companies
                                                                                                                                                                                                                                                                           in terms of economic, environ-
                                                                                                                                                                                                                                                                                                                     (METI) and the Tokyo Stock Exchange
                                                                                                                                                                                                                                                                                                                     (TSE) for making strategic efforts
                                           78.6                       80.0
                                                                                 76.3                                     9.5%
                                                                                                                                                                                                                             631
                                                                                                                                                                                                                                                                           mental, and social criteria.              to address employee health from a
                                                                                                                                                     30.8
                             63.9                                                                         7.8%                                                  27.5                                                                                                                                                 management point of view. Only one
                                                                                                                                                                                                                     1.75%                                                                                           TSE-listed company in each industry
                                                                                                                                      23.0
                                39.9
                                               41.7         40.3            41.6       43.6                             18.4
                                                                                                                                                                                                                                                                                                                     category is selected for this index.
                                                                                                                                                                                                       1.25%                       1.04%
                                                                                                         13.9
                                                                                                                                                            10.0
                                                                                                                                                                         12.0                                                                    0.90%
                                                                                                                                                                                                                                                            0.83%                                             The Nadeshiko Brand is
                                                                                                                                                                                                                                                                                                              a list of companies cho-
                                                                                                                5.0             5.0          6.0
                                                                                                                                                                                                                                                                                                              sen jointly by METI and
                                                                                                                                                                                                                                                                                                              the TSE that are outstanding in terms
                             2011           2012         2013             2014      2015 (FY)             2011            2012         2013            2014           2015 (FY)                 2011           2012          2013          2014          2015 (FY)                                            of encouraging the empowerment of
                                                                                                Return on equity = Profit attributable to owners of the parent / Shareholders’                                                                                                                                women in the workplace, and that are
                                                                                                equity                                                                                                                                                                                                        creating an environment in which
                                                                                                                                                                                                                                                                                                              women are able to pursue careers.
                                                                                                                                                                                                                                                                           MSCI Global Sustainability Indexes Companies listed on the First Section
                   Share of net sales by segment                                                Share of net sales by region                                                            Distribution of companies/employees by region                                      include companies with high ESG    of the TSE are eligible for selection, and
                                                                                                                                                                                                                                                                           ratings relative to their sector   one or two companies are selected from
                           Precision Machinery                     Ship & Offshore Structure    Asia, Oceania, etc. 18%                                                                                        Asia, Oceania, etc. 13%                                     peers.                             each industry category for the honor.
                           ¥133.1 billion                          ¥94.8 billion                ¥272.8 billion                                                                                                 28 companies/4,576 employees
                                                                                                                                                                                                                                                                                                                     Kawasaki received a loan
                                                                             Rolling Stock                                                                                              The Americas 10%
                                                                                                                                                                   Japan 41%            14 companies/3,447 employees                                                                                                 from the Development
                   Motorcycle & Engine                                       ¥146.6 billion
                                                                                                                                                                   ¥636.5 billion                                                                                                                                    Bank of Japan (DBJ) in
                   ¥333.5 billion
                                                                                                                                                                                                                                                                           The Morningstar Socially Respon-          December 2015, under
                                                                                                                                                                                        Europe 2%                                                                          sible Investment Index is the             the DBJ Environmentally Rated Loan
                                                                                                                                                                                        8 companies/                                                                       first index in Japan of socially          Program based on a solid evaluation
                                                                                                                                                                                        685 employees
                                                                                                                                                                                                                                                                           responsible investment stock.             under the bank’s rating structure for
                                                                                                                                                                                                                                                                           The stock prices of socially              companies with particularly impres-
                                                                             Aerospace          The Americas 32%                                                                                                                                                           responsible companies selected            sive environmental programs. DBJ
                                                                             ¥351.8 billion     ¥486.7 billion                                                                                                                                                             from all those listed in Japan            also gave Kawasaki a special award
                   Plant & Infrastructure                           Gas Turbine & Machinery                                                         Europe 9%                                                                 Japan 75%                                    by Morningstar Japan K.K. are             recognizing the Company as a model
                   ¥135.6 billion                                   ¥236.4 billion                                                                  ¥144.8 billion                                                            50 companies/25,897 employees                converted into an index.                  corporation in this effort.

9                                                                                                                                                                                                                                                                                                                                                              10
Kawasaki Report 2016 - Making history anew - Kawasaki Heavy Industries, Ltd.
Message from the Top Management

                                                                                                              We will create new value and boost
                                                                                                              enterprise value by integrating the
                                                                                                              world’s highest standards of technologies.

                                                                                                              On Assuming the Position of President                    Kawasaki Group Mission
                                                                                  Yoshinori Kanehana          My name is Yoshinori Kanehana. I assumed the             The noteworthy feature of the Kawasaki Group is
                                                                                  President                   position of president from Shigeru Murayama in           that each business segment takes a multifaceted
                                                                                  (Representative Director)   June 2016. The Kawasaki Group traces its roots           approach matched to prevailing market require-
                                                                                                              back to 1878, when Shozo Kawasaki established            ments and consistently adds to its portfolio of
                                                                                                              Kawasaki Tsukiji Shipyard. This early company            technological innovations, which underpins capa-
                                                                                                              was incorporated in 1896 as Kawasaki Dockyard            bilities of the highest global standards. Our mis-
                                                                                                              Co., Ltd., and it is based on this year of incorpora-    sion statement is “Kawasaki, working as one for
                                                                                                              tion that we will celebrate our 120th anniversary        the good of the planet” and our goal is to use the
                                                                                                              in 2016. It is my mission to promote further devel-      capabilities we have amassed to solve the some-
                                                                                                              opment of the businesses that today’s Kawasaki           what conflicting issue of creating comfortable
                                                                                                              Group pursues across many fields worldwide, from         lifestyles while ensuring a future for our planet,
                                                                                                              land, sea and air transportation systems to energy       that is, the global environment. Success will
                                                                                                              and environmental engineering and all sorts of           require new value, which we will create by inte-

......by taking steps to increase                                                                             industrial equipment, to raise enterprise value
                                                                                                              even higher, and to ensure that I pass on to the
                                                                                                                                                                       grating the technologies of each business seg-
                                                                                                                                                                       ment and leveraging the synergistic effects to

       enterprise value
                                                                                                              next generation of employees and management              deliver unique products and services to custom-
                                                                                                              a Kawasaki Group that has evolved beyond its             ers and, by extension, society as a whole.
                                                                                                              current achievements. In this effort, I will be guided
                                                                                                              by the founder’s philosophy of “contributing to the      Raising Enterprise Value
                                                                                                              nation—to society—through expertise.”                    The Kawasaki Group has embraced Kawasaki-
                                                                                                                  I have been involved in the rolling stock busi-      ROIC* Management, which prioritizes improve-
                                                                                                              ness ever since I joined Kawasaki. I believe I have      ment in enterprise value among key performance
                                                                                                              been able to contribute to the safety and security       indicators. The objective in Kawasaki-ROIC Man-
                                                                                                              of Japan’s railway system, which is one of the           agement is to carefully control invested capital
         Main career history                                                                                  best in the world. I have also spent lots of time        but still achieve higher profits, and to enhance
                                                                                                              overseas, on assignment at facilities in New York        enterprise value by boosting the Group’s overall
         Mar. 1976    Graduated from School of Engineering Science, Osaka University
                                                                                                              and other locations, and I have gained experience        profitability and stability while promoting
         Apr. 1976    Joined Kawasaki Heavy Industries, Ltd.                                                  in various aspects of business, from international       growth. Kawasaki-ROIC Management led to
         1976–1979 In charge of Kawasaki Computer-Controlled Vehicle System, in the Rolling Stock Group
                                                                                                              discussions where I faced off against global play-       hugely successful results during MTBP 2013,
                                                                                                              ers in the industry to win orders to the running         which finished in fiscal 2016.
         1979–1988 Led Rolling Stock Group system integration work
                                                                                                              of rolling stock facilities overseas. From this point        Recently, the Group embarked on a newly
         Oct. 1988    Seconded to Kawasaki Heavy Industries, Ltd. London Office                               on, however, my perspective changes, as I now            drafted medium-term business plan—MTBP 2016—
                                                                                                              stand at the helm of the entire Kawasaki Group           with measures and targets for the immediate
         Aug. 1997    Seconded to Kawasaki Rail Car, Inc. (New York, U.S.A.)
                                                                                                              and its seven internal companies (business seg-          three years but looking 10 years down the road
         Jun. 2003    President, Kawasaki Rail Car, Inc.                                                      ments), each serving a different client base and         to 2025 (fiscal 2026). MTBP 2016 has Kawasaki-
         Oct. 2007    General Manager, Project Management Division, Rolling Stock Company                     different markets. But I believe my background           ROIC Management at its core and will set the stage
                                                                                                              will serve me well. I will draw on the global,           for an improvement in medium- to long-term
         Apr. 2012    General Manager, Marketing Division
                                                                                                              frontline perspective I have acquired through            enterprise value. I will discuss the details of MTBP
         Jun. 2013    President, Rolling Stock Company                                                        my involvement in the rolling stock business and         2016 on the next page.
                                                                                                              apply the insights and experience accumulated            *ROIC (Return on Invested Capital): A management indicator that
         Jun. 2016    President (Current Position)
                                                                                                              over the past four years as a director participat-        shows how much profit will be generated with the capital
                                                                                                                                                                        invested in a business segment.
                                                                                                              ing in Group management activities to achieve
                                                                                                              medium- to long-term growth of the Kawasaki
                                                                                                              Group and improve value for all stakeholders.

 11
  1                                                                                                                                                                                                                                      12
Kawasaki Report 2016 - Making history anew - Kawasaki Heavy Industries, Ltd.
MTBP 2013                                                                            A particularly noteworthy achievement coming                             Positioning of MTBP 2016                             Positioning of MTBP 2016
     First, though, I would like to look back on MTBP                                 out of MTBP 2013 was improved capital efficiency,                            In defining the content of the new medium-term
     2013, which concluded in fiscal 2016. Net sales                                  through Kawasaki-ROIC Management, which                                      business plan, we revised Kawasaki Business               Group Mission/Group Vision
                                                                                                                                                                                                                                                                                  MTBP 2016
     expanded significantly, buoyed mainly by inter-                                  cemented a vastly reinforced financial position.                             Vision 2020 guided by our Group Mission and                                                                    • Measures and plans for the next three
     nal companies, that is, Aerospace, Motorcycle &                                  This is substantiated by aggregate free cash flow of                         Group Vision. That is, we pictured the kind of                                                                   years with a view 10 years down the
     Engine, and Gas Turbine & Machinery, and hit an                                  ¥146.2 billion on a Group-wide basis over the three                          businesses we would be running and the quanti-                                                                   road
                                                                                                                                                                                                                          • Picture of business 10 years on
     all-time high of ¥1,541.0 billion in fiscal 2016.                                years of MTBP 2013. In addition, interest-bearing                            tative targets we would be aiming for 10 years                                                                 • Investment and strengthening of
                                                                                                                                                                                                                          • Quantitative view of FY2026                             business foundation for medium- to
     Operating income, at ¥95.9 billion, exceeded the                                 debt decreased ¥86.2 billion, as of March 31, 2016,                          on, in 2025 (fiscal 2026). MTBP 2016 is therefore                                                                long-term growth
     initial target of ¥90 billion and also set a new                                 from the level at the end of March 2013, and the net                         not just a business plan for the next three years                                                              • Response to changes in business envi-
     record, reflecting higher net sales, successful                                  debt equity ratio* dropped 49.3 percentage points.                           but rather an immediate action plan that will set                                                                ronment and issues requiring attention
                                                                                                                                                                                                                                     Rethink
     cost-cutting measures and the merits of a low                                        During MTBP 2013, we made tremendous prog-                               us well on the way toward our ultimate destina-         Kawasaki Business Vision 2020
     yen. Before-tax ROIC moved into double-digit                                     ress in terms of performance as well as financial posi-                      tion ten years from now.
     territory—10.4%—in fiscal 2015, but backtracked                                  tion and reached the majority of our initial targets.
                                                                                                                                                                                                                                                   Realization of Group Mission and Group Vision
     to 9.4% in fiscal 2016 owing to the booking of                                   *Net debt equity ratio is calculated by dividing net interest-bearing        Group Mission, Group Vision
     extraordinary losses on a shipbuilding joint                                      debt (interest-bearing debt - cash on hand and in banks) by share-          Our Group Mission—“Kawasaki, working as one
                                                                                       holders’ equity. The lower the ratio, the sounder the financial position.                                                                                                  Picture of business 10 years on
     venture in Brazil.                                                                                                                                            for the good of the planet”—is an expression of
                                                                                                                                                                   the social mission that we, as a corporate group,           MTBP 2016
        Net sales                                                                        Interest-bearing debt
        Operating income                                  95.9                           Free cash flow
                                                                                                                                                                   wish to fulfill. It remains the same as before. We       (FY2017–FY2019)                        Action plan
                                                87.2
     (Billions of Yen)                                                                (Billions of Yen)                                                            also set out a three-point Group Vision that looks   FY2017                     FY2019                                         FY2026
                                   72.3
                                              1,486.1   1,541.0                                     484.6
                                                                                                               444.6          414.3      398.4                     forward to the kind of corporate group we plan
                    1,288.8         1,385.4
                                                                                                                       74.1
                                                                                                                                                                   to become.
                                                                                                                                      60.2
                            42.0
                                                                                                                                                11.8               •We will become a corporate group with four          Key Products and Services that Drive Growth
                                                                                                                                                                                                                        Demand for Kawasaki Group products and ser-
                                                                                                                                                                    core business sectors—Air Transportation Sys-
                                                                                                             –53.0                                                  tems, Land/Sea Transportation Systems, Energy       vices is steadily expanding, fueled by such fac-
                     2013          2014        2015        2016 (FY)                                  2013           2014       2015          2016 (FY)
                                                                                                                                                                    & Environmental Engineering and ROBO-MECH           tors as greater international movement of people
        Before-tax ROIC                                                                  Net debt equity ratio                                                      (coined from industrial equipment sector)—that      and transportation of goods due to increased glo-
                                                                                                     131.9%                                                         creates new value with integrated technological     balization, wider use of automation paralleling
                                              10.4%
                                                          9.4%                                                    109.3%                                                                                                the graying of society and a shortage of workers,
                                   8.1%                                                                                                                             capabilities and offers products and services
                         6.1%
                                                                                                                                83.9%        82.5%                  that open up new possibilities for customers        and heightened demand for products that address
                                                                                                                                                                    and society.                                        environmental risk. This bodes well for our
                                                                                                                                                                                                                        businesses.
                                                                                                                                                                   •We plan to become a corporate group that                We expect the key drivers of growth for the
                                                                                                                                                                    achieves continuous improvement in enterprise       Kawasaki Group to be commercial aircraft, com-
                     2013          2014        2015        2016 (FY)                                  2013           2014       2015          2016 (FY)
                                                                                                                                                                    value and a stable return to shareholders by        mercial aircraft jet engines, rolling stock for over-
     Before-tax ROIC = EBIT (Income before income taxes and non-controlling           Net debt equity ratio = Net interest-bearing debt (Interest-bearing debt -
     interests + Interest expense) / Invested capital at year-end (Interest-bearing   Cash on hand and in banks) / Shareholders’ equity                             building a business portfolio that ensures a high   seas markets, energy, and robots.
     debt + Shareholders’ equity)
                                                                                                                                                                    degree of adaptability to changes in the busi-
                                                                                                                                                                    ness environment and provides growth invest-        Predicted Sales from Key Products and Services that Drive Growth
                                                                                                                                                                    ment and cash flow.
                            “A particularly noteworthy achievement coming                                                                                                                                               (Billions of yen)
                                                                                                                                                                   •We plan to become a corporate group that accu-      1,000
                                                                                                                                                                                                                                                                                               Robots, including Medicaroid*

                                              out of MTBP 2013 was improved capital efficiency,                                                                     rately identifies social concerns and stakeholder
                                                                                                                                                                    expectations and delivers appropriate solutions
                                                         through Kawasaki-ROIC Management,                                                                          through business activities, and also promotes       800
                                                                                                                                                                                                                                                                                               Energy

                                                                                                                                                                    a workplace environment where employees
                                    which cemented a vastly reinforced financial position.”                                                                                                                                                                                                    Rolling stock for overseas markets
                                                                                                                                                                    approach their jobs enthusiastically, driven by      600
                                                                                                                                                                    hopes and dreams.
                                                                                                                                                                                                                                                                                               Commercial aircraft jet engines
                                                                                                                                                                                                                         400
                                                                                                                                                                   Guided into the future by our Group Mission and
                                                                                                                                                                   our three-point Group Vision, we will strive to
                                                                                                                                                                   raise enterprise value.                               200
                                                                                                                                                                                                                                                                                               Commercial aircraft

                                                                                                                                                                                                                            0               2014       2016           2021           2026
                                                                                                                                                                                                                        *Medicaroid Corporation: A joint venture established with Sysmex Corporation to develop and manufacture
                                                                                                                                                                                                                         medical robots; accounted for by the equity method.

13                                                                                                                                                                                                                                                                                                                                  14
Kawasaki Report 2016 - Making history anew - Kawasaki Heavy Industries, Ltd.
Picture of Business in 2025                                        core competence, new products and business                      formulating the new medium-term business plan        reinforcing our business foundation so that it is
     Visualizing business in 2025, we see growth                        models in each sector.                                          MTBP 2016.                                           truly primed for medium- to long-term growth.
     hinging on the key investment areas of air trans-                      Turning this image into reality should result                   The global economic forecast remains uncer-          Specifically, we will establish business-
     portation systems, robots and energy, with enter-                  in a before-tax ROIC of 14% or higher, an operat-               tain, clouded by such factors as a downturn in       matched key performance indicators (KPI)* which
     prise value continuing to improve on a portfolio                   ing income margin of 9% or higher, ROE of 15%                   oil prices, a slowdown in emerging markets, and      break down the components of ROIC, and track
     emphasizing high profitability, sustained growth                   or higher, and operating cash flow of at least                  withdrawal of the United Kingdom from the Euro-      progress. Because KPI hinge on daily operations
     and stability. In addition, for each of the four                   ¥200.0 billion in fiscal 2026.                                  pean Union (EU). And in currency markets, the        and are based on the characteristics that define
     sectors—Air Transportation Systems, Land/Sea                                                                                       yen is trending upward. Given these factors, it is   each business, our employees are better able to
     Transportation Systems, Energy & Environmental                     Fundamental Strategies under MTBP 2016                          possible that the operating environment during       grasp the “what” and “how” of ROIC to boost
     Engineering and ROBO-MECH—we have clarified                        What do we need to do over the next three                       MTBP 2016 will not be particularly favorable         enterprise value and be more involved in Kawa-
     specific growth strategies as well as business                     years to achieve this vision for 10 years in the                for us. To reach our objectives for 2025 despite     saki-ROIC Management. Examples of KPI include
     strategies aimed primarily at promoting stronger                   future? That was the perspective we took in                     potential obstacles, we must be able to cope with    inventory turnover, consolidated marginal profit
                                                                                                                                        changes in the operating environment and issues      and accrued failure costs, and whatever indicator
                                                                                                                                        of concern in our business segments while            contributes significantly to a better ROIC result in
     Picture of Business in 2025
                                                                                                                                        steadily pursuing investment activities for          each business will be the one that is chosen. Such
     Kawasaki Group                                                                                                                     medium- to long-term growth and solidifying our      KPI are very useful not only in the pursuit of
     • Growth hinging on key investment areas of air transportation, robots and energy                                                  foundation.                                          greater efficiency and growth but also in risk
     • Enhanced enterprise value through portfolio boasting high profitability, sustainable growth and stability                            Toward this end, we identified three funda-      management.
                                                                                                                                        mental strategies to follow during MTBP 2016.        *KPI (Key Performance Indicators): Quantitative business metrics
     Air Transportation Systems                                        Land/Sea Transportation Systems
                                                                                                                                        The first is to promote further progress on
     •                                                                 •
                                                                                                                                                                                              used to evaluate the degree of success in reaching business goals.
       Steady growth paralleling increased demand for air                Growth by tapping into overseas demand, especially
       transportation worldwide                                          in emerging markets                                            Kawasaki-ROIC Management, the second is to
                                                                                                                                                                                                 Indeed, we have been meticulous in our
     • System integrator, module supplier                              • Promoted high-value-added products, underpinned                implement investments targeting medium- to
                                                                                                                                                                                             approach to ROIC through Kawasaki-ROIC Man-
     • High profitability through after-market/MRO* busi-                by technological capabilities and brand strength               long-term growth, and the third is to realign our
                                                                                                                                                                                             agement, even preparing balance sheets for
       ness                                                            • Global production structure                                    businesses.
                                                                                                                                                                                             each business unit. But we will be more
                                                                                                                                                                                                                                           Efficiency
     Energy & Environmental Engineering                                ROBO-MECH                                                                                                             thorough in regard to risk management,
     • Growth fueled by wider demand for distributed
       power generation and oil & gas
                                                                       • Expanded business sectors for human-friendly robots
                                                                         that coexist with humans and for medical robots
                                                                                                                                        Fundamental Strategy 1:
                                                                                                                                        Further progress on Kawasaki-ROIC Management
                                                                                                                                                                                             using KPI to check for unusual numbers,
                                                                                                                                                                                             executing project bids and pre-order
     • Promoted solution-style business and system mar-
       keting
                                                                       • Promoted products maximizing synergies between
                                                                         robots and hydraulic components
                                                                                                                                        We introduced Kawasaki-ROIC Management in
                                                                                                                                                                                             front-end engineering, examining
                                                                                                                                                                                                                                        Application of KPI
                                                                                                                                        2013 to improve the enterprise value of the
     • Leader toward realization of hydrogen society                   • Top brand in motion control
                                                                                                                                        Kawasaki Group, and the concept has proven
                                                                                                                                                                                             latent risks, and following up after
                                                                                                                                                                                             projects are completed, which will      Growth
                                                                                                                                                                                                                                                        Risk
                                                                                                                                                                                                                                                  management
     *MRO: Maintenance, Repair, Overhaul                                                                                                successful in strengthening our financial position
                                                                                                                                                                                             strengthen risk management.
                                                                                                                                        and generating cash flow on a consolidated basis.
                                                                                                                                        But during MTBP 2016 we have to push the
     Quantitative View of Fiscal 2026                                                                                                   concept even further, with an emphasis on
                                                                                                                    Above 14

                                                                                                11.0
                                                                           9.4                                       Above 9            “The three fundamental strategies under
                                                      6.1
                                    Before-tax ROIC
                                                                                                                                                    MTBP 2016 are to promote further progress
                                                                           6.2                   5.7
                           Operating income margin                                                                                                            on Kawasaki-ROIC Management,
                                                      3.2
                                                                                                                                                     to implement investments targeting medium- to
                                            FY2013                  FY2016                 FY2019                    FY2026             long-term growth, and to realign our businesses.”
                                            (Actual)                (Actual)               (Target)                   (Ideal)

     Before-tax ROIC                                   6.1%                    9.4%              11.0%                14% or higher

     Operating income margin                           3.2%                    6.2%                   5.7%             9% or higher

     Return on equity (ROE)                            9.5%                10.6%                 14.0%                15% or higher

     Operating cash flow                   ¥28.1 billion          ¥86.0 billion          ¥140.0 billion      ¥200.0 billion or higher

     Total asset turnover (times)                      0.87                    0.95                   1.00                1 or more

     (Reference value: Net sales)      (¥1,288.8 billion)     (¥1,541.0 billion)      (¥1,740.0 billion)          (¥2,400.0 billion)

15                                                                                                                                                                                                                                                                 16
Kawasaki Report 2016 - Making history anew - Kawasaki Heavy Industries, Ltd.
Fundamental Strategy 2:                                                      Fundamental Strategy 3:                                                                 MTBP 2016 Quantitative Targets                            distribution of dividends. Guided by this policy,
     Investments targeting medium- to long-term                                   Business realignment                                                                    In our outlook for fiscal 2017, the first year of         management established a benchmark of 30% for
     growth                                                                       Two business segments—Ship & Offshore Structure                                         MTBP 2016, we anticipate net sales of ¥1,570.0            the consolidated payout ratio over the medium
     During MTBP 2013, the Kawasaki Group aggres-                                 and Hydraulic Machinery—continue to face a diffi-                                       billion, up from fiscal 2016, but operating income        to long term.
     sively allocated funds for capital expenditure and                           cult business environment, making restructuring                                         is likely to decline to ¥70.0 billion. This reflects a
     investment in R&D; however, during MTBP 2016,                                essential. Ship & Offshore Structure will strive to                                     shift toward yen appreciation and a temporary             Environmental Management
     the strategy is to expand investment overall, with                           optimize profits by integrating the operations of                                       decrease in Aerospace earnings, but the situation         Guided by the strategies of the Ninth Environmen-
     an emphasis on growth fields. We will earmark                                NACKS and DACKS* with the Sakaide Works, which                                          should correct by fiscal 2019, the last year of           tal Management Activities Plan (fiscal 2017 to
     about ¥280.0 billion over three years for capital                            will function as a mother factory. At the Kobe                                          MTBP 2016, and we look forward to higher sales            fiscal 2019), the Kawasaki Group seeks to reduce
     expenditures, such as a new factory to manufac-                              Works, the focus will be on submarine-related                                           and income, mainly from Rolling Stock, Motorcycle         the environmental impact that accompanies busi-
     ture components for the Boeing 777X as well as                               operations in an effort to stabilize business activi-                                   & Engine and Precision Machinery. Expectations are        ness activities. Emphasis has been placed on mea-
     jet engine production facilities and increased pro-                          ties. Meanwhile, the offshore service vessels busi-                                     for net sales of ¥1,740.0 billion, operating income       sures to cut CO2 emissions and energy costs, pro-
     duction of robots, and about ¥150.0 billion over                             ness, which booked massive losses in fiscal 2016                                        of ¥100.0 billion and before-tax ROIC at 11.0%.           mote the 3R* concept and reduce environmental
     three years to R&D, especially on future commer-                             due to issues related to a Brazilian joint venture,                                                            FY2016      FY2017      FY2019     loads (materials exerting an impact on the envi-
     cial aircraft as well as medical robots and hydro-                           will be downsized, with efforts directed mainly                                         (Billions of yen)      (Actual)   (Forecast)   (Target)   ronment), with targets for each division set annu-
     gen-related businesses.                                                      toward the construction of offshore service                                             Orders received        1,693.6    1,500.0      1,740.0    ally. All divisions are systematically engaged in
         Looking at investment in air transportation                              vessels for customers in Norway.                                                        Net sales              1,541.0    1,570.0      1,740.0
                                                                                                                                                                                                                                    programs to achieve these targets. In addition, we
     systems—a key segment—as a percentage of                                     *NACKS and DACKS: Affiliated companies accounted for by the                                                                                       maintain a program for registering products with
                                                                                                                                                                          Operating income          95.9        70.0      100.0
     overall application of funds, you will notice an                              equity method as joint ventures with companies in China.                                                                                         excellent environmentally conscious features as
     increase in capital expenditures, from 38% in MTBP                                                                                                                   Operating income                                          Kawasaki Green Products, and constantly pursue
                                                                                                                                                                                                      6.2         4.4        5.7
                                                                                      In Hydraulic Machinery, “Kawasaki” enjoys                                           margin (%)
     2013 to 45% in MTBP 2016, and an increase in                                                                                                                                                                                   activities to lower the inherent post-sale environ-
                                                                                  top-brand status for leading-edge technology and                                        Before-tax ROIC (%)         9.4         8.3       11.0
     R&D investment as well, from 15% to 20%, respec-                                                                                                                                                                               mental impact of the Kawasaki products provided
                                                                                  a high share of the market. But the goal is to at                                       ROE (%)                   10.6        11.0        14.0
     tively. I trust you understand the reasons behind                                                                                                                                                                              to customers.
                                                                                  least maintain—but ideally expand—market share,
     our strategy to selectively invest in growth fields.                                                                                                                                                                               Our lineup already includes power generation
                                                                                  mainly by enriching the lineup and honing a                                             Financial Strategies
         In the hydrogen business, we spearheaded                                                                                                                                                                                   systems that draw on waste heat from garbage
                                                                                  sharper cost-competitive edge, and reduce reliance                                      During MTBP 2013, we worked to significantly
     the establishment of CO2-free Hydrogen Energy                                                                                                                                                                                  incinerators and cement plants as well as products
                                                                                  on the excavator market in China by developing                                          strengthen our financial position by improving
     Supply-Chain Technology Research Association                                                                                                                                                                                   designed to reduce environmental impact through,
                                                                                  business in the construction and agricultural                                           capital efficiency through Kawasaki-ROIC Man-
     (HySTRA) in February 2016. HySTRA’s primary                                                                                                                                                                                    for example, the use of waste heat from gas tur-
                                                                                  machinery markets beyond excavators. In addition,                                       agement and ensuring good operating cash flow.
     objective is to establish and verify the technolo-                                                                                                                                                                             bine and gas engine power generation facilities.
                                                                                  this business segment will seek synergies and                                           During MTBP 2016, investing cash flow is likely
     gies required throughout the hydrogen energy                                                                                                                                                                                   We are also working on the technologies of tomor-
                                                                                  enhanced efficiency by integrating operations with                                      to trend high, at about ¥90.0 billion per year, to
     supply chain, beginning with production from                                                                                                                                                                                   row that will feature in such applications as CO2
                                                                                  the robot business. This effort includes production                                     fuel medium- to long-term growth; however, we
     source materials to transportation, storage and                                                                                                                                                                                separation and collection systems and the above-
                                                                                  of robots at Kawasaki Precision Machinery                                               expect to register operating cash flow of more
     use. The ultimate goal, however, is to contribute                                                                                                                                                                              mentioned CO2-free hydrogen projects. Through
                                                                                  (Suzhou) Ltd. in China and more efficient use of                                        than ¥110.0 billion per year and will strive to
     to the realization of a hydrogen energy society.                                                                                                                                                                               these activities, we will contribute to the realiza-
                                                                                  labor and facilities.                                                                   reinforce our financial position and maintain             tion of a sustainable society on a global scale.
                                                                                                                                                                          appropriate investment capacity. We are target-           *3R: Reduce, Reuse, Recycle – three essential components of
     Changes in CAPEX (acquisition basis) and R&D investment during each MTBP (cumulative)
                                                                                                                                                                          ing a net debt equity ratio in the range of 70%            initiatives to cut waste disposal
       Air Transportation Systems            ROBO-MECH                  Energy & Environmental Engineering
                                                                                                                                                                          to 80% as of March 31, 2019.
       Land/Sea Transportation Systems       Other
                                                                                                                         10%                                                                                                        Message to Stakeholders
                                                                        17%                                                                                               Return to Shareholders                                    For the Kawasaki Group, the development of our
                                      19%
                             24%
                                                                                       38%                                                                                The Kawasaki Group seeks to raise shareholder             businesses is built on a relationship of trust with
     Changes in CAPEX                                                                                                                        45%
     (acquisition basis)
                                                                                                              25%                                                         value and enhance enterprise value over the long          stakeholders, including shareholders and customers.
                                           24%                    27%
                              27%                Total                                       Total                                                 Total                  term by continuously investing in the innovative          I hope that Kawasaki Report 2016 helps readers
                                                 ¥197.8 billion                              ¥244.1 billion                                        about ¥280.0 billion
                                     6%                                                                             5%                                                    R&D and state-of-the-art facilities needed to             gain a deeper understanding of what we do as a
                                                                           5%   13%
                                                                                                                           15%                                            drive growth and by consistently generating               corporate group and takes communication between
                                                                                                                                                                          income exceeding capital costs as well as a high          stakeholders and the Kawasaki Group to a higher
                           MTBP 2010 (Actual)                     MTBP 2013 (Actual)                            MTBP 2016 (Forecast)                                      level of cash flow from operations. We believe            level. Under the corporate slogan “Powering your
                                                                                                                                                                          this approach serves our shareholders’ interests.         potential,” we will undertake business activities
                                                                                                                         10%
                                                                          10%    15%                                                   20%                                    Toward this end, our basic policy is to strike        designed to achieve our mission—to be a socially
                               13%   12%
                                                                                                                                                                          a good balance between certain corporate capital          responsible corporate citizen contributing to com-
                                           20%                                                                                                                            needs—reinforcing our financial footing by                fortable lifestyles and the environment worldwide—
     R&D investment                                                                    22%
                                                                                                              35%
                                                                                                                                                                          enriching shareholders’ equity and reducing               and to make society a better place through ongoing
                            42%                  Total            40%                        Total                                           20% Total
                                      13%        ¥118.7 billion                              ¥125.6 billion                                      about ¥150.0 billion
                                                                                                                                                                          interest-bearing debt, and improving shareholder          value creation. Your continued understanding and
                                                                                 13%                                                                                      value through R&D and capital investment—and              support of the Kawasaki Group and its activities will
                                                                                                                                 15%
                                                                                                                                                                          the return of profits to shareholders through the         be integral to our shared success.

17                                                                                                                                                                                                                                                                                                18
Initiatives to Realize a Hydrogen Society

                                                                                                                                                                                                                                                                                 Size of hydrogen market
      To date, uses of hydrogen have been limited to primarily industrial applications such
      as in oil refining, as rocket fuel, and in semiconductor manufacturing processes.
      But with the debut of a fuel cell system for homes in 2009 and subsequent popularity,
                                                                                                                                                                                                                                                                             ¥  8trillion           8 (Trillions of yen/year)

                                                                                                                                                                                                                                                          Establish completely
      followed by other innovative applications, including the introduction of a fuel cell vehi-
                                                                                                                                                                                                                                                          CO2-free hydrogen
      cle in 2014, hydrogen is steadily moving toward everyday use. Kawasaki has technolo-                                                                                                                                                                supply system
      gies highly compatible with each process—production, transportation/storage and use—                                                                                                                                                                                                              Hydrogen
                                                                                                                                                                                                                                                           CO2-free hydrogen production
                                                                                                                                                                                                                                                           and transportation/storage
      of the hydrogen supply chain. Our technologies link hydrogen production sites to                                                                                                                                                                     get into full swing                      6

      consumer sites, and in so doing, pave a new way to the future—the Hydrogen Road.
                                                                                                                                                                                                      Full-scale introduction of hydrogen
                                                                                                                                                                                                      power generation/Establish
                                                                                                                                                                                                      large-scale hydrogen supply system

                                                                                                                                                                                                        Imported hydrogen at ¥30/Nm3
                                                                                                                                                                                                                                                           ¥ 4trillion                              4
                                                                                                                                                                                                                                                                                                        Hydrogen supply
                                                                                                                                                                                                                                                                                                        infrastructure

                                                                                                                                                                                                        Expand distribution of hydrogen
                                                                                                                                                                                                        for commercial use
                                                                                                                                                                                                                                                                                                        Hydrogen-fueled
                                                                                                                                                                                                                            Imported hydrogen                                                           power generation
                                                                                                                                                                                                                            becomes widely available
                                                                                                                                                                                                                            Full-scale introduction
                                                                                                                                                                                                                            of hydrogen for power                                                   2
                                                                                                                                                                                                                            providers

                                                   expand
                                                                                                                                                                                                                                                                                                        Fuel cell vehicles

......by uniting to
                                                                                                                                                                                                                                                                                                        Stationary fuel cells
                                                                                                                                                                                                       ¥200 billion                                                                                 0
                                                                                                                                                                      2015              2020           2025                 2030           2035            2040             2045             2050 (Year)

                                                  possibilities                                                                                                        Dramatic expansion in hydrogen use
                                                                                                                                                                 Market debut of fuel
                                                                                                                                                                 cells for business/
                                                                                                                                                                 industrial use
                                                                                                                                                                                        Price of
                                                                                                                                                                                        hydrogen
                                                                                                                                                                                        drops
                                                                                                                                                                                                       Price of fuel cell
                                                                                                                                                                                                       vehicles drops
                                                                                                                                                                                                                                              *From “Strategic Road Map for Hydrogen and Fuel Cells (Revised, March 22,
                                                                                                                                                                                                                                               2016), by the Ministry of Economy, Trade and Industry

                                                                                                                                                                                              On February 22, 2016, four companies—Kawasaki Heavy Industries, Iwatani
                                                                                                                                                                                             Corporation, Shell Japan Limited and Electric Power Development Company—
                                                                                                                                                                                           established HySTRA, the CO2-free Hydrogen Energy Supply-Chain Technology
                                                                                                                                                                                          Research Association. Going forward, the plan is for HySTRA to implement the
                                                                                                                                                                                        Demonstration Project for Establishment of Supply Chain for Mass Marine Trans-
                                                                                                                                                                                      portation of Hydrogen and Gasification of Brown Coal, a demonstration project
                                                                                                                                                                                    for the New Energy and Industrial Technology Development Organization (NEDO).

                              Kawasaki Hydrogen Road
                              Hydrogen                                                        Hydrogen                                                              Hydrogen                                                       Hydrogen                                 Kawasaki is keen to
                                    Production                                                     Transportation                                                       Storage                                                        Use                             contribute to reducing CO2 on
                              We promote liquefi  fied hyd
                                                       hy rogen
                                                            rog
                                                             og made                             We are
                                                                                                     a worki  rk
                                                                                                              rking
                                                                                                                king on
                                                                                                                      n the developmentt                           Liquefied hydrogen storage tanks                              We are developing gas                a global scale by pushing ahead
                       ffro
                         rom brown coal ass an un   nuse
                                                      usedd natural
                                                             at     l re
                                                                      resou
                                                                         source
                                                                         sou rcee,,        of th
                                                                                               the woorld
                                                                                                        d’s first
                                                                                                             firs liq
                                                                                                                   iq
                                                                                                                    quefi
                                                                                                                       efieed hydrogen
                                                                                                                       efi           en caarri
                                                                                                                                           rrier.
                                                                                                                                              e                  and containers for on-land transport                    turbine power generation equipment                with the development
                                   at the cr
                                           cryog
                                             yogeni
                                             yog e c temp
                                                 eni  temp
                                                        mpeeratur
                                                        mp  eratur
                                                                 uree                  Con
                                                                                         nstrruct
                                                                                              uction
                                                                                                   n of a dem  mons
                                                                                                                 onstr
                                                                                                                    tration vess
                                                                                                                               ess
                                                                                                                                ssel
                                                                                                                                sse is set fo
                                                                                                                                  el       forr 2020,             of liquefied hydrogen are essential                      using hydrogen as the fuel source.
                                                                                                                                                                                                                                                                            of technology aimed
                                 of -253˚C
                                         3˚C and thenen transpor
                                                              porrt it.                   while
                                                                                          whi le we
                                                                                                 w are planning
                                                                                                         pll         for larg
                                                                                                                            r er des
                                                                                                                            rg   designss as
                                                                                                                                          as well
                                                                                                                                             we .                   to the use of hydrogen in Japan.               We are also pursuing development of technology
                             We built a hydrogen liquefa
                                                      quefaction
                                                               on sys
                                                                   system
                                                                        tem
                                                                          m                                                                             Kawasaki has proven results, built over many years,         that allows mixed combustion with hydrogen            at realizing tomorrow’s
                             test facility
                                         y and marked ed a first in
                                                                  n Jap
                                                                      apan                                                                                  in supporting domestic storage of rocket fuel,                  in natural gas-fired gas turbines                hydrogen society.
                      with
                      w
                      witi h the successful liq
                                             liqu
                                               qu
                                               qu
                                                uefa
                                                 efacti
                                                 efa ction
                                                        on of hyd
                                                                yddrog
                                                                   rogen
                                                                    ogeen
                                                                    og  en und
                                                                           under
                                                                           un    err                                                                    and thus has technologies applicable to storage tanks         to lower environmental impact in addition
                             a purely domesttic production   n str
                                                               stru
                                                                  ructu
                                                                  ru ctuure.
                                                                         re.                                                                              and transport containers for liquefied hydrogen.             to the development of gas turbines driven
                                                                                                                                                                      We are pursuing R&D aimed                                    by 100% hydrogen.
                                                                                                                                                                  at making larger-capacity liquefied
                                                                                                                                                                        hydrogen storage tanks.

 19
 19                                                                                                                                                                                                                                                                                                                             20
                                                                                                                                                                                                                                                                                                                                20
Hydrogen                                                                                                                           Hydrogen
        Production
                                                                                                                                               Cooled to -2253˚C
                                                                                                                                                  and in liquefied form,

            -253°C                                        cryogenic temperature achieved
            Kawasaki successfully developed Japan’s first industrial-
                                                                                                                                                     hydrogen shrinks to
                                                                                                                                               original volume for the oce
                                                                                                                                                                                          of its
                                                                                                                                                                         ean voyage to Japan
                                                                                                                                               Giving the world its first liquefied hydrogen carrier
            use hydrogen liquefaction system using entirely home-                                                                              For hydrogen to have a real future as widely used, next-generation
            grown, proprietary technology.                                                                                                     energy, technology is needed that will ensure safe and highly effi-
            The hydrogen liquefaction system we developed was                                                                                  cient transportation of hydrogen in large volume. Kawasaki, which
            installed at one of our domestic facilities and has the                                                                            built Japan’s first liquefied natural gas (LNG) carrier in 1981,
            capacity to liquefy about five tons of hydrogen per day.                                                                           enjoys a place at the forefront of cryogenic technology for
            This is made possible through the application of cryo-                                                                             marine transport. We drew together the best in cryogenic
            genic materials handling technology and technical                                                                                  technology and shipbuilding technology accumulated over
            turbine expertise accumulated through the devel-                                                                                   many years and are applying this expertise to the devel-
            opment of high-speed rotating machines.                                                                                            opment of the world’s first liquefied hydrogen carrier.

            When cryogenically cooled to -253˚C, hydrogen changes from a gaseous state to a liquefied state shrinking to 1/800 of its          The sh
                                                                                                                                                   shape
                                                                                                                                                     ap of th
                                                                                                                                                     ape   the
                                                                                                                                                             e future,
                                                                                                                                                               f       from
                                                                                                                                                                         om Kaw
                                                                                                                                                                            Kawasa
                                                                                                                                                                               asaki
                                                                                                                                                                                  ki                                -162˚C LNG carrier: Symbolizing 30 years of Kawasaki pride
            original volume. In this concentrated form, hydrogen exhibits a tremendous improvement in storage/transportation effi-             Large liquefied hydrogen carrier                  Should
                                                                                                                                                                                                 Sho  uld
                                                                                                                                                                                                       ld a so
                                                                                                                                                                                                            socciet
                                                                                                                                                                                                                ie y wher
                                                                                                                                                                                                                        e e hydroge
                                                                                                                                                                                                                                  ogen n is
                                                                                                                                                                                                                                         is widely
                                                                                                                                                                                                                                            w       use
                                                                                                                                                                                                                                                    us  ed beco
                                                                                                                                                                                                                                                           become a reality, itt will
                                                                                                                                                                                                                                                                                  w require e
            ciency, which raises the amount of hydrogen that can be distributed by marine or ground transportation.                            large qua
                                                                                                                                               large  uanti
                                                                                                                                                         ntitie
                                                                                                                                                            tiess of hydr
                                                                                                                                                                     hydr
                                                                                                                                                                        droge
                                                                                                                                                                          ogen
                                                                                                                                                                          oge n prod
                                                                                                                                                                                prod
                                                                                                                                                                                  o uce
                                                                                                                                                                                     uc d inex xpen
                                                                                                                                                                                                pensiv
                                                                                                                                                                                                     sively
                                                                                                                                                                                                      ively ov
                                                                                                                                                                                                            o ers
                                                                                                                                                                                                               e eas
                                                                                                                                                                                                                   eas to be trrans
                                                                                                                                                                                                                                 nspor
                                                                                                                                                                                                                                    po ted
                                                                                                                                                                                                                                    por te to Ja apan
                                                                                                                                                                                                                                                   pan.. Hydr
                                                                                                                                                                                                                                                          ydroge
                                                                                                                                                                                                                                                          yd  ogen—t
                                                                                                                                                                                                                                                                   —the
                                                                                                                                                                                                                                                                      he ult
                                                                                                                                                                                                                                                                         ultima
                                                                                                                                                                                                                                                                            imatete clean
                                                                                                                                                                                                                                                                                       an
                                                                                                                                               energy
                                                                                                                                               ene rgy. When sosocie
                                                                                                                                                                  c ty
                                                                                                                                                                  cie  y use
                                                                                                                                                                          ses
                                                                                                                                                                           es hydr
                                                                                                                                                                               ydd oge
                                                                                                                                                                                   ogen a
                                                                                                                                                                                   ogen  ass an
                                                                                                                                                                                             an ene
                                                                                                                                                                                                  nerrgy
                                                                                                                                                                                                      g source e as maatte
                                                                                                                                                                                                                         er-o
                                                                                                                                                                                                                           r f-f
                                                                                                                                                                                                                              f- act
                                                                                                                                                                                                                                   ctly
                                                                                                                                                                                                                                     ly ass it doe
                                                                                                                                                                                                                                               does coal
                                                                                                                                                                                                                                                     oal, oil
                                                                                                                                                                                                                                                          oil an
                                                                                                                                                                                                                                                              and
                                                                                                                                                                                                                                                               ndd na
                                                                                                                                                                                                                                                                   natur
                                                                                                                                                                                                                                                                     tur
                                                                                                                                                                                                                                                                     tu
                                                                                                                                                                                                                                                                      u al gas,
                                                                                                                                                                                                                                                                           gass, it
                                                                                                                                                                                                                                                                                 it will be
                                                                                                                                                                                                                                                                                         be
                                                                                                                                               large hyddrog
                                                                                                                                                         rogen
                                                                                                                                                             en car
                                                                                                                                                                 carrie
                                                                                                                                                                     rie
                                                                                                                                                                       ers de
                                                                                                                                                                           dev
                                                                                                                                                                            e elo
                                                                                                                                                                            ev  loped
                                                                                                                                                                                  pe
                                                                                                                                                                                  p ed by Ka
                                                                                                                                                                                          Kawas
                                                                                                                                                                                              wassaki
                                                                                                                                                                                                  a th
                                                                                                                                                                                                  ak   hat suppppor
                                                                                                                                                                                                                 o thhydr
                                                                                                                                                                                                                      ydroge
                                                                                                                                                                                                                      ydr ogen
                                                                                                                                                                                                                          oge n dist
                                                                                                                                                                                                                                 dis
                                                                                                                                                                                                                                  istrib
                                                                                                                                                                                                                                     r uti
                                                                                                                                                                                                                                     rib ution.

21                                                                                                                                                                                                                                                                                              22
Hy
      ydrogen                                                                                                              Hydrogen

                                                                                                                              Use
                                                          liquefied hydrogen
                                                          coontainment system
            Kawasaki has cultivated cryogenic temperature –253˚C liquefied
                                                                                                                                            100Hydrogen-driven gas turbine technology
                                                                                                                                                                                             hydrogen power generation

            hydrogen storage technology through the development of lique-                                                                      Chemical plants and other facilities generate large amounts of by-product
            fied hydrogen storage tanks installed at the Japan Aerospace                                                                       gas, including hydrogen, leading to a growing need for effective ways to
            Exploration Agency (JAXA) rocket launch facilities.                                                                                utilize the derivative gas. In response, Kawasaki is currently running
            Kawasaki was entrusted by NEDO to undertake R&D on peripheral                                                                      verification tests on a gas turbine with a proprietary combustion
            technology (a hydrogen liquefaction and storage system) under a                                                                    system fueled by a mixture of natural gas and hydrogen. We are
            cutting-edge R&D project to promote wider use of hydrogen as                                                                       also engaged in the development of gas turbine combustors
            an energy source. We are working on a 1,000m3-class lique-                                                                         optimized to the characteristics of hydrogen, namely, its fast
            fied hydrogen containment system featuring a vacuum                                                                                rate of combustion, to generate power using 100% hydrogen.
            insulation structure to minimize evaporation of the stored
            liquefied hydrogen, as hydrogen in its liquefied state is                                                                                                                                                   Hydrogen mix combustion technology: Demonstration gas
                                                                                                                                                                                                                        turbine on site of Kawasaki facility
            more susceptible to evaporation than LNG.
                                                                                                                                                                                                                        (Hydrogen-only combustion technology: Pilot operation under
                                                                   Liquefied hydrogen storage tanks at Tanegashima Space                                                                                                consideration)
                                                                   Center, in use for more than 25 years

                                                                                                                                                                         High
                                                                                                                                                                         Hi  gh-T
                                                                                                                                                                               -Teempe
                                                                                                                                                                                  emmpe
                                                                                                                                                                                      perature
                                                                                                                                                                                            re/Hig
                                                                                                                                                                                                 igh-Pr
                                                                                                                                                                                                 ig  Pres
                                                                                                                                                                                                     Pr essu
                                                                                                                                                                                                           ure
                                                                                                                                                                                                            re Comombu
                                                                                                                                                                                                                     bustio
                                                                                                                                                                                                                       stio
                                                                                                                                                                                                                       stion
                                                                                                                                                                        T stt Facil
                                                                                                                                                                        Te       iliity (RWT
                                                                                                                                                                                           TH Aa
                                                                                                                                                                                               Aachhen
                                                                                                                                                                                                    e Uniivers
                                                                                                                                                                                                           vers
                                                                                                                                                                                                           ver itty)
                                                                                                                                                                                                                  y)
                                                                                                                                                               Developed low-NOx, hydrogen-fueled gas turbine
                                                                                                                                                             combustion technology
                                                                                                                                                            Hydrogen combustion in a gas turbine tends to be unstable because of hydrogen’s fast rate of
                                                                                                                                                          combustion, and as the flame temperature rises, NOx emissions nearly double compared with
                                                                                                                                                        the amount released in the combustion of natural gas.
                                                                                                                                                         To solve these issues, Kawasaki teamed up with Aachen University of Applied Sciences (FH), in
                                                                                                                                                     Germany, to pursue basic research on hydrogen-fueled Dry Low Emission (DLE*) combustion capable
                                                                                                                                                   of suppressing flashback and other unstable combustion events through the use
                                                                                                                                                 of small hydrogen flames while also achieving low-NOx results.
                                                                                                                                                  Then, commissioned by the Japan Science and Technology
                                                                                                                                             Agency under a strategic innovation promotion program for
                                                                                                                                           energy carriers—an initiative of the Council for Science, Technology
                                                                                                                                          and Innovation—we became involved in the development of
                                                                                                                                        a gas turbine combustor using this small hydrogen flame. We
                                                                                                                                      also conducted a hydrogen combustion test (100% hydrogen)                               Gas turbine  Combustor
                                                                                                                                    using the high-temperature, high-pressure combustion test facility
                                                                                                                                  at RWTH Aachen University and confirmed that the use of the new
                                                                                                                                technology achieved NOx emissions far below the regulation value.
                                                                                                                              *A system that reduces NOx emissions by minimizing combustion temperature without the use of injected water or steam.

23                                                                                                                                                                                                                                                                                    24
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