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Notice Regarding a Capital and Business Alliance to Strengthen the Business of a Subsidiary (Kawasaki Motors, Ltd.)

Kawasaki Heavy Industries, Ltd. (hereinafter, "the Company") has resolved, at its Board of Directors meeting held on November 8, 2024, that the Company will sell 20% of the outstanding shares of its consolidated subsidiary Kawasaki Motors, Ltd. (hereinafter, "Kawasaki Motors") owned by the Company to Kawasaki Motors as described below, and that Kawasaki Motors will conduct a third-party allotment to ITOCHU Corporation (hereinafter," ITOCHU") whereby 20% of the outstanding shares of Kawasaki Motors will be allocated to ITOCHU. Along with the resolutions, the three companies entered into a capital and business alliance agreement on the same date. The following document is intended to provide notice of these events.

  1. The Objectives of the Capital and Business Alliance

    In order to realize the "Group Vision 2030" enacted in fiscal year 2020, the Company has been stepping up efforts to offer solutions to address social issues as well as to build an operating system and growth scenarios for generating such solutions. As a part of this process, and while Kawasaki Motors is executing various management measures to achieve its target of one trillion yen in net sales, the three companies have been engaging in discussions concerning the possibility of collaboration that utilizes their respective resources and have reached an agreement under which the companies will work together through closer collaboration with ITOCHU as a medium and long-term partner in the Powersports & Engine business, aiming to promote personnel exchanges among the companies and to pursue mutual growth strategies.

    Through this alliance, the companies will establish a system enabling them to provide financial services directly to users within the North American market, which is the world’s largest market and the priority market for Kawasaki Motors, in a bid to enhance resilience against changes in market conditions and further strengthen its sales base, thereby accelerating and strengthening the growth strategies of Kawasaki Motors. As background, ITOCHU has built a collaborative relationship with Kawasaki Motors in helping promote exportation and manage European sales operations since the initial stages of overseas expansion of Kawasaki Motors’ motorcycle business that began in the 1960’s and has a deep understanding of Kawasaki Motors’ businesses. Besides, ITOCHU has been driving growth investment and business expansion with a focus on downstream businesses closer to consumers, and has extensive knowledge and expertise required to operate financing businesses based on its own operational experiences in sales finance services.

    The Company also believes that this alliance bears great significance for the entire Group of the Company, as the fund to be raised this time will help the Company make further investment in the hydrogen business and two other business identified as focal fields in our Group Vision 2030. Leveraging the alliance, the Company will accelerate investments in growth areas, aiming to realize sustainable growth for the Group as early as possible while improving overall capital efficiency and financial strengths of the Group with a more appropriate balance sheet structure.

  2. Details of the Capital and Business Alliance

    • Establishment of a joint venture for the purpose of providing sales finance services

      Kawasaki Motors and ITOCHU will first establish a joint venture company that will provide sales finance services aimed at the U.S. market.

      As there is high customer demand in the U.S. market for long-term installment payments when purchasing powersports products, there is a need to provide quick screening processes and competitive financing menus for dealers and customers.

      By providing high quality financial services via a market-in approach in parallel with efforts to implement an appealing, new model, and thus further expanding the sales of the products and services of and extending the value chain in the U.S., the joint venture company will help strengthen Kawasaki Motors’ customer base fundamentally and solidify its competitive advantage in the U.S. market, which accounts for more than half of Kawasaki Motors’ sales.

      The scheme for the sales finance services will be as follows:

    • Joint efforts for global sales cooperation and logistics efficiency

      Kawasaki Motors and ITOCHU will promote the global expansion of powersports products through proactive personnel exchanges between the two companies and the active use of ITOCHU's global bases of operation.

      The two companies intend to capture greater demand in countries where Kawasaki Motors has not yet fully penetrated, starting with the new markets of the CIS, the Middle East, Africa, and Latin America, where ITOCHU possesses deep knowledge based on its commitment to automotive businesses, while making efforts to improve overall logistics efficiency by leveraging land-sea transport logistics network of ITOCHU group companies.

    • Details of the capital alliance

      ① In order to maximize the effect of this broad business alliance described above, besides establishing the aforementioned joint venture company, the parties will form a capital alliance in which ITOCHU will own a part of Kawasaki Motors' shares as follows.

      1. In order for Kawasaki Motors to acquire its own shares held by the Company through a share buyback, the Company will transfer 4,000 ordinary shares to Kawasaki Motors (hereinafter, "Share Transfer").

      2. Kawasaki Motors will conduct a third-party allocation of 4,000 ordinary shares to ITOCHU as the underwriter (hereinafter referred to as the "Third-party Allotment").

      3. Based on the results of (i) and (ii) above, the Company will hold 80% of the voting rights of Kawasaki Motors, while ITOCHU will hold 20%.


      ② Overview of the Share Transfer

      (1) The number of shares retained by the Company prior to the Share Transfer

      20,000 shares (100% voting rights ownership)

      (2) Number of shares to be transferred

      4,000 shares

      (3) Transfer price

      80 billion yen

      (4) Date of transfer

      April 1, 2025 (expected)


      ③ Overview of the Third-party Allotment

      (1) Number of shares to be allotted

      4,000 shares (100% voting rights ownership)

      (2) Amount to be paid in

      80 billion yen

      (3) Number of shares issued after the allotment

      20,000 shares

      (4) Date of payment

      April 1, 2025 (expected)

      (5) The number of shares retained by the Company following the Share Transfer and the Third-party Allotment

      16,000 shares (approximately 80% voting rights ownership)


  3. Overview of the subsidiary

    (1) Name

    Kawasaki Motors, Ltd.

    (2) Location

    1-1 Kawasaki-cho, Akashi-shi, Hyogo 673-8666, Japan

    (3) Job title and name of representative

    Hiroshi Ito, Representative Director, President and Chief Executive Officer

    (4) Description of business

    Motorcycle & Engine business

    (5) Share Capital

    1 billion Japanese Yen

    (6) Date of Establishment

    February 12, 2021

    (7) Major shareholders and ownership ratios

    Kawasaki Heavy Industries, Ltd. (100%)

    (8) Relationship between the Company and the subsidiary

    Capital relationship

    The wholly owned subsidiary of the Company.

    Personnel relationship

    Four executive officers of Kawasaki Heavy Industries are also directors and corporate auditors, etc. of Kawasaki Motors.

    Business relationship

    －

    (9) Operating results and financial positions of the subsidiary for the last three years

    Years ended March 31

    2022

    2023

    2024

    Net assets

    58,675 million yen

    107,707 million yen

    125,846 million yen

    Total assets

    176,173 million yen

    235,526 million yen

    269,837 million yen

    Net assets per share

    2,933,750.18 yen

    5,385,373.31 yen

    6,292,343.88 yen

    Net sales

    148,355 million yen

    364,175 million yen

    363,944 million yen

    Operating profit

    8,198 million yen

    47,533 million yen

    40,902 million yen

    Ordinary profit

    10,443 million yen

    69,653 million yen

    39,704 million yen

    Profit

    7,200 million yen

    56,093 million yen

    33,979 million yen

    Earnings per share

    714,802.34 yen

    2,804,668.52 yen

    1,698,991.92 yen

    Dividend per share

    360,010.19 yen

    0 yen

    872,900.00 yen



  4. Overview of the counterparty to the capital and business alliance

    (1) Name

    ITOCHU Corporation

    (2) Location

    1-3, Umeda 3-chome, Kita-ku, Osaka, 530-8448, Japan

    (3) Job title and name of representative

    Keita Ishii, Representative Director, President & Chief Operating Officer

    (4) Description of business

    General trading company

    (5) Share Capital

    253,448 million yen (as of the year ending March of 2024)

    (6) Date of Establishment

    December 1, 1949

    (7) Major shareholders and ownership ratios

    The Master Trust Bank of Japan, Ltd. (trust account)

    16.09%

    BNYM AS AGT / CLTS 10 PERCENT

    9.04%

    Custody Bank of Japan, Ltd. (trust account)

    5.30%

    CP WORLDWIDE INVESTMENT COMPANY LIMITED

    3.91%

    Nippon Life Insurance Company

    2.36%

    Mizuho Bank, Ltd.

    2.17%

    SSBTC CLIENT OMNIBUS ACCOUNT

    1.91%

    STATE STREET BANK WEST CLIENT - TREATY 505234

    1.75%

    Asahi Mutual Life Insurance Company

    1.62%

    JP MORGAN CHASE BANK 385781

    1.30%

    (as of March 2024)

    (8) Relationship between the Company and the counterparty

    Capital relationship

    Not applicable

    Personnel relationship

    Not applicable

    Business relationship

    The Company and its affiliates have transactions such as purchasing materials and leasing with the counterparty and its affiliates.

    Status of applicability torelated parties

    Not applicable

    (9) Consolidated operating results and consolidated financial positions of the counterparty for the last three years

    Years ended March 31

    2022

    2023

    2024

    Total shareholders’ equity

    4,199,325 million yen

    4,823,259 million yen

    5,426,962 million yen

    Total assets

    12,153,658 million yen

    13,115,400 million yen

    14,489,701 million yen

    Shareholders' equity per share

    2,857.50 yen

    3,314.35 yen

    3,771.77 yen

    Revenues

    12,293,348 million yen

    13,945,633 million yen

    14,029,910 million yen

    Trading income

    582,522 million yen

    701,913 million yen

    702,900 million yen

    Profit before tax

    1,150,029 million yen

    1,106,861 million yen

    1,095,707 million yen

    Net profit attributable to ITOCHU

    820,269 million yen

    800,519 million yen

    801,770 million yen

    Basic earnings per share attributable to ITOCHU

    552.86 yen

    546.10 yen

    553.00 yen

    Dividend per share

    110 yen

    140 yen

    160 yen


  5. Timetable

    (1) Date of resolution at the meeting of the Board of Directors

    November 8, 2024

    (2) Date of conclusion of the agreement

    November 8, 2024

    (3) Effective date

    April 1, 2025 (expected)


  6. Future outlook

    Although this alliance will not have any effect on the results for the current fiscal year, we believe that conducting business development based on this capital and business alliance will contribute toward the improvement of the performance of the Company and Kawasaki Motors over the medium-to-long term. In addition, we expect that the impact of the execution of the Share Transfer will be a recording of approximately 70 billion yen in extraordinary income for the non-consolidated financial results of the Company for the year ending March of 2026. However, as Kawasaki Motors will remain a consolidated subsidiary of the Company even after this transaction, we expect that the impact on consolidated profit and loss will be minor.