Komatsu Ltd

TSE:6301

Earnings Call Transcript 2022-Q1

[Takeshi Horikoshi, executive]

This is CFO Horikoshi speaking. I will give you a presentation about the first quarter of fiscal year 2021. First, on Page 4, I will explain about the highlights for the first quarter of fiscal year 2021. The exchange rate of JPY 109.9 to $1, JPY 131.7 against EUR 1 and JPY 17.0 to CNY 1. Compared to the previous year, yen depreciated against the dollar, euro and renminbi. Although it is not shown on the slide, yen depreciated against the Australian dollar, South African rand and the Russian ruble.

Consolidated net sales for the first quarter of fiscal year 2021 increased by 41.3% year-over-year to JPY 648.2 billion. Operating profit went up by 129.4% to JPY 61.7 billion. Operating income ratio increased by 3.6 points to 9.5%. Consolidated net sales increased through positive factors such as volume increase and positive contribution coming from foreign exchange rates. Operating income went up due to volume increase as well. Net profit increased by 151.6% to JPY 40.8 billion.

Page 5. This is the sales and profits by segment. Net sales of the Construction, Mining & Utility Equipment went up by 39.6% to JPY 594.3 billion. Segment profit saw an increase by 131.3% to JPY 53.6 billion. Net sales increased, thanks to volume increase and positive impact coming from foreign exchange rates. Volume increase contributed to improved profit. Net sales of retail finance climbed by 28.5% to JPY 20.4 billion. Segment profit was a 69.7% increase, reaching JPY 3.2 billion.

Net sales increased due to an increase in new contracts resulting from expanded sales of the Construction, Mining & Utility Equipment business. Segment profit grew reflecting no more average effects of an extension of payments, which were implemented a year ago when the pandemic was spreading. For Industrial Machinery & Others, net sales rose by 63.2% to JPY 40.8 billion, while segment profit went up by 146.2% to JPY 4.2 billion. This was thanks to the recovery trend in demand for presses and machine tools for the automotive industry as CapEx has rebound. Furthermore, as installment construction has completed at our overseas customer site, both the sales and segment profit increased. With respect for products for the semiconductor industry, as sales for the Excimer laser-related business was strong, both net sales and segment profit increased.

Going to Page 6 is the status of sales by region for the Construction, Mining & Utility Equipment segment. Net sales grew by 41.2% year-over-year to JPY 593 billion. Net sales increased in all regions, excluding China. As growth was stronger in the strategic markets rather than the traditional markets, the ratio of strategic markets increased from last year's 53% to 56%.

Page 7 shows causes of difference in sales and segment profit of Construction, Mining & Utility Equipment. Sales increased by JPY 168.5 billion year-on-year due to volume increase and the positive effects of foreign exchange rates. Segment profit increased by JPY 30.4 billion year-on-year due to increased volume among others. And segment profit ratio was 9.0%, up 3.6 points year-on-year.

Page 8 shows retail finance. Assets remained almost flat year-on-year. New contracts increased due to increased sales of the Construction, Mining & Utility Equipment business. Revenues increased by JPY 4.5 billion year-on-year due to an increase in new contracts. Segment profit increased JPY 1.3 billion, reflecting no more adverse effects as an extension of payment, which were implemented at the time of pandemic expansion in the corresponding period a year ago.

Page 9 shows sales and segment profits of industrial machinery and others. Sales increased by 63.2% year-on-year to JPY 40.8 billion. Segment profit increased by 146.2% to JPY 4.2 billion, and segment profit ratio increased by 3.5 point to 10.3%. Both sales and profit of presses and machine tools for the automobile manufacturing industry increased, reflecting recovering demand backed by the regaining capital investment and the completion of installing machinery at overseas customers' plants. Both sales and profit of products for semiconductor manufacturing industry increased, supported by robust sales of the Excimer laser-related business.

As for the orders and sales of industrial machinery, let me explain with the appendix on Page 31. Page 31 shows orders and sales index of industrial machinery. The chart shows the index of orders value for 6 months divided by shipment value for the same 6 months. Commercial industries provide sales and service of press machine and sheet metal machines. Affected by the delayed orders for large press machines, book-to-bill ratio was around 60%, but orders for medium and small press machines, sheet metal machines and maintenance service have been in recovery trend. Komatsu NTC provides design, manufacturing and sales of machine tools, including transfer machine, machining center and the crankshaft processing machines. Orders have been low and the BB ratio has been around 60%.

Page 10 shows consolidated balance sheet. Total assets were JPY 3,790.3 billion, up JPY 5.5 billion from the previous year-end. Inventories were JPY 819 billion, up JPY 25.2 billion from the previous year-end due to increasing demand for the Construction, Mining & Utility Equipment. Shareholders' equity ratio increased by 0.5 point from the previous year-end to 51%. Net debt-to-equity ratio was 0.35.

This concludes my presentation. Next, Morishita will explain about the fiscal year 2021 outlook.

[Masatoshi Morishita, executive]

This is Morishita, General Manager of the Business Coordination Department. From this slide, I will explain about the outlook of fiscal year 2021 and the status of our major markets.

Going to Page 12. This slide is the outline of the projection for fiscal year 2021. In the first quarter, demand was robust in all regions, excluding China and yen was weaker than our initial assumption. But overall, both net sales and operating income was more or less within our expectations. Under these circumstances, we have not changed our full year projection.

From the next page onwards, I will explain about the demand trend projections of our 7 major products. Moving to Page 13. From this page onwards, I will explain about the demand trend projections of our 7 major products. This slide shows the demand trend of our 7 major products, including mining equipment. First quarter numbers of last results based on our assumptions. Unit demand for the first quarter fiscal year 2021 is assumed to have increased by 19%, as shown on the top right. In regions excluding China, demand seemed to have increased by 50%.

In China, there has been no demand this year coming from the post-Chinese New Year sales season being pushed to this quarter like it was last year. Furthermore, due to the slow infrastructure investment, demand declined year-over-year. In regions, excluding China, demand plunged in the same period last year due to the spread of COVID-19. Due to a rebound from the situation in most of the regions, demand sharply improved year-over-year. The total demand outlook of fiscal year 2021 is 0 to 15% unchanged from our April outlook, but for regions, excluding China, we are changing it to plus 10% to 15%.

In the following pages, I will explain about the status of our major regions. Page 14. This is about the demand trend in Japan. For this first quarter, demand will increase about 9%, as shown in the upper right-hand side. Demand trended solidly with firm demand coming from public works with private sector, construction recovering as well. As for the demand outlook for the full year, we have not changed our view from the beginning of April. As it has been in the first quarter, we assume demand will remain solid with 0 to 5%, which increased from the previous year. Average operating hours per month for KOMTRAX in June was up 2% year-over-year.

Going to Page 15. This slide is about the demand trend in North America. Demand for the first quarter will increase 43% year-over-year. Demand increased mainly in residential and nonresidential construction and road and traffic infrastructure construction boosted by the reviving economic activity. Demand for rental continued to recover as well. We have changed the projection for the full year demand from April to plus 10% to 15% based on the status of the first quarter. We assume that while demand for the energy sector will be weak, residential and nonresidential construction and road and traffic infrastructure sector will drive the overall demand. Average operating average per month for KOMTRAX in June went up by 4% year-over-year. Operation at the energy sector continues to be sluggish, but in rental, construction and residential sectors, operation has gone back to the pre-COVID levels.

Next, the demand for the European market on Page 16. The first quarter demand will increase by 60% year-over-year. Demand recovered mainly in major markets such as the U.K., Germany and France due to the restarting of infrastructure projects. The outlook of fiscal year 2021 is unchanged from April. As you have seen in the first quarter, recovery will continue in major countries. We anticipate demand will grow by 10% to 15% year-over-year. Average operating hours per month or contracts has gone up by 9% year-over-year in June. Operating status has trended robustly with the restart of infrastructure projects.

Going to Page 17, let me explain about the demand trend in China in this slide. This slide shows the demand for hydraulic excavators, excluding mini shovels. For your reference, we show the demand including Chinese makers. The demand growth rate is for foreign makers. Demand for the first quarter should be declining by 42% year-over-year. Total demand, including Chinese makers, will be declining by 16%. The post-Chinese New Year sales season will not come into this quarter like it has last year and infrastructure investment has been sluggish. Due to these reasons, demand in this quarter declined substantially compared to the previous year.

We have changed the outlook for demand for the full year from April based on the situation of the first quarter to minus 40% to 30%. Total demand outlook, including Chinese makers has been changed to minus 25% to 15% as well. Average operating hours per month of KOMTRAX was minus 13% in June year-over-year. We think the main reason behind this is that construction was suspended all around China to prepare for the 100th year anniversary for the celebration for the establishment of the Chinese Communist Party, we will continue to observe the situation carefully.

Going to Page 18. Next is the demand for the Southeast Asian market. Demand in the first quarter will go up by 79% year-over-year. Growth in Indonesia, our main market, is anticipated to be around 200% as shown on the lower right-hand side. Budget execution has been progressing for public works investment and recovery has been continuing in construction, while demand increased for agriculture and forestry related projects as well. In Mining Equipment, demand recovered for coal-related business. The outlook for demand for fiscal year 2021 will be 10% to 15% up year-over-year, and we have not changed our outlook from April.

For general construction equipment, we anticipate that demand recovery will continue in public investment in Indonesia and the Philippines. We also assume that coal-related demand will continue to increase for the mining equipment. However, there are some markets where the coronavirus is resurgent, so we will carefully observe the demand trend. Average operating average per month for KOMTRAX in Indonesia was plus 18% in June compared to last year. Operation and construction-related work has recovered through public investment and operating areas are increasing in agriculture-related projects as well.

Page 19 shows demand for mining equipment. Demand in the first quarter FY 2021 increased by 46% year-on-year. Demand for iron, copper and gold has been firm. demand in Oceania, Latin America and the CIS increased and as the coal price level has been high, demand for coal recovered and the demand in Asia also increased. Demand in FY 2021 is projected to increase by 20% to 30% year-on-year, kept unchanged from the projection in April. Demand for iron, copper and gold will continue to be firm and the demand recovery for coal will also continue.

Let me explain the orders and sales of mining equipment with appendix on Page 29 and 30. Page 29 shows orders and sales of mining equipment. Chart shows the index of orders value for 6 months divided by sales in the same 6 months. Commerce America at the top manufacturers in the super large dump truck. Orders for copper and iron are firm and both of orders and sales are on the rise, and the ratio is on 100% level. Komatsu Germany in the middle, manufactures and sells super large hydraulic excavators. Orders for copper and coal are firm and the latest ratio is well beyond 100%. Commercial limited at the bottom, orders for Russia and Africa are firm and the ratio is well beyond 100%. Orders for 100 ton plus dump truck for Indonesia have been increasing as well.

Page 30 shows orders and sales of KMC Mining Equipment. Surface mining demands for copper and iron are firm and underground orders have been picking up. Thus ratio has been over 100%.

Page 20 shows sales of mining equipment. In the first quarter FY 2021, sales increased by 46% year-on-year to JPY 246.8 billion. Excluding FX impact, it was an increase of 37%. Demand for iron, copper and gold having firm and sales in Oceania, Latin America and the CIS increased and demand for coal also recovered, pushing sales in Asia as well. The projection for FY 2021 is plus 17% year-on-year, JPY 920 billion kept unchanged from the projection in April.

Page 21 show sales of parts. In the first quarter FY 2021, sales of parts increased by 31% year-on-year to JPY 150.1 billion. Excluding FX impact, it was the increase of 24%. As for construction equipment, along with the resumption of economic activities in many regions, equipment utilization time returned to normalcy and sales of parts also recover to the pre-pandemic level.

Mining equipment sales have been firm in Oceania, Latin America and CIS. And in Asia, where sales have been sluggish due to the delayed overhauls, among others, by the restrained investment by customers, utilization have been recovering and sales increased. Sales in FY 2021 increased by 14% year-on-year to JPY 576.7 billion, kept unchanged from the projection in April year.

Page 32 and onward, let me explain the major topics. I will introduce the 3 initiatives for electrification. As shown on the left of the slide, commemorating 100th anniversary, we announced a fully electric mini-excavator powered by lithium-ion battery as our next-generation concept machine. This machine with no operator seat is remotely controllable. As shown in the center, we started a joint development with Honda to electrify the PC201 micro shovel, which uses the swappable Honda mobile power pack. We aim to launch the product by the end of FY 2021. And as shown on the right, we launched in Japan the PC78USE-11 hydraulic excavator, which can be plugged into a power outlet. This machine enables the long hours continuous operation and especially productivity improvement is expected in the operational side, such as industrial waste plants, where the round-the-clock operation is required.

Page 33. In Southeast Asia region, we will launch the PC200-10M0 20-ton hydraulic excavator series in July as a CE series for urban civil engineering works, including residential development and road construction. Starting in Indonesia and Thailand, we will deploy 2 model line strategy in Southeast Asia, in which we also market the standard model PC210-10M0 with CE series PC200-10M0. While inheriting the quality and the durability of the conventional models, we have achieved better fuel economy and a lower price by optimizing its specs exclusively for urban civil engineering work, including the four-cylinder engines. By deploying the competitive products, we will aim to achieve the one of the focal activities of midterm management plan than total #1 in Asia.

Page 34. Komatsu will represent exhibition at the Mine Expo in Las Vegas from September 13. We plan to present a super large power agnostic mining dump trucks, which will support customers' initiatives to achieve zero-emission and demonstration of collaborative work between super-large hydraulic excavators, remote control and unmanned dump trucks.

Furthermore, we plan to exhibit reloader with hybrid drive for surface mining, blast hole drill with automation function for surface mining and the battery type Jumbo drill for underground hard rock.

This concludes business results presentation. Thank you.

[Operator]

So we would like to take questions from the investors. So first is from Nomura Securities, Saito-san please.

[Katsushi Saito, analyst]

This is Saito speaking. Can you hear me?

[Takeshi Horikoshi, executive]

Yes, we can.

[Katsushi Saito, analyst]

I have 2 questions. One is about the changes in profit. I would like to ask Mr. Horikoshi to answer my question. If you go to Page 7, you can see that -- you can see the increase and decrease of the volume and others, and I would like to hear the breakdown, the pure volume and the others. In terms of others, I would like to hear about the components in the others.

[Takeshi Horikoshi, executive]

This is Horikoshi speaking. So in terms of the pure volume, difference is JPY 44.4 billion positive. In terms of the cost difference, it's minus JPY 1.1 billion. And there is a difference in the region mix and the product mix, that's minus JPY 1.4 billion. And #4 is the difference in the unrealized gains in the inventory. Some people say that it's difficult to understand, but this is the minus JPY 8.1 billion. In Others, there's JPY 4.5 billion in this. I think we talked about the container vessels, and there is a tightness in the availability of the container vessels. That's a JPY 2.3 billion impact within this.

[Katsushi Saito, analyst]

So in terms of the cost difference, I think it's a net between the increase of the raw materials such as steel and the improvement of your productivity. So the steel product prices have started to go up substantially. In terms of the impact, it is going to be reflected already in the first quarter? Or is it more going to be reflected in the full year?

[Takeshi Horikoshi, executive]

In terms of the -- I talked about minus JPY 1.1 billion, but in terms of the steel products and the nonferrous products, in terms of the raw material cost, the impact of this is JPY 3.1 billion, that is a negative impact of JPY 3.1 billion. So through cost reduction, we have offset that, and that brings us to JPY 1.1 billion.

[Katsushi Saito, analyst]

Understood. In terms of the difference of the difference of the unrealized gains in inventory, you talked about JPY 8.1 billion. I think you said for the full year, looking at about JPY 10 billion, but there's no necessity to change the full year outlook or there may be some differences. Basically, it is also higher in the first quarter, so you won't have to change the full year outlook. Is that the correct understanding?

[Takeshi Horikoshi, executive]

So at the beginning of the year, I said this will be a minus of JPY 10 billion. But I think it's going to go down substantially, maybe about JPY 4 billion of loss is what we're looking at right now.

[Katsushi Saito, analyst]

Understood. So in terms of the region and the product mix in terms of regime, I think that China is going to go down. But in terms of the sales composition, it is not that high. So in terms of JPY 1.1 billion of minus, how much is the China impact?

[Takeshi Horikoshi, executive]

We don't disclose that for detail. But in terms of the region mix, so I said on a net basis, it's minus JPY 1.4 billion. But in terms of the region, it's actually a positive impact. For instance, we are seeing an increase in Indonesia, all the Latin America, which is a low margin, relatively speaking. It is going up. But on a net basis, in terms of the region, it's a positive contribution. So the negative China impact is absorbed. And overall, it's a positive.

[Katsushi Saito, analyst]

So in terms of the negative impact, it's coming from the product mix?

[Takeshi Horikoshi, executive]

Yes. Because I think this has been happening from the last quarter and the last fiscal year, the growth of the equipment is higher than the parts, meaning that equipment has a lower profitability. So in terms of the product mix, that will have a negative implication.

[Katsushi Saito, analyst]

Understood. My second question is about Indonesia. So the United Tractors has announced their earnings. And so for instance, Saini has 26% of share and you have 22% of share. And I think your share hasn't changed from January to March to April to June. But in terms of volume or in terms of sales value -- so in terms of your sales to Indonesia. And I think if you consider the unit price of hydraulic excavators and dump trucks is quite different. In terms of the sales ratio for each of these products, so what is the percentage of each of these 2 products?

[Takeshi Horikoshi, executive]

Well, I cannot answer you right now, but in the first quarter, I think the mining equipment has increased because the coal-related business has gone up. So the dump truck, the 100-ton class. I think it is true that the sales of this has gone up. Well, I understand that the hydraulic excavators competition is quite fierce. But in terms of average unit price compared to the hydraulic excavators and dump truck, it's quite different.

[Masatoshi Morishita, executive]

This is Morishita speaking. Well, for the dump trucks in Indonesia, the volume zone is 100-ton class dump trucks. And for the hydraulic excavators, it's a 20-ton class. So in terms of the unit price difference, maybe that will be 7x or 8x difference between these 2.

[Katsushi Saito, analyst]

Understood. So the volume share -- share based on volume is disclosed. And in relation to that, you explained in your topics that in Indonesia and in Thailand, you're going to take a 2-line strategy. And through this strategy, do you think they'll be able to recover your share? What area will you be targeting?

So if you talk of Indonesia, you have the coal and nickel in the mining business. We have palm oil, forestry and you have several urban engineering, urban civil engineering in these different areas. So more specifically, to come out to maintain your share, what type of strategy are you going to take in Indonesia?

[Masatoshi Morishita, executive]

Yes. I have explained in the topics that I talked about the PC200-10M0. So when I explained about this, I talked that this will be the CE series. So this CE stands for civil engineering. So internally, we decided that we should use this. So as you can understand civil engineering, and we are targeting civil engineering. So the specs will match this type of needs. So for the more heavy-duty needs for, for instance, quarry or mining or maybe this class, they won't be used that much in those type of area, but for the heavy-duty usage, we recommend the current standard series PC210-10M0.

[Operator]

Next will be from Morgan Stanley Securities, Mr. Ibara, please.

[Yoshinao Ibara, analyst]

This is Ibara from Morgan Stanley. Can you hear me?

[Takeshi Horikoshi, executive]

Yes. Go ahead.

[Yoshinao Ibara, analyst]

So first of all, you have not changed your full year outlook, but in terms of the overall outlook, when you conducted the cellphone coverage 3 months ago, you talked that the order trend is very strong and you are operating under full capacity. But because of this situation, the situation of the semiconductors, the procurement is an area. And you were a bit concerned about this. I think you mentioned that. So 3 months later, now in terms of the order situation or the utilization situation and other industries or other companies are talking about the lack of semiconductors. So order utilization, procurement compared to 3 months ago, what is the status for you right now? That's my first question.

[Masatoshi Morishita, executive]

This is Morishita speaking. Thank you for your question. So if you look at the market environment, as I said in the beginning, it's more or less in line with our expectations. Of course, there are some differences. For instance, China, trend is negative more than our expectations. In North America, actually, we have made upward revision for the outlook. So 3 months ago, we talked about the order trend being very strong. This basically is continuing. If you look at the KOMTRAX operation in most of the regions, they have gone back to the pre-COVID status. Of course, that said, there are some regions that we're seeing a spread of the coronavirus. So we have to observe the situation carefully. But currently, in terms of orders utilization, it's in line with the expectations. It's in the positive situation right now.

[Yoshinao Ibara, analyst]

So in terms of the high utilization, so is there any bottleneck in terms of such as semiconductors or the procurement or are you going to be able to increase the capacity or not be able to improve your utilization, no bottleneck in those areas?

[Masatoshi Morishita, executive]

Yes, I talked about the market environment and within the business operation environment, there are some concerns about the semiconductor situation. And as Mr. Horikoshi said, there is a tightness in the container vessel availability. So in terms of how long this is going to continue, there are some concerns. But in terms of semiconductors to this point, we have not been impacted that largely, but partially for the engine-related products. Actually, we are producing some products in Malaysia but there has been a delay due to lockdown. There has been a delay of the product delivery and there has been some impact on the production. In terms of the tightness of the container vessels, as Mr. Horikoshi said, in terms of the shipment of the machine itself, there has been a delay. And there has been some negative impacts on the parts as well. So there's still some concerns that we have to deal with.

So a lot of companies are citing concerns in [indiscernible] would be logistics like container vessels, and that will be -- another will be procurement such as semiconductors or electronic components. And Mr. Saito asked about this, about the steel product prices, the increase of raw material. I think a lot of manufacturing companies are citing these concerns. But based on what you're saying, is Komatsu, in terms of what you are concerned about, well, in terms of logistics, container vessels, et cetera, that will be the largest concern. But in terms of the steel product prices, we have been able to absorb that through cost reduction and passing the increase to the products. And the semiconductors of that impact is not large. There is risk, but we have been able to cope with that.

[Yoshinao Ibara, analyst]

Is that the way I should think about it?

[Takeshi Horikoshi, executive]

This is Horikoshi speaking. For this fiscal years, in terms of the outlook, I think the points are exactly as you have pointed out. So in terms of the raw materials such as steel products, the raw material cost increased. The picture is quite different from what we have been thinking from the beginning of the year. It's going up sharply. And in terms of container vessels, compared to the beginning of this year, we think that there will be more impact. But if you look at the semiconductors, honestly speaking, there won't be that much of an impact coming from semiconductor supply shortages.

So these negative factors and how we can offset that through the volume increase and how we can offset that through increasing sales prices. I think that will be the focus. Currently, I think we will more than offset these negative factors. Again, this is a confirmation. So in the operating profit of the first quarter, if we just simply divide the full year operating profit in the first quarter, you already have 27%. So it's a bit higher than the quarter. So if you look at the traditional seasonality, I think the first quarter has been good.

[Yoshinao Ibara, analyst]

But you've been saying at the beginning of the year, your assumption of the first half will be stronger. So that's the reason why it's within the expectations. Is that the reason you said so?

[Takeshi Horikoshi, executive]

Yes, the first quarter compared to our disclosed outlook, in terms of sales, it's about 6%. We have a 6% upside in terms of operating profit, there is over -- about 10%. So simply speaking, if you just go use that figure for the full year, maybe that level of percentage or maybe the upside we're looking at. But of course, there are uncertainties such as in Indonesia, we have started to see the spread of the Delta variant and the shortage of semiconductor supply. I said that right now, there's not much of an impact financially, but that is a source of concern. And the raw material cost increase, how high it's going to be, we don't know. And the lack of container vessels. There are some uncertainties. So that's the reason why we're not changing our full year outlook.

[Yoshinao Ibara, analyst]

My second question, I'll be short about this. But in terms of the mining equipment parts, and Mr. Horikoshi has pointed out, the new equipment recovery has been faster. So it seems to be that the recovery on the parts side has became -- is delayed. But if you look at the first quarter results, maybe this is due to the exchange rate situation, but the -- we have seen a recovery in numbers and you talked about the operations to recovering at your customers. So compared to 3 months ago, is it correct to understand that we're heading to an improvement in this area of business?

So I think that the mining business is an essential business, but in Indonesia and Malaysia, there are lockdowns. So you have seen any specific examples that, at your customer side, the utilization of the mining equipment is going down? I don't think India has a lot of mining business, but specifically, we have seen a resurgence of coronavirus in the Asian region. Have you seen a decline of the operation of the customers? And has that impacted your parts business?

[Masatoshi Morishita, executive]

So this is Morishita speaking. In terms of the parts business, whether it be mining or general construction business, it is going -- proceeding smoothly. So in terms of the value, I explained about 25% to 26% outlook for the full year. I think the first quarter is in line with that type of outlook. So 3 months ago, I said that for parts, we are a bit concerned about the delaying the timing of this recovery. But as things go smoothly, this will contribute as an upside. So in that sense, April, May and going into June, as the months go by, we have started to see a positive trend.

[Takeshi Horikoshi, executive]

As for mining equipment, as Mr. Ibara mentioned, is regarded as essential business. We have not heard about the shutdowns of mines due to COVID-19. In Indonesia, idle rate of dump trucks has been improving month by month. Therefore, the latest condition in Indonesia is positive, but we will continue to monitor cautiously how the pandemic develops and hope it will gradually subside.

[Operator]

Next question is from Mr. [indiscernible]

[Unknown Analyst]

[indiscernible] speaking. Firstly, partly due to rather low figures of the same period of the previous year, you marked the significant increase both in sales and profit this year. But compared to 2 years before, for April to June quarter, sales are up about 6%, but profit is down by almost 20%. I assume product mix or regional breakdown might be the cause. Could you comment on the difference in conditions between now and the corresponding quarter in the pre-COVID time?

[Takeshi Horikoshi, executive]

Horikoshi speaking. Sales in the first quarter FY 2021 are similar to those in the first quarter FY 2018, which is before FY 2019. Compared to that time, it is true that our margin is down. As for the reasons behind, first, volume is different and the regional mix changed also. Compared to that time, the proportional mix of Indonesia and China dropped and raw material costs and transportation costs also increased. There are the special factors for this year and their impact is about JPY 6 billion.

Foreign exchange rate is slightly negative. And as for the fixed cost in the first quarter of this fiscal year, we paid to support subsidies for all employees as a measure for pandemic whose impact is close to JPY 3 billion. I think they are the factors behind.

[Unknown Analyst]

Understood. Let me confirm, Indonesia and China, the regions of high margin dropped and now the U.S. and Europe are increasing.

[Masatoshi Morishita, executive]

Yes. So through broad analysis, in the first quarter FY 2018, OP margin was remarkably high, around 15%, while now it is about 9%. And the negative profit impact by market mix for the mid- to long perspective seems to be around 2 points or less. And the remaining 4-or-so is due to the special short-term factors by quarter.

[Unknown Analyst]

Understood. Next, I'd like to have one confirmation on China. Demand in the first quarter was down by 40%, but talking about U.S. sales, both of overall and construction equipment alone, you had less declines. Is it because you have focused on mid- to large equipment and that contributed to the results?

[Masatoshi Morishita, executive]

When you turn to Page 6, it shows that sales decline in China was minus 26.5%, while demand decline in foreign companies was minus 42%. The reason for the gap is, as you mentioned, we were benefited by our focus on large equipment of 20 ton or over.

[Operator]

Next question comes from Mr. Ouchi, SMBC Nikko Securities.

[Taku Ouchi, analyst]

Ouchi speaking. I have one major question about your thought on mining equipment. If we have -- would you share with us BB ratio of mining equipment for the consolidated basis? Briefly, I assume it will be around 140% or 150%. As for the average shares of mining equipment in the last 3 months, they were about JPY 240 billion. And when I think about the future, the second half or next year, given the BB ratio of 150%, then we can expect the quarterly sales of JPY 350 billion or JPY 360 billion, though it might be a little too aggressive.

But as a trend, can we think that the sales of mining equipment will be further on the rise from the second half to the next fiscal year or lately a source for the delivery for further down the road were also included. Should we take the sales growth will be more moderate? Would you give us some colors? As compared with 3 months ago, although you said both of the hard rock and soft rock were solid, but by mineral, which one shows upside. I had an impression that forecast on coal of KMC and Russia were rather conservative, and these would be the areas showing the upside. Would you comment on these if you can?

[Masatoshi Morishita, executive]

Morishita speaking. For your first question of BB ratio of the entire mining equipment, I cannot show that immediately. But as for image, as we mentioned, in the second half, growth will be moderate and continue to grow steadily. Already, Komatsu Germany started to receive some orders for super-large excavators, which are sales of the next fiscal year. As for changes compared with 3 months ago, in Asia or especially in Indonesia, the unit price of coal of low calorie has been picking up, and this is very robust by mineral. And in CIS, mainly coal business, here, we have been receiving orders.

[Taku Ouchi, analyst]

Do you see the upside on KMC as well?

[Masatoshi Morishita, executive]

Excuse me?

[Taku Ouchi, analyst]

Do you see the upside on KMC compared with the initial guidance? I had such impression from your orders development.

[Masatoshi Morishita, executive]

Yes. As for KMC, as shown by BB ratio, currently, it is slightly over 100%.

[Operator]

We are running out of time. So we'd like to take the last question. Next question comes from Mr. Adachi of Goldman Sachs.

[Takeru Adachi, analyst]

Adachi of Goldman Sachs speaking. I have two questions. First question is about small construction equipment. I may not have asked about that in detail before. But as in North America, this business has been substantially strong. So I'd like to comment -- you to comment on this. I'd like to have the share of your small construction equipment in the total general construction equipment in North America and Europe. And you announced the electrified equipment. And given that, would you comment on the competitive environment in North America and Europe?

[Masatoshi Morishita, executive]

Morishita speaking. Internally, we call small construction equipment as utility equipment and I do not have its data, vis-a-vis the general construction equipment. In North America, our small construction equipment business is not so aggressive, selling mini-excavators in some areas. In North America, general construction equipment sales are overwhelming. In Europe, small construction equipment market is large and we are striving to expand sales, though we have a long way to go. Proportionally, the sales ratio of construction equipment and the small construction equipment will be around 3:1.

[Takeru Adachi, analyst]

Let me confirm the number you mentioned, 3:1 in Europe. Is that about construction equipment or sales of everything inclusive in Europe?

[Masatoshi Morishita, executive]

The sales ratio of equipment, general construction equipment and small construction equipment, is 3:1 or 4:1.

[Takeru Adachi, analyst]

Understood. And you said that you don't have those figures for North America, but is it lower single digit or double digit?

[Masatoshi Morishita, executive]

Does double digit mean 10%?

[Takeru Adachi, analyst]

Yes.

[Masatoshi Morishita, executive]

Maybe less than that, in North American market, as well as mini-excavators, skid steel loaders, which are not very familiar in Japan, is a mainstay product. And Komatsu currently does not produce this type of product, which comply with emission standard. Partly due to that reason, sales scale in North America is rather limited.

[Takeru Adachi, analyst]

Understood. Secondly, I'd like to ask about the profitability of mining equipment. Overall, you said that profitability was in line with the guidance. But talking about mining equipment separately, how do you assess that? Especially when we look back the FY 2019 when you had a similar level of sales of mining equipment, profitability was better than now. So you talked about unrealized gain expenses and the mix between parts and equipment and regional mix might have affected and the seismics might have changed in equipment.

[Masatoshi Morishita, executive]

So taking those into consideration, which will give us a summary comment on profitability of mining equipment. As for mining equipment, there was no major change. But compared to 2 or 3 years ago, the difference is that currently, the profitability of KMC is down due to lower coal demand in North America, and that squeezed that profitability. Therefore, as for that for conventional Komatsu, profitability remains almost unchanged.

[Takeru Adachi, analyst]

Understood. If that is the case, unrealized profit and transformation -- transportation cost, those one-off expenses made adverse impact. And due to this, current profitability seems to be lower than your previous year, is that right?

[Masatoshi Morishita, executive]

So for the commercial Komatsu, I do not see material deterioration.

[Operator]

Since it is the scheduled closing time, I'd like to close the Q&A session.