Komatsu Ltd
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Komatsu Ltd
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This is Horikoshi, CFO. I will now explain the highlights of business results for 9 months ended December 31, 2021. I'd like to start with the highlights of business results for the third quarter on Page 4.
The exchange rate was JPY 112.9 for the dollar, JPY 129.7 to the euro and JPY 17.6 to the renminbi. Compared to the same period last year, the yen weakened against the dollar, euro and renminbi. Although not shown here, the yen also depreciated against the Australian dollar, South African rand and Russian ruble.
Consolidated net sales for the third quarter of fiscal 2021 increased 30.2% year-on-year to JPY 723.2 billion, a record high for the quarter. Operating income increased by 85.4% to JPY 87.4 billion. Operating income ratio was up 3.6 percentage points to 12.1%.
Consolidated net sales increased due to increased volume of sales, positive effects of foreign exchange rates and improved selling prices. Operating income was affected by increased material and logistics costs but nevertheless increased due to higher volume of sales and improved selling prices.
Net income increased by 117.4% to JPY 62.3 billion.
Segment sales and profits are explained on Page 5. Net sales of Construction, Mining & Utility Equipment increased by 30.7% year-on-year to JPY 660.1 billion. Segment profit expanded by 94.2% to JPY 73.2 billion. Sales advanced mainly supported by increased volume of sales, positive effects of foreign exchange rates and improved selling prices.
Retail Finance business revenues increased by 5.0% year-on-year to JPY 17.6 billion, and segment profit rose by 55.7% to JPY 5.4 billion. Revenues increased supported by an increase in new contracts resulting from expanded sales of the Construction, Mining & Utility Equipment business, improved residual value and resale profits of leased equipment, Helped by strong market conditions as well as decreased allowance for doubtful receivables.
Sales in Industrial Machinery & Others advanced by 35.4% year-on-year to JPY 50.1 billion, and segment profit advanced by 32.7% to JPY 6.4 billion. Both sales and profits for the automobile manufacturing industry advanced, reflecting mainly an increase in sales of machine tools for China. Products for the semiconductor manufacturing industry saw both sales and profits increases, supported by excellent sales of the Excimer laser-related business.
Page 6 shows sales by region for the Construction, Mining & Utility Equipment segment. Sales increased by 30.7% year-on-year to JPY 659 billion. Sales improved in all regions except for China. Sales expanded sharply in Asia, North America, Latin America and CIS. As a result, the ratio of sales in strategic markets increased from 53% to 54% of total sales year-on-year.
On Page 7, I explain the highlights of business results for 9 months from April to December 2021. Exchange rates were JPY 111 to the dollar, JPY 130.6 to the euro and JPY 17.2 to renminbi. Compared to the same period last year, the yen weakened against the dollar, euro and the renminbi. Although not shown here, the yen also depreciated against the Australian dollar, South African rand and Russian ruble.
Consolidated net sales increased by 33.1% year-on-year to JPY 2,014.6 billion, and operating income increased by 108.1% to JPY 223.7 billion. Operating income ratio was 11.1%, up 4.0 points.
Consolidated net sales increased due to increased volume of sales, positive effects of foreign exchange rates and improved selling prices. Operating income was affected by increased material and logistics costs but nevertheless increased due to higher volume of sales and improved selling prices.
Net income increased by 135.7% to JPY 155.5 billion.
On Page 8, I explain the segment sales and profits for 9 months from April to December of 2021. Net sales of Construction, Mining & Utility Equipment increased by 33.6% year-on-year to JPY 1,845.5 billion. Segment profit increased by 113.3% to JPY 191.8 billion. Sales advanced mainly supported by increased volume of sales, positive effects of foreign exchange rates and improved selling prices.
Revenues in Retail Finance increased by 10.2% from the corresponding period a year ago, to JPY 54.5 billion. Segment profit expanded by 62.5% to JPY 13.2 billion. Revenues increased due to an increase in new contracts resulting from expanding sales of the Construction, Mining & Utility Equipment business. Profits increased due to improved valuation of leased equipment against the backdrop of a favorable market condition, gains on resale and a decrease in allowance for doubtful receivables.
Sales in the Industrial Machinery & Others segment increased by 29.3% from the corresponding period a year ago to JPY 131.8 billion, and segment profit increased by 67.8% to JPY 15 billion. Sales and profits increased due to sales of presses and machine tools for the automobile industry and the completion of installation work for overseas customers. In addition, both sales and profits increased for the semiconductor industry mainly due to strong sales of Excimer laser-related products.
Page 9 shows the sales by region of the Construction, Mining & Utility Equipment segment. Sales increased by 34.5% from the corresponding period a year ago to JPY 1,840.6 billion. Sales increased in all regions except China. In particular, sales in Asia, North America, Latin America and CIS increased significantly. As a result, the ratio of strategic markets increased to 56% from 52% in the same period last year.
On Page 10, are the causes of difference in sales and segment profit. Sales increased substantially by JPY 463.7 billion from the corresponding period a year ago, supported by increased volume of sales, positive effects of foreign exchange rates and improved selling prices. Segment profit increased by JPY 101.9 billion from the corresponding period a year ago, reflecting increased volume of sales and improvements in sales price despite higher material prices and logistics costs. In addition, the segment profit ratio increased by 3.9 points from the same period last year to 10.4%.
On Page 11 is a summary of our Retail Finance business. Assets increased mainly due to an increase in new contracts and the impact of foreign exchange rates. New contracts increased by JPY 109.4 billion from the corresponding period a year ago, supported by increased sales of the Construction, Mining & Utility Equipment business. Revenues increased by JPY 5 billion from the corresponding period a year ago due to more new contracts. Segment profit increased by JPY 5.1 billion due to higher sales as well as the improvement in the valuation of leased-up vehicles against the backdrop of favorable market conditions and a decrease in allowance for doubtful receivables.
On Page 12 is a summary of the sales and segment profit of the Industrial Machinery & Others segment. In the Industrial Machinery & Others segment, net sales increased by 29.3% from the corresponding period a year ago to JPY 131.8 billion. Segment profit expanded by 67.8% from the corresponding period a year ago to JPY 150 billion, and the segment profit ratio increased by 2.6 points to 11.4%. Sales and profits increased concerning presses and machine tools for the automobile industry due to the completion of installation work for overseas customers. In addition, sales and profits for the semiconductor industry increased due to strong sales of Excimer laser-related and other products.
Here, we will explain the status of orders and sales of industrial machinery in the appendix on Page 34. Page 34 shows the book-to-bill ratio for industrial machinery. The graph shows trends of the book-to-bill ratio, which is the average amount of orders received in the last 6 months divided by the amount of sales in the same 6 months.
Komatsu Industries is engaged in sales and service of press machines and sheet metal machines. Order trends in the first half of 2021 were low due to less orders for large presses and the impact from COVID-19. However, orders for small- and medium-sized presses, sheet metal machines, such as welding robots, and service work are recovering as a trend.
Komatsu NTC designs, manufactures and sells machine tools, such as transfer machines, machining centers and crankshaft processing machines. Orders were sluggish due to auto parts manufacturers holding back or postponing CapEx. However, the index is now at the 200% level due to a large order.
On Page 13, I will explain the consolidated balance sheet. Total assets were JPY 4,027.3 billion, an increase of JPY 242.5 billion from the previous fiscal year-end, with the weaker yen being one factor. Inventories were JPY 901.3 billion, up by JPY 107.4 billion from the previous fiscal year-end due to an increase of demand in the Construction, Mining & Utility Equipment business. The shareholders' equity ratio rose to 51.2%, up by 0.7 percentage points from the previous fiscal year-end. The net debt-to-equity ratio was 0.32x.
This concludes my part. Thank you for your attention. Next, Morishita will explain the business outlook for fiscal year 2021.
I am Morishita, General Manager of the Business Coordination Department. I'd like to explain the outlook of fiscal 2021 business results and the situation in major markets.
Page 15 is the outline of projections for fiscal year 2021. In the third quarter, demand for construction equipment was strong in regions other than China, and the yen trended weaker, resulting in a record quarterly consolidated net sales. Overall, both net sales and operating income were strong. However, with uncertainties such as supply chain disruptions and supply delays in North America and other regions, continued increases in material prices and disruption costs and the resurgence of COVID infections in some regions, we have not changed our full year projections from October.
For supply chain issues, we are taking measures such as cross-sourcing and reviewing shipping routes, and we will try to absorb increases in material and other prices by improving cost of goods and raising prices. In addition, with regard to the resurgence of COVID infections, we will continue to carefully monitor the status of machine utilization and demand trends.
From Page 16, I explain the actual and projected demand for 7 major products. This shows the demand trends for 7 major products, including mining equipment. The figures for the third quarter are preliminary figures based on our estimates.
Third quarter unit demand seems to have been about the same as a year ago, shown in the bottom right box. In regions other than China, it increased by 17% year-on-year. Due partly to slowing infrastructure investment, demand in China fell by a large margin year-on-year. In regions other than China, demand grew significantly first due to the fact that spread of COVID infections resulted in low demand in the same quarter a year ago and also due to the normalization of economic activities and impact of economic seamless measures taken in various countries.
We have not changed our total demand forecast for fiscal year 2021 from the April forecast of 0% to plus 5% year-on-year, but we have changed our demand forces for regions excluding China to positive 20% to 25% year-on-year.
From the next page, I will explain about the situations in major markets. Page 17 explains the Japanese market. In the third quarter of fiscal year 2021, unit demand seems to have remained about flat from the previous year. Demand remained firm, supported by not only steady public works but also private sector construction.
In fiscal year 2021, we expect demand to be between 0% to plus 5% from fiscal year 2020. This is unchanged from our projection of April 2021. We expect demand to remain firm.
December KOMTRAX average operating hours per month declined 6% year-on-year. December a year ago had low rainfall and longer operating hours, leading to these negative figures.
On Page 18, I explain the demand trends in North America. In the third quarter, unit demand seems to have increased by 13% year-on-year mainly due to the increase in demand for residential and nonresidential construction as well as road and traffic infrastructure. Demand for rental equipment also continued to improve. We project full year demand to increase by 15% to 20% year-on-year. This is unchanged from our projections of October 2021. Although demand from the energy sector remained sluggish, demand from the residential and nonresidential construction and road and traffic infrastructure is expected to be strong, driving overall demand.
December KOMTRAX average operating hours per month increased 4% year-on-year. The energy sector is recovering, and the rental equipment as well as construction and housing sectors are performing well.
Page 19 shows the situation of the European market. Unit demand in the third quarter of fiscal year 2021 seems to have increased by 18% year-on-year. In addition to strong demand in the major markets of the U.K., France and Germany, mainly supported by economic recovery measures, demand for infrastructure increased in Italy as well. We project that full year demand will increase by 25% to 30% in fiscal year 2021 year-on-year. This is unchanged from our projection on October 2021. We expect demand to remain strong, centered around major markets.
December KOMTRAX average operating hours per month increased by 2% year-on-year.
Page 20 shows the situation of the Chinese market. This page shows the demand trend for hydraulic excavators, excluding mini shovels. Also shown for your reference is the demand trend that includes Chinese manufacturers. The growth rate of demand represents the figures of foreign manufacturers.
In the third quarter, unit demand seems to have decreased by 66% year-on-year. Total demand, including Chinese manufacturers, seems to have fallen by 49% year-on-year. In addition to the stagnation of investment in infrastructure, there was a reaction from the large increase in demand a year ago, resulting in a large drop in demand.
We have revised our projections for full year demand from October and now project negative 60% to 50% year-on-year. We have also revised total demand projections, including Chinese manufacturers, to negative 40% to 30% year-on-year.
December KOMTRAX average operating hours per month fell by 14% year-on-year. At some coal mines, operating hours are growing due to increased production. But overall, operating hours have remained sluggish and have been negative year-on-year for 9 consecutive months.
On Page 21, I explain about the demand trends in the Southeast Asian markets. Unit demand in the third quarter of fiscal year 2021 seems to have increased 42% year-on-year. Demand increased in Indonesia, the largest market, as well as in Thailand and the Philippines. Growth seems to have reached 109% year-on-year in Indonesia, another big growth following the second quarter. Demand for construction equipment expanded in the construction sector with more execution of public investment, and demand also grew in the agricultural and forestry sectors. Demand for mining equipment also increased for coal and nickel.
We project full year demand to be between positive 30% and 35% year-on-year, unchanged from the October projections. We expect demand for construction machinery to remain strong in Indonesia and other countries and demand for mining equipment to continue to grow for coal and nickel.
December KOMTRAX average operating hours per month in Indonesia increased by 12% in December last -- year-on-year. Operating hours are firm in the construction sector due to public investment, and they also increased in the agricultural sector due to the rise in palm oil prices.
On Page 22, I will explain the actual and projected demand for mining equipment. In Q3 fiscal year 2021, demand apparently advanced by 44% from the corresponding period a year ago. Demand for iron ore, copper and gold remained strong with demand increasing in CIS, Chile, Oceania and other regions while business for coal also increased mainly in Asia.
The full year demand outlook for fiscal year 2021 remains unchanged from the previous October forecast of approximately plus 30% to 40% year-on-year. Although the prices of iron ore and coal are declining, they are still trending high and demand is expected to remain strong.
I will now explain the status of orders and sales of mining equipment in the appendix section on Pages 32 and 33. Page 32 shows the book-to-bill ratio for mining equipment. The graph shows the trends in the index, which is calculated by dividing the amount of average orders for new mining equipment in the last 6 months by the amount of sales in the same 6 months.
Komatsu America manufactures and sells super large dump trucks. The index has risen to the 80% level due to an increase in orders from Australia and Chile.
Komatsu Germany manufactures and sells super large hydraulic excavators. Orders from copper and coal have been strong, and the index is currently around 100%. In addition to the high levels of orders for 100-ton-class dump trucks for Indonesia, orders for Russia and Africa have also increased, and the index is well above 100%.
Page 33 shows the book-to-bill ratio for KMC mining equipment. Orders in surface mining for copper and iron ore are strong, and orders for underground mining for China and Australia are picking up, too. The index is trending above 100%.
Back on Page 23, I will explain sales of mining equipment. In Q3 fiscal year 2021, sales increased by 37% from the corresponding period a year ago to JPY 274.7 billion. When excluding the effect of foreign exchange rates, sales increased by 27%. Demand for iron ore, copper and gold was brisk, and sales in Oceania, Latin America and CIS increased. But sales in Asia also increased due to increased demand from coal. The projection for full year fiscal 2021 is expected to advance by 31% year-on-year to JPY 1,032.1 billion, which is unchanged from the October forecast.
On Page 24, I will explain sales of parts. In Q3 fiscal 2021, sales increased by 35% from the corresponding period a year ago to JPY 167.6 billion. Excluding the effect of foreign exchange rates, sales were up by 25%. Sales of construction machinery increased in almost all regions except China as the resumption of economic activities has brought machine utilization back to normal levels in many regions. As for mining equipment, sales were strong in Oceania, Latin America, CIS and other regions. And utilization rates also recovered in North America and Asia, resulting in increased sales.
The projection of full year sales for fiscal year 2021 is an increase of 22% year-on-year to JPY 618.3 billion, unchanged from the October forecast.
From Page 35, I will talk about some recent topics on the following pages. Komatsu has announced that it will provide engines for generators and technical cooperation in the engine field for the development of a 250-kilowatt hydrogen co-firing generator that Denyo is working on. Hydrogen co-fired power generation is a technology that co-fires good hydrogen with diesel fuel and city gas to control carbon dioxide emissions. The development of Denyo's 250-kilowatt hydrogen co-firing power generator aims to reduce CO2 emissions by 50% compared to using only diesel oil as fuel by setting the hydrogen co-firing ratio at 50%.
In the development of the hydrogen co-firing generator, Komatsu is providing technical assistance in the technical evaluation of engine performance data analysis and optimization of the engine control during hydrogen co-firing by utilizing its accumulated technologies. We are aiming to start mass production by 2023, and we'll continue to strengthen our joint efforts to achieve carbon neutrality.
Next, please turn to Page 36. In January, Komatsu newly released the large bulldozer, D475A-8R, and the large hydraulic excavator, PC2000-11R. The D475A's lifecycle cost has been reduced by 9% by improving the durability of the mainframe. And the workload has been increased by 8% by improving the engine output during backward traveling. The combination of these features results in a 16% increase in productivity compared to conventional machines.
The PC2000 is equipped with a new, clean and fuel-efficient engine with high output, and by thoroughly reducing the power loss in the hydraulic system and other components, the workload and fuel efficiency have been improved. In addition to the increase in engine output by adopting the new engine, productivity has been improved by 12% by optimizing the hydraulic control system and improving operability.
Turning to Page 37. As part of the Ministry of Land, Infrastructure, Transport and Tourism's strategic program for accelerating space utilization, the Stardust Program, we applied for the project for promoting the development of innovative technologies for unmanned construction in space, which was decided in July. And our construction of Digital Twin Technology for Lunar Construction Equipment was selected as one of the targets for the implementation of technology for unmanned construction automation and remote control. We will contribute to research and development that will, in turn, contribute to the realization of Japan's goal of upgrading the construction business and to construction activities for lunar space development in the near future.
Lastly, on Page 38, I'd like to talk about evaluations by external organizations on Komatsu's ESG efforts. Once again, this year, Komatsu was selected as a constituent of the Dow Jones Sustainability Indices World Index, one of the world's leading SRI indices. In addition, we have been recognized as an A List company by CDP, an international environmental nonprofit organization, in the categories of climate change and water security.
This concludes the explanation of our financial results. Thank you.
Now we'd like to take your questions. The first question is from Mr. Saito of Nomura Securities. Mr. Saito, please.
Saito speaking. Allow me to ask 2 big questions. The first is related to changes in profits. We see at Caterpillar increasing logistics costs and declining productivity. I want to know how those factors are impacting your third quarter and also progress against the full year plan.
First, looking at the profit impact by segment on Page 10, can you tell me the breakdown of the impact of volume, product mix and others for the third quarter alone?
Just for the third quarter?
Yes.
Looking just at the third quarter, the results were JPY 37.7 billion in fiscal 2020 and JPY 73.2 billion in fiscal 2021. As for the breakdown of the volume and mix difference, pure volume difference is JPY 30.6 billion, then there is a cost difference, a negative impact of JPY 17.7 billion due to the increase in costs. Changes in geographic composition and the product mix together account for a gain of JPY 5.4 billion. And the composition difference between consolidated and parent and unrealized profit on inventories, which we always talk about, account for JPY 3.2 billion in gains. Is that enough?
Is there more?
The rest is other items. That means a loss of about JPY 600 million in others. Within others, there is a JPY 3.1 billion negative impact from containers, and the remainder is a gain of JPY 2.5 billion. So that's the breakdown.
In the first half, you projected that the material and other costs would have a negative impact of JPY 39 billion for the full year and JPY 34 billion for the second half. Changes in geographical composition for the full year was to be minus JPY 4.1 billion, and I think that includes various items. And also for freight, compared with the annual plan, minus JPY 8.5 billion for the full year and minus JPY 3.7 billion for the second half. Compared to such projections, how is the progress?
In terms of the cumulative total for the 3 quarters, should I explain in terms of profit or sales? In sales, we fell short of the plan by about JPY 21 billion in terms of volume. This was offset by overachievement or a positive impact, shall I say, of foreign exchange gains of JPY 27.7 billion. In addition, selling price had about JPY 1.3 billion positive impact.
In terms of profit and loss for the cumulative total for first 3 quarters, volume difference underachieved by about JPY 7 billion. This was mainly due to the unavailability of vessels, leading to shipment delays, which resulted in a JPY 7.1 billion shortfall. In addition, the cost of goods sold was higher than what we had expected at the beginning of the fiscal year, which resulted in a loss of about JPY 6.5 billion.
We were able to compensate for this by changes in geographical composition, foreign exchange rate differences and gains on fixed costs. And in the first three quarters, we were able to almost fully compensate or rather overachieve by JPY 1.9 billion.
Looking at the full year, the cost difference is expected to increase in the fourth quarter, but we believe that the volume will be almost in line with the plan.
So overall, in terms of volume, there will be a slight shortfall view mainly to difficulty in allocation of ships. This will be compensated by differences in exchange rate and the product mix. So the current forecast is that we will be more or less in line with the plan.
We were previously bullish on the third quarter and a little less so in the fourth quarter. When Q3 started in October, volume shortfall was quite large, and we were concerned. But as the month went by, production capacity and suppliers started to come on board. And in the end, we achieved the figures that I mentioned earlier.
It seems that the sales price is trending higher than planned. Is that also helping to make up for the shortfall?
We said at the beginning of the fiscal year that the sales price would be JPY 24.1 billion, but we expect to be able to add about JPY 1 billion more than that.
I'm sorry to dwell on this. In the U.S., Caterpillar's profit margin for Q3, the October-December quarter, saw a decline. But how is it at your company? I am sure Morishita-san is following this. Caterpillar has a large production base in the U.S., and that may be different in your case. But how do you see the situation?
You're asking about the situation of orders?
No. Due to the disruption in production and the freight rate situation, Caterpillar's profit margin deteriorated in the October-December period. Compared to that, your company seems to be holding ground. What do you say to that?
In terms of overall production, the impact of semiconductor shortages have had minimal impact. The situation is a bit tight for engine controllers used in small construction equipment. But in terms of value, it is small. So almost no overall impact from semiconductors. For other suppliers and components, they have been catching up. So I don't think that there will be any impact on production at the moment.
The bigger impact is in ships, as I mentioned earlier. The lead time for shipping is 1.5 to 2x longer than usual, or it takes a long time for the ships to arrive. And so there is a risk that shipping cannot be done on time.
For the second question, I'd be happy to have just a short answer. I think the new midterm plan will probably start next year. And from the announcements you have made so far, it seems that you will accelerate carbon neutrality and DX. Is there anything you can share at this time?
This is Morishita. That's right, we are now in the final stage of compiling the new midterm management plan for next year onward. The basic idea is that, of course, the external involvement has changed in many ways compared to 3 years ago. Among them is, of course, the trend toward carbon neutrality. And Komatsu has also set targets for 2050.
We are now in the process of creating the next midterm management plan. Taking these factors into account, we are in the process of deepening various discussions within the company. We think we'll be able to provide you with an explanation early in the new fiscal year.
The next question is from Mr. Sano of JPMorgan Securities.
First of all, I'd like to ask you a supplementary question about the supply chain situation. The CFO talked about shipping earlier, and I'd like to know, is there a situation where, because of lead time and delivery considerations, you have to use air freight? And that not be burdening your profitability? Also, more specifically, I believe you have been exporting from China to Russia, Indonesia and other countries as part of your cross-sourcing activities. Could you explain if there have been any changes in this area over the past 3 months?
Yes, this is Morishita. First of all, the situation of the ships. You asked whether we have to use air freight. That happens most frequently for parts. Basically, parts are usually shipped by container ships. However, there is a shortage of container capacity, especially for North America and also Europe. For such markets, although it may result in increase in costs, if there is a machine failure at our customer or other such emergencies, we send parts by air. We do this while managing the cost.
As part of the cross-sourcing initiative, we have a 2-line strategy, which we call CE, for 20 tons from our plant in China. We are sending them to Russia and Indonesia. However, we are facing various problems in terms of ship logistics. Especially in Russia, we are facing a situation where the vessels are getting very tight. However, we are considering various ways to ensure that we will be able to supply the number of units initially planned.
Mr. Morishita, what you just said about the airfreight, it didn't sound like there was a sudden surge in the monetary amount in 3 months. Is that correct?
Yes. No major change has happened in the past 3 months. The situation with container ships has been occurring since the beginning of this fiscal year. So we have been taking proactive measures such as maintaining a larger inventory of parts locally.
I'd like the second question to Mr. Horikoshi. How is the profit margin trending for mining equipment in the third quarter? And how it is likely to change in the fourth quarter? Could you explain further in terms of geography and utilization?
The profit margin for mining equipment is quite good. Especially in the new year, it is good overall. Also, the profit margin of KMC is increasing due to the effects of restructuring and brisk business situation generally, especially in copper in South America.
Now the next question, Mr. [ Suge ] of the Nikkei Shimbun, please.
This is [ Suge ] from the Nikkei Shimbun. Can you hear me all right?
Yes.
First of all, you mentioned that the geographical composition is having a positive effect, and I have the impression that the two-line strategy in Southeast Asia is having a positive effect. In the second quarter, you mentioned that you were gaining market share in Indonesia and other regions even though you had just started. But could you give us some additional information on this such as improvement in profits due to the regaining of market share in Southeast Asia by the CE series?
Regarding the difference in the regional composition, it's not because we launched the CE series in Asia. Rather, as you can see on Page 9, due to the increase in contribution from the high-margin regions, especially in Asia, such as Indonesia and other Asian countries, because the ratio of these strategic markets increased, we were able to see a positive impact.
You said that the CE series is not the very reason why regional composition difference is positive. But can you give us a little more color on your market share trends in Indonesia, for example? You mentioned in Q2 that you were off to a good start. But what is the latest situation?
In Indonesia -- or rather in Southeast Asia, we launched the CE series. And when we announced the results for the second quarter, we mentioned that our market share had increased in Thailand and Indonesia. This trend is still continuing. So yes, I think the CE series is off to a good start.
I understand. I have another question. There has been a lot of tension lately between Russia and the U.S. and Europe over the issue of Ukraine. And I think your company has about 8% of your sales in the CIS region. If sanctions against Russia were to come to effect, are you thinking about the possibilities or risks that this may have on exports or mining equipment? If you have any countermeasures, please share that with us, too.
The most extreme sanction on Russia which President Biden was talking about is to disconnect the Russian ruble from SWIFT. If this were to happen, it would have a very large impact, because it means that Russia will not be able to receive any foreign currencies. However, when Mr. Biden was speaking on a different date, he only referred to the prohibition of dollar transactions and not about disconnecting Russia from SWIFT. Apparently, Germany is against this, too. So I'm not the person who makes the ultimate decision, but our view is that the SWIFT option is unlikely.
On the other hand, if it does not go that far and dollar-based settlement is banned, according to our local people, there will probably be some temporary confusion as the number of days required for settlement is expected to increase. But the risk of not being able to trade at all is not that high. However, if the price of imported construction equipment rises due to the depreciation of the ruble, which is not just limited to us, there is a possibility that prices will rise and demand will fall or orders may be canceled.
Also, I'd like to mention that our retail finance company, KBFC, which is our Retail Finance operation in Russia, does not have any transactions with the 12 banks that are likely to be subject to the sanctions.
The next question is from Mr. Miyagi from Mizuho Securities.
Hello. I'm Miyagi from Mizuho Securities. Is the audio okay?
Yes.
I have two brief questions. First, I'd like to confirm the first question and the exchange you had. How did sales and operating income in the third quarter compare against plan by percentage or absolute value-wise? Can you walk us through the details, like you always do, like you've done in Q1 and 2?
Do you basically want the differences against the outlook for the third quarter?
Yes, that's correct.
Okay. Overall, sales overachieved by JPY 8 billion. The breakdown is foreign exchange rate difference of JPY 27.7 billion above plan and price difference was JPY 1.3 billion above plan. On the other hand, the volume difference was minus JPY 21 billion. The net result was JPY 8 billion.
As for profit, the difference in volume of goods against the negative JPY 21 billion I mentioned earlier was negative JPY 7.1 billion. In addition, the increase in cost of goods sold was negative JPY 6.5 billion. And then there is a regional mix difference and then the product mix difference, which was plus JPY 4.2 billion. Other items were JPY 1.8 billion. By the way, this item is included in the volume/product mix, et cetera, category that I always refer to. And price difference, which was JPY 1.3 billion above plan, go straight down to profits. And the foreign exchange difference was JPY 4 billion positive. In addition, fixed costs were a positive JPY 4.2 billion. In total for profits, we overachieved the forecast by JPY 1.9 billion.
Is there anything that you did around fixed costs that enabled you to come above plan by JPY 4.2 billion such as taking additional measures in light of the current situation?
Well, actually, this is largely due to the way we manage development costs. In particular, there's a tendency to recognize the costs in bulk at the end of the fiscal year. So in Q3, costs were not incurred as much.
Okay. My second question is about your view on the Chinese market. At the end of the year, in a Bloomberg article, it referred to President Ogawa commenting that there was a possibility of a further 30% decline in the Chinese market in 2022. That was a headline. I am well aware that the ratio of China to total sales is low for your company. But on the other hand, there has been a lot of news about the possibility of increased infrastructure investment and public investment in the macro economy. If government-led infrastructure investments were to increase and public works projects were to increase, do you think that the demand for new construction machinery and hydraulic excavators will increase in line with this?
Looking at utilization rates, I was concerned that there may be somewhat of a surplus of equipment. So compared to the sheer volume trends in infrastructure investment, can you provide some color on what is likely to happen to demand?
Yes. This is Morishita speaking. Yes, we are also tracking the number and amount of project approvals in China on a monthly basis. Up until December last year, towards the year-end, we had been seeing the numbers and amount increase quite substantially. However, as we speak to our people based in China, they are saying that this will probably not immediately lead to any concrete construction projects or demand. One of the major factors is the sense of surplus that you mentioned earlier. Especially since the demand increased considerably in fiscal 2020, we are not sure that demand will come up again immediately in fiscal 2022.
As I've said several times in the past, the emission standards will kick in from December 2022. This may lead to some front loading or an artificial increase in demand. But our local people are saying that the impact may be limited.
We're very sorry, but we are running out of time. So I'm going to take the next person as the last question. The question is from Mr. McDonald from Citigroup Securities.
Hello. Can you hear me?
Yes, we can.
I have two brief questions. One is about North America and the other is about the domestic business.
In Mr. Morishita's explanation, you talked about the current positive and negative trends in North America in segments such as residential, not residential, road, transportation, rental and so forth. I wanted to confirm what you said about the energy segment. I think you were talking about contracts and a pickup in the energy sector. Oil prices have been going up lately. But in North America, what is your view on demand in the energy sector? This is my first question.
Thank you for the question. In my explanation earlier, I talked about the recovery trend we saw in utilization in the energy sector. Although this trend is certainly emerging, we do not yet have a sense that the energy sector is experiencing strong growth in demand as a major trend. However, in the area of housing and commercial construction, our view is that demand is very firm.
All right. For Japan, around the end of December, there was an article in the papers about Komatsu raising the prices of construction equipment and forklifts across the board by about 10%. So I am curious to hear about the reaction you got from users. Mr. Horikoshi, can you take this question?
It's still January, so we don't know for sure. But as I explained earlier, the prices of materials, raw materials are going to go up a lot this year. We are making efforts to reduce costs, but there is still a limit to what we can do. And that is why we made the announcement.
By the way, the 10% is for original equipment, so it doesn't mean that the same rate will be directly applied to parts and services. And in reality, I don't think that the 10% rate will be fully applied either. We will have to wait and see how people react to this.
As for next fiscal year, I don't think material prices that have gone up this year are going to come down. I said in Q2 that it would be difficult to raise prices by about 2%, but the situation has changed. So we will have to raise the price significantly.
Okay. I'd like to confirm that sales price difference impact in the third quarter was about JPY 19.1 billion. But is North America the easiest region to raise prices right now?
The biggest impact is from North America followed by Latin America. The sales price increase that we have achieved so far is mostly in construction equipment like I mentioned back in Q2. For mining, prices are linked with inflation due to the contracts we have in place with customers. So we expect that the impact of this on the mining business will be quite large next fiscal year.
Thank you very much. We have received some other questions, but we have reached the end of the scheduled time. So we would like to now conclude the Q&A session. This concludes the financial results briefing. Thank you very much for joining us today.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]