I said in October that inventory at distributors should be at an appropriate level by the end of this fiscal year. However, because retail was strong and wholesale orders are being held back, inventory has decreased considerably. It’s about close to 1,000 units less than expected. So there is a high chance that this reduced rent-to-sell inventory will be pushed out to next fiscal year, or may materialize in Q4. Also for next fiscal year, demand in North America is not expected to decline as much as anticipated initially. That’s all for me.
Kentaro Maekawa: Thank you very much. I now have a better understanding of North America. Also considering the current circumstances of mining demand, can you also comment on prices as much as you can share?
Takeshi Horikoshi: I mentioned earlier that the mining of this has exceeded the October forecast and while the demand all regions were mostly favorable. The only region where it wasn’t was Indonesia. Contractors in Indonesia were holding back orders due to the delays and approvals for coal production applications. However, then after the approvals came through, and the government had set forth a production target for next year’s coal production of I believe 710 million tons a compared to 760 million tons this year. And now as the coal production permits have been approved, we expect that Q4 will make up for the dip that we saw in the third quarter. In terms of overall mining, commodity prices are trending steadily. And coal prices in Indonesia that I was just talking about, was approximately $57 to $58 per ton at the end of December.
So I don’t think we need to worry too much about the next fiscal year. As for selling prices overall, ever since prices started to rise from the second half of 2021, the sentiment at our marketing department has changed slightly. Now, even if management doesn’t ask them to do so, they are working to raise prices. Therefore, I believe that selling prices will increase next fiscal year as well, though perhaps not as much as this fiscal year.
Kentaro Maekawa: Thank you very much for the details.
Takeshi Horikoshi: Thank you very much.
Operator: The next question is from Tomohiko Sano of JPMorgan Securities.
Tomohiko Sano: Thank you very much. I’m Sano from JPMorgan. Can you hear me?
Takeshi Horikoshi: Yes, please go ahead.
Tomohiko Sano: Thank you. My first question is to Mr. Horikoshi. Regarding overall performance, first, can you give me more flavor on the positives and negatives in Q3? And operating income is about 83% against a full year plan now. So are you accounting for any risks in terms of demand, price or region? Or since it was Q3? Did you decide not to make any revisions, accounting for the possibility to beat your guidance in Q4?
Takeshi Horikoshi: Thank you for your question. This is Horikoshi. On a cumulative Q3 basis, compared to the October projection, the construction, mining and utility equipment segment sales exceeded by JPY70 billion. Profit also exceeded by JPY19.5 billion. Regarding sales, the FX impact was JPY74.5 billion. The sales volume impact was minus JPY7 billion and the sales price increase was larger than expected, which had an impact of plus JPY2.5 billion. All in all, this led to sales exceeding by JPY70 billion against October projection. In terms of profit, the currency rate was originally assumed to be JPY135 against the dollar. But since then effects is where it is now. The impact on profit has been JPY13.5 billion higher. On the other hand, regarding sales volume I mentioned earlier that the impact on sales was minus JPY7 billion.
But in terms of profit, it was minus JPY2.5 billion. The other factor is regional product mix. Product mix had the greatest impact. Like I said earlier, original equipment declined or its increased and was negative and construction equipment mainly in North America declined, but mining overall was positive. So, product and regional mix combined had a plus JPY3 billion impact. Also for a selling price, as I mentioned earlier, the impact was JPY2.5 billion and the cost of sales was also better than expected at about plus JPY2 billion. In addition, fixed costs were about JPY1 billion less than planned, so the total impact on profit was about JPY19.5 billion. As for the full year if you take out the FX impact from the JPY19.5 billion, we are exceeding by JPY6 billion.
But this amount is likely to decrease a little in Q4, and ultimately, we expect to be in line more or less against October projection. One reason why we think so is gross margins. There may be additional scrapping of parts. And since sales of parts were too good in the third quarter, sales of original equipment is expected to catch up in North America, as I mentioned earlier. And the sales of parts will probably not be so good in comparison. Due to this mix change, we are expecting a negative impact and selling prices are expected to be better than Q3, and that the degree of overachieving will be more than twice as much. As for cost of sales, steel prices have increased in the fourth quarter. The increase will have an impact. And since ships cannot go through the Suez Canal, but will be going through via Cape Town, an increase in freight is expected.
Also fixed costs may be pushed out to the end of the fiscal year. So, as I mentioned earlier, although the Q3 results exceeded by JPY6 billion, Q4 may come in line or below expectations. And yes, obviously, there will be an impact from FX. That’s all for me.
