Tomohiko Sano: Thank you. I understand. The second question is about your thoughts about next fiscal year. The market is quite concerned about demand trends that you have shared with us. Looking at Page 31 and what Komatsu can do on its part, when you look at the sales composition of the construction, mining and utility equipment segment, contribution from the parts business, which is 49% of sales, probably contributes more to profits. And the same thing can be said for mining. There is talk that your profits may decline, but looking out into next fiscal year, I like to know what Komatsu will do about demand or whether it’s possible to raise selling prices of parts and to what extent there will be positive factors. I think you mentioned before that free cash flow was more likely to be generated when demand falls, so I am not sure if it will be aggressive M&A or shareholder returns, but I would like to know if we can expect any of those things for the next fiscal year.
Can you give us more flavor on what Komatsu can do for the next fiscal year?
Takeshi Horikoshi: Yes, it is still third quarter, I wouldn’t comment much on the next fiscal year. But we are not so pessimistic, though demand might be worsening. As mentioned before, since the second half of 2021, with the acceleration of inflation, the operational sentiment has been changing. And we expect that the selling price would be steadily up. Looking at the recent orders of mining, we are not thus pessimistic. In the case of Indonesia, one of our key areas, the national budget for capital relocation in the next year will be 1.5x of that of this year. Private investment will be JPY930 billion, 2.4x of this year, according to the government forecast. And the impact by the election, which will be on the fourth quarter wouldn’t be material.
So, overall, our view is not so pessimistic. As for the things Komatsu can do, we continue what we have been doing steadily including the increase in selling prices, increase in the pay to guarantee at parts, to stabilize the profit.
Tomohiko Sano: Understood. That’s all from me. Thank you.
Operator: I will take the next question. Mr. Motoaki of Nikkei, please.
Unidentified Analyst: Hello, I am Motoaki of Nikkei. Do you hear me?
Takeshi Horikoshi: Yes. Please.
Unidentified Analyst: I have two questions. Income ratio in three quarters was 16%, showing the high profitability. I would like to know the strategy to increase the profitability further going forward towards the next fiscal year.
Takeshi Horikoshi: As I answered before, it is increasing the selling prices cutting cost and promoting the growth strategy in the mid-term plans steadily to reap the fruits.
Unidentified Analyst: I see. You said that selling price improved more than you expected in the third quarter.
Takeshi Horikoshi: Can you specify the region?
Unidentified Analyst: In the previous results meetings, you said that in the area we had increase of price, it was easier to follow the suit [ph]. Does it continue, or was there any other case where you raised price independently?
Takeshi Horikoshi: In the third quarter, price increase was more prominent in parts rather than the equipment. As President, Ogawa also mentioned before, price increase in parts was strong in the third quarter. By region, the America, Latin America and strong demand areas such as Middle East and Africa, the ratio of price increase was higher.
Unidentified Analyst: As for the equipment, is the price increase mostly settled?
Takeshi Horikoshi: I told you in a relative manner. So, selling price of equipment also increased steadily.
Unidentified Analyst: Understood. Thank you.
Operator: Thank you. I will take the next question. Mr. Ibara of Morgan Stanley MUFG Securities, please.
Yoshinao Ibara: This is Ibara of Morgan Stanley. Do you hear me?
Takeshi Horikoshi: Yes.
Yoshinao Ibara: I would like to confirm the comment of Mr. Horikoshi to confirm that I understand correctly. As for North America market, you have been saying up to October as follows. Inventory built up, it will be over this year. So, even if the demand is flat next year, your sales may be down, it was a color I perceived. But today, you said that retail will be strong due to residential demand and others and the retail demand may not be down next year. And restocking in this year is slightly delayed, and it might be continuing in the next fiscal year as well. So, the likelihood of your shipment downturn is now receding from that in October. Can I take your comment as such?
Takeshi Horikoshi: Correct. I cannot comment clearly on the next year. But as mentioned before, the retail was stronger than the projection in October and wholesales especially meant to sales of dealers were affected by the buying or order restraint, partly because of the account closing timing in December. Dealer’s inventory is lower by about 900 units than our estimate. So, we need to monitor closely whether that will recover in the fourth quarter or in the next fiscal year. In case, I said that the timing of inventory adjustment at dealers will be delayed than our expectation.
Yoshinao Ibara: Thank you. As for the retail’s demand strengths, which was stronger than the projection in October, another speaker mentioned that the recovery trend average ratio and that the next boost in rental will be in April. He said that the residential, non-residential and mining were also strong. Winter was not negative, right? Can we expect the recovery in April? Could you share with us any colors of the breakdown if any?
