Hiroyuki Ogawa: This is Ogawa, President and CEO of Komatsu. I would like to start by explaining the launch of a new company named EARTHBRAIN Limited just announced today. Komatsu and the three other companies, namely NTT DoCoMo, Sony Semiconduction [sic - Semiconductor] Solutions and Nomura Research Institute have reached an agreement today to jointly establish a new company named EARTHBRAIN Limited that will support the digital transformation of the construction industry for dramatically improve the safety, productivity and environmental performance. In 2015, to address the serious manpower shortage faced by the domestic industry, Komatsu developed the SMARTCONSTRUCTION Solution and introduced it so far at more than 13,000 construction sites across the country. In 2017, to offer the platform on which SMARTCONSTRUCTION services are provided to other players, which provides solutions to the same industry, the company introduced the LANDLOG IoT Solution.

And today, the company is expected to provide a solution not only to address manpower shortage in Japan, but also to address necessity of work style reform, triggered by the COVID-19 pandemic globally. To address the social demand, with speed, Komatsu has decided to tie up with three other companies to provide digital transformation solution to the construction industry through the development, delivery and maintenance of devices, platforms and applications for visualization of construction sites. By combining the four company's expertise, knowhow and the technologies, the new company will further evolve SMARTCONSTRUCTION of Komatsu into the next-generation solution and expand its services to all equipment brands and vehicles that are working at construction sites of all over the world. For the next-generation SMARTCONSTRUCTION, the company will capitalize on digital technology and develop devices and applications for the visualization of construction sites for real-time remote monitoring analysis and optimization of the rails, construction equipment units and operators, as well as safety and environmental factors. Also by connecting all connection processes digitally on an open platform for digital twin and controlling them optimally, the company will improve safety and productivity and create a smarter and cleaner workplaces.

In order to establish the new company, Komatsu will transfer a part of its SMARTCONSTRUCTION business to LANDLOG, which will in turn change its name to EARTHBRAIN Limited to become a joint venture company with NTT DoCoMo and Sony Semiconductor Solutions and Nomura Research Institute. For more information, please refer to the news release available on the company's website. Next, I will explain the impact of the COVID-19 pandemic on Page 4. First is the effects on operations. As for production, we are maintaining normal operations at all plants since October.

Although infection is spreading again in some areas, we are implementing thorough measures to prevent infection. As for sales and service activities, the operating conditions of machines in construction sites as measured by Komtrax have returned to normal in most of the regions since the second quarter and despite some regions imposing lockdowns and other restrictions to address the resurgence of infection, there has been no significant impact on the utilization trend. As for sales activities, some regions are still working from home, but many regions are gradually going back to regular work style. Next, let's take a look at the demand for seven major products. The graph on the left shows the year-on-year growth of demand for seven major products.

In China, the spread of the COVID-19 infection is contained and the government's economic policies have been supportive, and it's supporting the demand throughout the fiscal year. Outside of China, demand fell sharply in the first half of the year due to the pandemic, but it started to recover as economic activity resumed. The overall demand turned positive in the third quarter and continued to recover in the fourth quarter. The graph on the right shows that year-on-year growth rate of traditional markets and strategic markets excluding China. In fiscal year 2021, we expect demand in the Chinese market to decline.

As the impact of the post Chinese New Year sales season delay and fiscal 2020 will disappear. I will go through the details later. In markets other than China, the recovery trend will continue and demand is expected to return to the level of fiscal 2019 which was prior to the spread of COVID-19. Moreover, demand for mining equipment is also expected to return to pre-pandemic levels as a recovery trend is seen as in the Asia and CIS et cetera, where demand had been sluggish. This basically is the overall picture.

But we will continue to monitor the situation closely as we move forward with business activities, as COVID-19 is spreading again in regions such as Europe, India and others. Next, I'd like to explain the progress towards the mid-term management plan targets. On Page 6, I will explain the progress made in effort to focus. Fiscal 2021 will be the final year of the three-year mid-term management plan down towards the value forward together for sustainable growth. I will explain the progress of some of our efforts of focus up to fiscal 2020.

We have communicated to Excimer construction as a solution that contributes to the optimization of customers' construction projects. In Japan, we are accelerating the digital transformation of construction sites by promoting the installation of retrofit kits that provide ICT functions to conventional construction equipment. As for the AHS, Autonomous Haulage System dump trucks reminds the total number of units in operation exceeded 350 as of the end of March 2021. And we are promoting the construction of a platform for optimizing mine operations and the development of remote operation of PC7000 ultra-large hydraulic excavators. Amid accelerating heightened awareness for global climate change, we began joint PoC verification tests of small and medium-sized electric excavators.

As a sustainable circular business and forest machinery business, we promoted a smart forestry and mechanization of the entire process and tailing afforestation, reforestation and logging. As for the Reman business, a new Reman factory was completed in South Africa and it started operation. As a part of a structural reform in the underground soft rock mining we proceeded with sell off of unprofitable products and restructuring for optimization of manufacturing capacity. Page 7 shows the business results for the second year towards the mid-term management target. FY 2020 was a very tough year with decreased sales and profit adversely affected by declined demand under the coronavirus pandemic.

As for ESG, CO2 emission reduction and the rate of renewable energy use progress solidly toward the targets. As for evaluation by external organizations, Komatsu was selected for Dow Jones Sustainability Indices and the CDP ranked Komatsu as A list both in climate change and water security. FY 2021 is a final year in the mid-term management plan, in order to view the corporate sector that withstands the demand volatility, will steadily and a stronger implement the specific force presented in three management strategies concerning cost, performance and strategic value with proper priorities. This concludes my presentation. Next, Mr.

Horikoshi will take you through the fiscal year 2020 financial results.

Takeshi Horikoshi: Hello, this is Horikoshi, Senior Executive Officer and CFO. I would like to start with highlights of the fiscal year 2020, which has just ended. The exchange rate assumptions are JPY 104.8 to the dollar, JPY 127.3 to the euro and the JPY 16.2 to the renminbi meaning, the yen's appreciation against the dollar and the depreciation against the euro and renminbi, also not shown here, the yen also weakened against the Australian dollar and strengthened against the South African rand and the Russian ruble. Consolidated net sales for the Q4 is up 9.5% year-on-year to JPY 676.2 billion and operating income is up 39.4% to JPY 59.7 billion, with the profit ratio going up by 1.9 percentage points to 8.8%.

Net sales are up year-on-year due to a higher sales volume despite the negative impact of foreign exchange rates. Operating income is also up year-on-year due to a higher sales volume as well as lower fixed costs, despite the negative impact of foreign exchange rates. Net income is up 116.7% to JPY 40.2 billion. On Page 10, I will explain segment sales and profits. Net sales of construction, mining and utility equipment increased 7.4% year-on-year to JPY 594.1 billion, and the segment profit increased 21.1% to JPY 53.8 billion.

Despite the negative impact of foreign exchange rates, net sales increased due to the higher sales volume and segment profit increased due to a higher sales volume and a lower fixed costs. Net sales of retail finance decreased 6.2% year-on-year to JPY 16.8 billion, and the segment profit increased 35.2% to JPY 2.3 billion. Revenues are down year-on-year due to the large number of new contracts recorded during the last month of the fiscal year. But profits are up year-on-year due to the absence of allowance for doubtful accounts we had last year related to mining equipment. Sales of industrial, machinery and others increased 36.9% to JPY 69.2 billion, and the segment profit increased 80.8% to JPY 7.3 billion.

Both sales and profit increased due mainly to steady sales of Excimer laser-related business for the semiconductor market. Page 11 shows sales by region of construction, mining and utility equipment. Sales increased 7.5% year-on-year to JPY 592.7 billion. Sales improved in all regions, except in North America and Japan. The sales ratio of traditional markets decreased to 45% from 51% in the same period of the last year, due to the increased sales in every strategic market and decreased sales in North America and Japan.

On Page 12, I'll give you the highlights of fiscal year 2020 business results. The exchange rates are JPY 106 against the dollar, JPY 123.4 against the euro and JPY 15.6 against the renminbi. Compared to the previous year, the yen appreciated against the dollar and renminbi and weakened against the euro. Although not shown here, the yen weakened against the Australian dollar and appreciated against the South African rand and the Russian ruble. Consolidated net sales decreased by 10.4% from fiscal year 2019 to JPY 2,189.5 billion and operating income declined by 33.3% to JPY 167.3 billion.

The operating profit ratio declined by 2.7 percentage points to 7.6%. Consolidated net sales decreased due to a decrease in demand that caused by the spread of COVID-19 as well as the negative impact of foreign exchange rates. Operating income decreased due to the decrease in sales volume, product mix difference and the negative impact of foreign exchange rates despite the positive effect of fixed costs reduction. Other income and expenses was minus JPY 4.5 billion, an increase of JPY 23 billion from the previous year due to a decrease in interest expenses and foreign exchange gains and other factors. Net income decreased by 30.9% to JPY 106.2 billion.

For fiscal 2020, we plan to pay an ordinary dividend of JPY 45 per share, an increase of JPY 2 from the previous forecast of JPY 43 per share, plus a commemorative dividend of JPY 10 per share for the 100th anniversary of the company's founding for a total dividend of JPY 55 per share. The consolidated dividend payout ratio will be 48.9%. On Page 13, I'll explain segment sales and profits. Net sales of the construction, mining and utility equipment segment decreased by 10.6% from fiscal year 2019 to 1,975.9 billion and segment profit decreased by 36.7% to JPY 143.7 billion. Net sales decreased due to a decline in sales volume caused by the spread of COVID-19 and the negative impact of foreign exchange rates et cetera and profits decreased due to a decline in volume, mix difference and the negative impact of foreign exchange rates despite the positive effect of fixed costs reduction.

Net sales in the retail finance business decreased by 6.4% year-on-year to JPY 66.3 billion and segment profit decreased by 16.6% to JPY 10.5 billion. In addition to the decline in revenue due to a decrease in new contracts mainly in North America, the segment's profit decreased due to revenue decline, as well as the impact of postponement of payments and revaluation of vehicles after lease use. Net sales in the industrial, machinery and others segment decreased by 3.6% from fiscal year 2019 to JPY 171.2 billion and segment profit increased by 19.3% to JPY 16.3 billion. Sales decreased due to lower demand for presses and machine tools for the automobile industry, and delays in installation work caused by the spread of COVID-19, while profits increased due to steady sales of Excimer laser-related products for the semiconductor market. Page 14 shows construction, mining and utility equipment sales by region.

Sales decreased by 11.1% to 1,961.2 billion. Sales in North America, Asia and Europe decreased adversely affected by coronavirus pandemic. Sales in traditional markets of North America and Europe decreased but sales in strategic markets of China and Oceania increased and the ratio of sales in traditional markets decreased from 50% of the previous year to 47%. Page 15 shows causes of difference in sales and segment profit of construction, mining and utility equipment. Sales decreased by JPY 235.3 billion, adversely affected by reduced volume and foreign exchange rates.

Segment profit declined by JPY 83.5 billion, adverse effects of reduced volume, product mix and foreign exchange rates were more than offset by positive effects by reduced fixed cost, among others. Segment profit ratio went down 3.0 year-on-year to 7.3%. Page 16 shows retail finance. Assets increased mainly due to foreign exchange rates. New contracts declined mainly North America due to declined sales of construction equipment by the coronavirus pandemic.

Revenues decreased due to reduced new contracts. Segment profit decrease mainly affected by postponement of payments and revaluation of vehicles after lease use in addition to declined sales. Page 17 shows industrial, machinery and other sales and segment profit. Sales decreased by 3.6% year-on-year to JPY 171.2 billion, mainly affected by reduced demand of presses and machine tools for automotive industry and the delayed installation work of machinery due to coronavirus pandemic. Segment profit increased 19.3% year-on-year to JPY 16.3 billion, mainly due to solid sales of Excimer laser-rated products for semiconductor market.

Segment profit ratio went up 1.8 point to 9.5%. Page 18 shows consolidated balance sheet. Total assets increased JPY 131.1 billion year-on-year to JPY 3,784.8 billion, affected by foreign exchange rates. Account receivable increased JPY 102.2 billion year-on-year due to sales growth in the fourth quarter. Inventory has decreased JPY 11.4 billion year-on-year despite the increase in the first quarter sales declined more than production adjustment.

Optimization in the second quarter and onward progressed. Interest-bearing debt decreased JPY 102.3 billion year-on-year to JPY 909.9 billion. Shareholders' equity ratio went up 2.0 percentage point to 50.5%. Net debt to equity ratio was 0.35. This concludes my presentation.

Next, Mr. Morishita will take you through the guidance for fiscal year 2021

Masatoshi Morishita: Thank you. I'm Morishita, Senior Executive Officer and General Manager of the Business Coordination Department. I would like to take you through the financial outlook for fiscal year 2021 and trends in major markets. Page 20 shows an outline of the forecast for fiscal year 2021.

The yen rate assumptions are JPY 105 to the dollar, JPY 124 to the euro and JPY 16 to the renminbi. Consolidated net sales are up 12.8% year-on-year to JPY 2,469 billion, driven by the recovery in demand and effective price hikes. Operating income is up 34.5% to JPY 225 billion and operating income ratio is 1.5 points to 9.1% and the net income is JPY 146 billion. ROE is at 1.8 points year-on-year to 7.6%. The dividend per share is JPY 62 and the consolidated payout ratio is 40.1%.

That's the guidance for fiscal year 2021. Page 21 shows projected sales and profit for each segment. Net sales of construction, mining and utility equipment is up 13.5% to JPY 2,243 billion. Segment profit is up 37.7% to JPY 198 billion with a segment margin up 1.5 percentage points to 8.8%. Net sales of retail finance are up 2.4% to JPY 68 billion, and the segment profit is up 13.5% to JPY 12 billion.

Net sales of industrial, machinery and others is up 2.2% to JPY 175 billion and the segment profit is up 4% to JPY 17 billion. I will explain the factors behind the change in each segment later. Page 22 shows projected sales by region for the construction, mining and utility equipment segment. In FY 2021, sales are projected to increase in all regions, except for China and Oceania. It's up JPY 273.7 billion to JPY 2,235 billion.

The ratio of traditional markets is expected to decrease to 46% from 47% in the previous year, due to the growth in the strategic markets in Asia and Latin America. Page 23 shows a variance analysis in projected sales and profit of construction, mining and utility equipment. Net sales are up JPY 267 billion, mainly due to an increase in sales volume and the positive impact of sales price hikes. Segment profit is up JPY 54.2 billion compared to the previous year, due to the increase in sales volume and the positive impact of sales prices. Although fixed costs will return to normal levels, as the restrictions on activities due to COVID-19 will be lifted.

Page 24 shows the outlook for retail finance. Assets are expected to decrease mainly due to the impact of foreign exchange rates. New business volume is expected to increase due to the expansion of business in North America and Europe. In addition to the increase in new business, segment profit is expected to increase due to the absence of the impact of deferred payments that existed in the previous fiscal year. Page 25 shows projected sales and profit of the industrial, machinery and others segment.

The industrial, machinery and other segment projects an increase of 2.2% in sales to JPY 175 billion and a 4% in segment profit to JPY 17 billion driven by an increase in sales of machine tools for the auto industry and Excimer laser-related products to the semiconductor market. Here, let me comment on the orders and the sales of industrial, machinery using the reference material on Page 45. Page 45 shows the book-to-bill ratio for industrial, machinery in terms of the orders received in the last six months divided by factory shipment in the same period. Komatsu Industries, which is engaged in distribution and after sales service of press machines and sheet metal machines, so a recovery in maintenance service, but orders in sales in other areas are still sluggish due to the reduced or delayed capital investment of auto and auto parts manufacturers and the order and sales index is at 50% level. Similarly, Komatsu NTC, which designs, manufactures and distribute the machine tools such as transfer machines, machining centers and the crank shaft processing machines, so a recovering trend in maintenance service, but orders and sales of other areas have been sluggish due to the reduced or delayed capital investment of auto and auto parts manufacturers and index is at the 70% level.

Let me move on to the actual and projected demand for seven major products, starting on Page 26. The figures for the fourth quarter of fiscal year 2020 are preliminary figures based on the company's forecast. The company believes that in fiscal year 2020, the total demand was up 4% year-on-year, whereas the ex-China demand was down 4%. In China, the pandemic has been contained, and the government's economic policy has kept the demand strong throughout the fiscal year. In other areas, the demand dropped significantly during the first half due to the pandemic, but it's been recovering in most regions since the third quarter.

In fiscal year 2021, we expect the total demand to grow up to 5% year-on-year and ex-China demand to grow 5% to 10% year-on-year, regaining the level before the pandemic. In the following pages, I will explain the situation in major markets. On Page 27, the demand trend in the Japanese market is explained. In fiscal year 2020, the demand in volume terms remained flat from the previous year. Demand decreased in the first half due to the weaker investment sentiment caused by the spread of COVID-19 infections, but it recovered gradually, especially in civil engineering supported by public works, as well as in the private sector resulting in the same level as the previous year.

For fiscal year 2021, despite the reduced budget for the Great East Japan earthquake reconstruction projects, the company expects the demand to grow up to 5% year-on-year due to an increase in the budget for the National Land Reinforcement measures and the extension of preferential tax treatment. Komtrax average operating hours were up 4% in March from the same period previous year. On the next page is the demand trend in North America. Demand in fiscal year 2020 apparently decreased by 10% from fiscal year 2019. In addition to sluggish demand from energy, demand declined significantly in the first half of the year, due to the impact of the spread of COVID-19.

However, with the resumption of economic activity, demand has started to recover mainly from residential, non-residential and road transportation. The demand forecast for fiscal year 2021 is plus 5% to plus 10% year-on-year. Although demand in the energy sector will remain sluggish, demand in the residential, non-residential and road transportation sectors is expected to be solid and demand in the rental sector is expected to recover. In March, the monthly average operating hours for Komtrax in March were up by 11% from the same month last year. Although operating rates in the energy sector remained sluggish.

The recovery trend is continuing mainly in the construction and housing sectors. On Page 29, I will explain the demand trend for Europe. In fiscal year 2020, demand apparently decreased by 16% from fiscal year 2019. Due to COVID-19, demand decreased substantially in the first half, but began to recover in the second half of the fiscal year, mainly in major countries such as the UK, Germany and France due to the resumption of infrastructure projects. Regarding the demand outlook for fiscal year 2021, we expect an increase by plus 10% to 15% from fiscal year 2020 due to ongoing demand recovery with the resumption of infrastructure projects.

Although there are some lockdowns in European countries, we believe that the impact on construction equipment demand will be limited. The monthly average operating hours for Komtrax in March were up 21% from the same month last year. In addition to the impact of operating days, we believe that the increase was due to the rebound from the drop off in operating rates in the same month last year, due to the spread of COVID-19. On Page 30, I will explain the demand trend in the Chinese market. From this time, the demand trend for hydraulic excavator excludes mini shovels.

For your reference, the demand trend including Chinese manufacturers is also shown. The growth rate of demand represents the figures of foreign manufacturers. Demand in fiscal year 2020, appears to have increased by 39% from fiscal year 2019. The sales season post Chinese New Year was postponed to fiscal year 2020 due to the spread of COVID-19 and the government's economic policies et cetera have contributed to a large increase in demand. As a reference, the total demand for hydraulic excavators, including those of Chinese local manufacturers, is presumed to have increased by 72% in fiscal year 2020 compared to the previous year.

Regarding the demand forecast for fiscal year 2021, construction volume is expected to be steady, but it's estimated to be minus 20% to minus 30% compared to the previous year, due to the absence of the effect of the delay in the sales season post Chinese New Year. In March, monthly average operating hours for Komtrax were up 8% from the same month last year. This is mainly due to the fact that the same month last year we saw a drop in operating rates due to the spread of COVID-19. On Page 31, I will explain the demand trends in Southeast Asia. Demand in fiscal year 2020 apparently decreased by 13% from fiscal year 2019.

In Indonesia, the largest market, demand apparently declined by 30%. In addition to the slump in the price of thermal coal, the spread of COVID-19 caused a significant drop in demand. But with the progress in the execution of public investment budgets, and the rise in palm oil prices, demand has recovered since the second half of the year, mainly in the construction and agricultural sectors. The demand forecast for fiscal year 2021 is expected to be between plus 10% to plus 15% from fiscal year 2020. Demand for construction equipment is expected to continue to increase in Indonesia and the Philippines due to public spending.

Demand for mining equipment is expected to recover as coal prices remain at a high level due to increased demand for coal. Monthly average operating hours of Komtrax in Indonesia were plus 6% in March, compared to the same month last year. The operating rates are recovering in the construction sector due to public investment and the operating hours are also increasing in the agricultural sector. On this page, I'd like to explain the demand trend for mining equipment. Demand in fiscal 2020 apparently decreased by 12% from the previous year.

Demand for iron ore, copper and gold remained strong and demand increased in Oceania and Latin America et cetera. However, demand decreased mainly in North America and Indonesia, due to the slump in crude oil and coal prices. We expect demand in fiscal year 2021 to be between plus 20% to plus 30% of the previous year's level. Demand for iron ore, copper and gold will continue to be strong and demand is expected to recover in Asia, CIS and other regions due to rising coal prices. I will here explain the status of orders and sales of mining equipment in the appendix on Pages 43 and 44.

On Page 43, you can see the index of orders and sales of mining equipment. The graph shows a trend index of total new order amount for the last six months divided by sales for the same six months. Komatsu America manufactures and sells ultra-large dump trucks. Demand for copper and steel is strong and with both orders and sales increasing. The index is above 100%.

Komatsu Germany is engaged in the manufacturing and sales of super-large hydraulic excavators. The index is currently above 100% due to orders for copper et cetera. As for Komatsu Limited, the index is well above 100% due to firm orders from Russia and Africa. Orders for 100 ton class dump trucks for Indonesia are also starting to come in. Page 44 shows book-to-bill ratio for KMC Mining Equipment.

Underground orders continue to be sluggish, but surface demands for copper and iron were firm and the latest BB ratio was above 100%. Page 33 shows sales of mining equipment. In FY 2020, sales decreased 17% year-on-year to 787.8 billion, excluding a foreign exchange impact, sales declined by 15%. Due to sluggish price of crude oil and coal, sales mainly decreased in North America and Asia. In FY 2021, sales were increased 17% year-on-year to JPY 920 billion, mainly due to sales increase in Latin America, Africa and Asia.

Excluding the FX impact, sales were increased 16% year-on-year. Page 34 shows sales of parts. In FY 2020, sales decreased by 14% year-on-year to JPY 507.9 billion. Excluding FX impact, sales decreased by 11%. As for construction equipment with the resumed economic activities, operating hours returned to normalcy in many regions and parts sales also recovered.

In the fourth quarter, year-on-year sales turned to positive. As for mining equipment, sales decreased due to mining recruitment sales declines with a full of coal and crude oil prices and the postponed overhaul to cut investment on the side of clients. But the latest utilization showed the recovery trend and the contraction has been moderating. In FY 2021, sales will increase by 14% year-on-year to JPY 576.7 billion excluding the FX impact, sales will grow 13%. Page 35 shows CapEx.

R&D and fixed costs. Investment in production and other facilities excluding investment in rental assets were increased due to construction of KMC's new head office plant and the investment mainly in growth areas. R&D expenses were increased year-on-year due to investment mainly in electrification, automation, advanced construction and reinforcement of the underground hard rock business. Fixed costs were returned to the normal level, reflecting the no movement restrictions due to the coronavirus pandemic, but that'll be below FY 2019 level by structural reforms and continuous reduction of ordinary business expenses. We continue to invest in the specific efforts areas showing the growth strategy in the mid-term management plan.

Page 46 and onward show the recent major activities. Joining hands with NTT DoCoMo, we succeeded in verification test of remotely controlling a large ICT mining bulldozer via commercial 5G network for the first time in Japan in November 2020. An operator who operated the controller in Tokyo succeeded in remote drilling, watching the real-time video footage sent from the bulldozer in Oita Prefecture as shown in the picture on the right. In future where a test equipment for evaluation assuming the real site use. Page 47 shows efforts to reduce CO2 emissions to achieve low carbon society.

In order to expand the FE series, electrified forklifts that contribute to reduce CO2 emission we launched FE25-2 and FE30-2 fully changed models for 2.5 ton and the 3.0 ton in March 2021. FE series have eco-friendly and economic benefit by nature of electrified equipment and have excellent water resistance and a dust resistance for outdoor use, and long hours continuous operation is enabled through rapid charging system. And the new Reman plant was constructed and completed in March 2021 in Johannesburg, South Africa as shown on the right. Reman is a circular business to provide the recovered component. Components such as engine and transmission which are collected through regular parts change, undergo many processes of dismantling, washing, parts change, reassembly, coating and pre-shipment inspection.

And they have recovered to the level comparable to the new component in terms of quality and performance. Reman business is 3R activity, Reduce, Reuse and Recycle by recycling and reusing components and reducing waste. And that contributes to reduced CO2 emission as well. Page 48 Komatsu commemorate 100th anniversary on May 13, 2021 to enhance and to disseminate our corporate brand value and enhance relationships with stakeholders. We are capitalizing on the 100th anniversary as one whole year of great opportunity for communication.

And we will promote the following four activities. Please visit Komatsu 100th anniversary website in our website. Page 49 upon commemorating 100th anniversary, we created a tagline by revisiting our history and philosophy of Komatsu to clarify our identity and present it to all stakeholders as our promise. That is, creating value together. We create value with all stakeholders including customers.

Komatsu promise our stakeholders to work together to positively support the growth needs of society and sustainably improve our world. This concludes results presentation. Thank you for your attention.

Operator: We would like to take questions from the audience. First from Mr.

Saito from Nomura Securities.

Katsushi Saito: Thank you. This is Saito from Nomura. I have two questions. The first question is about profit variance.

Could you give us the breakdown of JPY 102.9 billion indicated in the material, our sales volume product mix, et cetera for fiscal year 2020? And could you also give us the breakdown of JPY 58.7 billion for fiscal year 2021. The company has projected fixed costs to increase for fiscal year '21 of JPY 14.9 billion on one hand, and the projected restructuring cost for fiscal year '21 and '22 of JPY 17 billion on the other hand. Could you shed some light on the relationship between those two figures? I'm asking because fixed costs reduction for FY '20 was JPY 20.8 billion, I can understand that the fixed costs will rise to a certain extent, because part of the reduction in the previous year was due to COVID-19. But it seems that the fixed costs are rising rather significantly. So what are the factors behind the increase?

Takeshi Horikoshi: Thank you for the question.

Horikoshi speaking. The first question was about the breakdown of the projected fixed costs increase of fiscal year 2020 of JPY 102.9 billion. First, sales volume factor is JPY 77 billion. Second, increase in raw material cost is JPY 7.4 billion. And the third, region and the product mix is JPY 3.6 billion.

And another factor is unrealized inventory gain of JPY 14.2 billion. Let me explain a little bit about this. During fiscal year 2019, last year, we had a significant decrease in intermediate stock and during fiscal year 2020, we also had a decrease in intermediate stock. But in fiscal year 2019, gain realized from unrealized inventory gain was substantial, because of the high profit margin in fiscal year 2018. Compared with that gain realized in fiscal year 2020 is smaller.

The difference is JPY 14.2 billion. So, the balance is JPY 700 million. This consists of various small items. The next question is about the breakdown of JPY 58.7 billion for fiscal year 2021. First, increase in sales volume is JPY 74.2 billion.

Second, increase in raw material cost is JPY 3.7 billion. Region and the product mix is negative JPY 500 million. And unrealized inventory gain is JPY 10 billion. This is negative for the profit. Let me explain about this.

We had a decrease in inventory during fiscal year 2020. I mean, intermediate stock, not the total inventory. And during the fiscal year 2021, we are expecting an increase in intermediate stock, which decreases profit. That the factor behind JPY 10 billion. So the balance is JPY 1.3 billion, and this consists of various small items.

Regarding fixed costs. Fixed costs reduction for fiscal year 2020 was JPY 20.8 billion. This was in construction equipment, and it is expected to increase JPY 14.9 billion in fiscal year 2021. Structural reform was explained in the company's news release and other occasions as well, with a targeted reduction of JPY 17 billion by 2022 and JPY 21 million by 2024. Let me talk about fiscal year 2020 first.

During fiscal year 2020, cost and benefit were almost at the same levels. In construction equipment, cost which is one-time expenses were slightly larger than the benefit. And for fiscal year 2021, if we look at construction equipment alone, to make the story simple, cost will be lower than in fiscal year 2020, and the benefit of about JPY 10 billion is expected. That's the amount for the entire company. Now the question is why the fixed costs are increasing year-on-year despite that.

Let me explain about one-time expenses. And these expenses consist of various things, such as, the mine expo, which had been postponed, absence of COVID-19 related subsidies we had received from each country government during fiscal year 2020. Project costs under the mid-term business plan, since we have more projects for fiscal year 2021, compared with levels we had in fiscal year 2020. And also personnel cost, which is about JPY 4 billion per year, there will be some incremental cost. So those are major one-time items.

Projected fixed costs for fiscal year 2021 is JPY 5.9 billion, lower than that for fiscal year 2019. That is partly helped by the ongoing structural reform. So compared with the pre-COVID period, our cost base is lowered. So that's my response.

Katsushi Saito: May I ask how much one-time expenses is included? We have an increase of JPY 14.9 billion.

And suppose that JPY 10 billion is the impact, the growth increase is JPY 24.9 billion. So out of that amount, how much is one-time expenses compared with the lower level recorded in the last year? Including subsidies and others is slightly less than JPY 7 billion. How much was mid-term plan project costs?

Takeshi Horikoshi: Could we address this some other time?

Katsushi Saito: Sure, of course. Let me move on to the second question. I would like to ask a question about agent sales to the President Ogawa.

According to the guidance, sales in Asia is expected to grow as much as 70%. The company's projection of JPY 240 billion may be sustainable given the pent-up demand. On the other hand, global demand for coal is likely to decline over the time, if not for the short time. And in general construction equipment, competition with Chinese players is intensifying. And the company has launched low - lower cost new product in Indonesia in April this year.

Could you give us some background behind the 70% growth in terms of the company's strategy, competitive dynamics and the business environment?

Hiroyuki Ogawa: As for Asia, we expect the recovery of the Indonesia market, which is the biggest market in Asia. Although in Indonesia, we can only produce low-grade coal, but the price for 4,200 kilo calorie coal has recently doubled to $45 from the $22 level in September-October last year. So clearly, there is a major change in the investment appetite of major contractors. Regarding exports to China due to the deteriorating relationship between China and Australia, we expect exports from Indonesia to China going forward. Also the idle rate of equipment at the major mine sites, which is reported regularly by the company has improved to 15% to 16% today from the worst level of 27% to 28% in September or October 2020.

So the equipment utilization is getting higher at the moment. Also in mining, we are seeing a strong momentum at the moment for nickel. As you know, Indonesia is the largest producer of nickel ore in the world. During fiscal year 2020, our sales to Indonesian nickel mines has reached almost the same level as that to the coal mine customers. So, there is a strong momentum at this moment in this area.

In Indonesian nickel, export of unprocessed nickel ore was banned back in 2014, resulting in a significant drop in production. But thereafter, export ban was eased in 2017 or so, and the production has been increasing every year since then. In view of the shift toward electric vehicles, nickel is becoming more important as an opportunity for Komatsu as well. So nickel growth is also included in the projection. More than 70% of nickel smelting facilities in Indonesia are Chinese investments.

That is true. That's the reason for high demand for Chinese equipment at the moment. However, Komatsu has been taken various measures, such as the launch of new equipment as mentioned by Mr. Saito earlier. In the general construction equipment market as well, assuming that the pandemic will be contained, in fiscal year 2021, we expect to benefit from the biggest ever infrastructure investment being planned by the national government, which is that worth JPY 3 trillion.

The government is also likely to reduce value added taxes as part of the aggressive economic policy. So those are some factors behind our sales projection in Indonesia. Thailand is doing relatively well too. And also for the Philippines, the infrastructure budget in fiscal '21 is expected to be a record high. And that's why we are expecting a rise in demand.

Also, for the Philippines, it's the second largest nickel producer in the world. Thus, we believe there is good opportunity in the nickel area. All of these factors lead to our view that Asia will be significantly higher. However, unfortunately, we don't expect mining to reach fiscal 2018 levels in fiscal 2021. Moreover, regarding our strategy against Chinese manufacturers that are entering the Asian markets, one is the new model launch that I mentioned earlier.

Starting off with Indonesia. We will employ a two-line strategy. This is to address who we call middle end customers with low load operations. We will have the PC210 for a conventional high end and middle end customers that engage in high load operations. And we will be offering the new four cylinder model to the low load operation customers.

As for price differential, I think we've communicated this before, but it's going to be a difference of about 10% to 20%. And what's most important is that, we will have different sales strategies for high load and low load operation customers. For the four cylinder vehicle that we are going to launch newly, we will engage in cost reduction, higher sales volume and generate aftermarket sales so that we could strive for similar margins to the conventional model. Furthermore, we will offer an extended warranty program for components as we do with the conventional models.

Katsushi Saito: Thank you very much.

Sorry for going on for a long time.

Hiroyuki Ogawa: Thank you very much.

Operator: The next question will be by Mr. Isayama from Goldman Sachs.

Yuichiro Isayama: Thank you for taking my question.

I am Isayama Goldman Sachs. Can you hear me?

Hiroyuki Ogawa: Yes, please go ahead.

Yuichiro Isayama: The two questions I have are both follow-up questions related to Mr. Saito's questions. But first is regarding fiscal 2021 analysis of operating income for volume and product mix.

Mr. Horikoshi was saying, if I heard him correctly, minus JPY 3.7 billion for COGS difference and minus JPY 500 million for regional mix. Can you give me the reason why you have derived this number? Because if you're expecting Indonesia and mining to increase, roughly speaking, that last year was down by JPY 100 billion, I was assuming that you'll get back JPY 100 billion this fiscal year. But it seems that it's only going to be close to JPY 60 billion. So for the COGS difference, and the regional mix difference considering that last year was bad.

Why isn't it turning positive this fiscal year? People often talk about higher raw material cost or transportation cost. Would that be the reason? Or is it that just the smaller products that was discussed a while back? If mining is going to recover? I was wondering why you're not seeing this item turn positive. I wasn't able to digest your explanation. Those are the two things I'd like to ask. Why is COGS difference still negative and provisional mix? Why is it at this level despite recovery expected in mining and in Indonesia? Are there any hidden variable factors? Please - explain to the extent that you can.

Takeshi Horikoshi: Regarding COGS difference, it is comprised of items such as materials and steel cost increases and also higher COGS for products due to model changes. Unless you make extremely intense efforts, it's hard to turn these items positive. So basically for COGS, our assumption is that, it will gradually increase. And as you can see in the analysis by raising sales prices, we will ensure that we are able to maintain an appropriate level of gross margin. This is what we've been doing from the past and for fiscal 2021, we believe that the trend is going to be similar.

Next, regarding mix and why it's not positive. When we talk about mix, it can be broken down mainly into regional mix and product mix. For regional mix, to your point, Indonesia is gradually increasing. So that is a positive. But unfortunately, for product mix, as we explained at the time of the third quarter, on a relative basis, original equipment sales increase impact is higher, resulting in negative impact from product mix.

And when you add the two items together, it leads to minus JPY 500 million net-net.

Yuichiro Isayama: Thank you very much for your reply. Regarding higher raw material and transportation costs, are you accounting for more this fiscal year in COGS difference? Can you please confirm?

Takeshi Horikoshi: Well, container prices are currently higher due to tight demand, as you have been hearing in the news already. So yes, we have been accounting for higher costs.

Yuichiro Isayama: Thank you.

My second question is for the President, Mr. Ogawa. In the numbers utility announced last week, I was concerned and seeing that your market share in Hitachi has went down by 10%. Well, Sony heavy suddenly popped up. Because this suddenly happened in the past one year, do you feel that they have taken share away from you? Compared to when you were overseeing the market in the past, Mr.

Ogawa? Do you feel that the environment has drastically changed? And in turn, this time around, I hesitate to call it the new low cost model. But with regard to the launch of your new model in China, you were originally saying that you addressed different market segment compared to the Chinese local manufacturers. But now it seems that you're trying to compete head-to-head as I hear it. So I was wondering, the difference between China and Indonesia, is that Indonesia is the largest market for yourselves and you feel that it's a market you can't lose in. So how do you look back at the market share decline at fiscal 2020? And can you also explain again, the backdrop to why you need to compete head-to-head?

Hiroyuki Ogawa: Well, in the Chinese market, I think it's difficult to directly compete with the local manufacturers.

Therefore, for China, we would like to ensure that we are not involved in a price war. That is why we are focusing on larger models that are 20 tons or above. And we're trying to shift our resources to the segment as much as possible. So that we can have a profit focus. Hence, we are not concerned about market share in China that much.

For Southeast Asia, the market share for Chinese manufacturers is steadily increasing little by little. When you look back at fiscal 2019 and 2020, Indonesia, as well as other Asian countries, market share of Chinese manufacturers, mainly Sony, has been rising. Until several years ago, we weren't able to obtain accurate Chinese manufacturer data. So we weren't sure about where they stood. However, since last year, we started to obtain market share and sales data of the Chinese manufacturers.

We have observed that Chinese manufacturers have been increasing market share quite a lot. Regarding Indonesia, Chinese manufacturers, especially Sony is about the same share as Komatsu when you look at the results for fiscal year 2019. And for other Asian regions, their market share has gone up to a level that is about the same as Komatsu as well. So just to repeat in Indonesia, the market share of Sony and other Chinese manufacturers are mainly concentrated in nickel mines. Compared to coal mines that require large equipment to remove the overburden, nickel mines is more about a midsized equipment market, such as the PC200 through 500 is being sold.

This is a space where there's a lot of Chinese manufacturer presence. The reason is, as I've mentioned earlier, Chinese capital has a stake in about 70% or more of the nickel refineries in Indonesia. And these refineries are utilizing Chinese equipment. Looking back at the past six years, it's said that Chinese manufacturers have implemented approximately 4,000 units into the market. And about one half of that or 2,000 units are at the nickel mine operations in Sulawesi.

So from our point of view, in order to compete against the Chinese manufacturers in Southeast Asia, which is our backyard that generates high profitability, we need to implement a variety of measures. That is why for a low load operation middle end customers, we would like to offer our new product. To avoid misunderstanding, I would like to confirm again, that this is not a low end model. The features and components are broadly the same as the conventional model. However, the engine is four cylinder, and we made improvements in fuel efficiency.

It's a product that specializes in fuel efficiency, cost and robustness. And it's not a low end model. And as for margins, our aim is to generate similar margins to that of a conventional model.

Yuichiro Isayama: Thank you. I'd like to confirm a point you've made.

In my question, I said that they took away market share from you. But I guess it's more to the end that you weren't really sure about their market share before. But once you obtained the data, this was where you were? Is that the right way to look at it? And for the new product launch rather than defending your market share, is it more about going on offensive targeting market segments, including segments like nickel, where there are investments by Chinese capital?

Hiroyuki Ogawa: Our most important strategy is to engage in a value chain business. It's about increasing profits through the value chain. However, in order to obtain sales and profits from the value chain, it's important that you maintain a certain level of machine population.

But unfortunately, over the course of the past several years, especially in strategic regions, our market share has gone down. Not only were the Chinese manufacturers gaining momentum, but other manufacturers have been cutting their prices and have increased their share. So we need to maintain a certain degree of volume, or else you won't be able to sell components or grow the aftermarket business. In the past, it was all about addressing the high end part of the market. But we have changed our perspective slightly in order to go after - aftermarket business.

Hence, we feel the necessity to sell new equipment. And that is why we have decided to launch the new model. But once again, our strategy is not to sell at a discount. The prices of our vehicles will be set in accordance with its cost. So we haven't prepared this vehicle for the sake of trying to sell at a discount.

Yuichiro Isayama: I understood your point very well. Thank you.

Hiroyuki Ogawa: Thank you.

Operator: The next person is Mr. Sano from JP Morgan.

Over to you.

Tomohiko Sano: Thank you for taking my question. I'm Sano from JP Morgan and I have two questions. The first is regarding North America. In the fourth quarter of fiscal 2020, sales were down by 9%.

But demand during this timeframe was up by 20% apparently. How should I analyze the difference? Also, operating hours recovered in March increasing by 11%. How do you view the upside impact on demand due to the new administration's infrastructure initiatives? And against your competitor, Caterpillar, what kind of strategies are you going to employ in order to increase your market share? That is my first question.

Takeshi Horikoshi: I wasn't able to hear the second part of your question clearly. But let me reply to the first part.

For North America as you can see on Page 11, demand was up by 20%. But your question was why sales in the region was down by 9.2%? The decline is mainly attributed to the mining business. For construction equipment, in fact, sales was higher on a year-over-year basis. Other than that, distributor inventory was down. If you add the impact from these two items, sales for construction equipment was up by 20% year-over-year.

So for North America regarding the minus JPY 12.7 billion, a larger amount this was the decline we saw from the mining equipment business. This is not due to lower demand, but it's because there was a large deal last year. So on a year-over-year basis, it resulted in a substantial decrease.

Tomohiko Sano: Thank you very much. The second part of my question was, in your outlook for the North American market, how much of an upside are you accounting for due to the new administration's infrastructure related initiatives? And also against Caterpillar, what kind of measures do you have to increase your market share?

Takeshi Horikoshi: Well, regarding the Biden Administration, I think there are both positives and negatives.

First of all, related to green initiatives, additional investments and large fiscal spending will be positives. On the other hand, in the energy sector, namely oil and gas, as well as coal, the impact on demand is expected to be relatively negative. We expect coal in North America to continue to decline, as was the case in fiscal 2020. In order to address this trend, as we have started from this fiscal year already, we will further work on structural reform efforts, especially at KMC. Since two industry here, especially in the United States, the demand for construction equipment in housing and construction has recovered, and we expect that the demand in the next year will stay firm.

As for rental business, up to the third quarter 2020, demand has been deeply negative year-on-year. But from the fourth quarter, the recovery sign has been observed. And we expect that the recovery will continue in 2021 as well.

Hiroyuki Ogawa: Ogawa speaking. Let me add a comment.

As for North America, as Mr. Horikoshi explained, we observed a mixed business picture. Regarding the demand forecast for 2021 in North America, as of today in our latest forecast, we expect that unfortunately demand will not recover to the level of 2019. For one thing, demand for residential and non-residential buildings will increase due to the additional stimulus package at $1.9 trillion. While the demand will increase with the Clean Energy related investment, energy related demand will continue to be sluggish adversely affected by coal.

As an example, pipeline construction was halted under Biden Administration, as media reported. There are both positive and negative sides. More than $2 trillion of economic program over two years was presented. But that is not included in that forecast shown today. As clean energy related investment expansion is expected, we'd like to increase sales of our ICT construction equipment and the SMARTCONSTRUCTION.

And we plan to increase share of market by about 2% in 2021.

Tomohiko Sano: Thank you. My second question is about AHS, given its sales were 221 unit as of the end of March 2020, 352 shows strong growth. If you sustain the growth presented at KPI for 2021 in the mid-term management plan, 380 will be well within reach in the first half. So as of today for this fiscal year, how much do we expect to add? And if you have any business talks with leading metals and mining companies to back up your forecast, would you share them with us?

Hiroyuki Ogawa: As for AHS as mentioned before, as of the end of March 2021, we achieved 352 units sales against the target of 330, beating the target.

FY '19 was 221. So in one year from March 2020 to March '21, we sold about 130 units of AHS. For March 2022, for the period of one year from now, our KPI target is 380. We think that we have a larger opportunity than 380 unit. Currently, major mining clients mostly use dump trucks with AHS.

Clients who buy dump trucks for manned operation request equipment to which AHS can be retrofitted. So for the period up to March 2022, we plan to achieve substantial addition to KPI 380 unit.

Tomohiko Sano: Thank you, President Ogawa. Out of the increase of 130, what is the mix between new AHS and retrofit AHS? Do you observe any trend?

Hiroyuki Ogawa: I do not have data at present. But 1 AHS except equipment, generates sales of about JPY 100 million to JPY 200 million per unit.

Tomohiko Sano: Understood. That is all from me. Thank you.

Hiroyuki Ogawa: Thank you.

Operator: Next question is from Mr.

Tsuge from Nikkei.

Yasufumi Tsuge: I am Tsuge of Nikkei. Firstly, would you add comments on the change from the first to the second half in the business forecast for FY 2021 in terms of demand, profit, contributing region and products? And when do you think the impact of coronavirus pandemic subsides?

Takeshi Horikoshi: As for the regional projection for FY 2021 as shown on Page 22, year-over-year growth will be JPY 273.7 billion, and this breakdown between mining and the construction equipment is

almost 50: 50. In mining equipment, Latin America will grow substantially mainly for copper. And Asia will also grow.

Indonesia sales for coal demand will grow strongly. Construction equipment sales growth will be about JPY 140 billion out of total JPY 270 billion. Largest growth in construction equipment will be in America, Europe, their mining sales are almost non-existent and Asia.

Yasufumi Tsuge: Thank you. May I ask a follow-up question or confirm that sales will grow more in the second half when I compare half on half? Is that correct?

Takeshi Horikoshi: As shown in the appendix on Page 38, Quarterly sales of Komatsu tend to go quarter-on-quarter from the first quarter to the fourth quarter as a trend.

And especially in the upside, this trend is more notable. However, when we look at the current order conditions, second half seems to be lower than the first half. So, we will monitor order condition closely for the second half.

Hiroyuki Ogawa: Ogawa speaking. Let me add the comments.

Talking about the latest order condition, orders for the first half are coming close to the record high sales of FY 2018. However, that said, this might be regarded as a rebound from FY 2020 when we suffer the coronavirus pandemic. And we need to monitor the second half closely. Our current plan is that, the first half will be stronger than the second half. And in total, sales will be back to the level of FY 2019.

That's for the first and the second quarter, global factories have been almost fully utilized you know it began to be in labor shortage. So the first and second quarter will be growing substantially. On the other hand, we need to be aware of some impediments such as semiconductor and logistic issues. As for semiconductor, we are also affected by semiconductor shortage which started in last year. To be specific, the fire broke out at Asahi Kasei.

And more lately, the fire occurred at Renesas Electronics. And in North America, due to deep freeze, a chip maker in Texas suspended production for almost a month. And we are affected by those cases now. We have been in full operation since April 2021. But we suffer the impacts and we need to continue to watch closely.

In the first and second quarter, impact by semiconductor shortage was especially heavy on engine controller. And this engine controller production will be catching up from the late second quarter. And when we look at the full year, we will not suffer material impact. As for logistics, most of the railroad ships and container ship are in tight supply. As mentioned before, sea freight, especially container sea freight is soaring.

Spot freight for 2021 saw at 2.5 times and we usually send the spare parts or emergency order by air, and air freight also soars to 3 or 4 times down. Usually we join in the bidding of shipping companies at the beginning of the fiscal year and annual freight for railroad ship and container ship is decided. The bid price is almost double the price of the previous year. We are substantially affected by this, and it is included in the business plan to some extent. Latest orders are very strong and factories are working in full.

But semiconductor and logistics are impacting the first half.

Yasufumi Tsuge: Understood, thank you. Another question is about EARTHBRAIN. I think that it is to promote water upgrading of a SMARTCONSTRUCTION that you have been working on and develop it into global business. Would you give any specific thing that four companies engagement in the new company will enable you to do, which was not possible in the past? And if possible, would you share with us any quantitative target?

Hiroyuki Ogawa: As for the objective of carving out SMARTCONSTRUCTION business for collaboration is, firstly, digitization in construction industry is presumably irreversible, and under COVID-19 in the era of new normal, delayed digitization in construction industry will be accelerating.

In the mid-term management plan, we said that we will enhance customer value by optimizing both solution and products. We have strengths in product culture and the product evolution. But for solution, it would be better to collaborate with a company which has expertise in it. Especially, digital transformation of SMARTCONSTRUCTION which was reused in April 2020 will be evolved, upgraded further, and device in the platform to visualize the construction site which was requested by customers will be developed further. We have worked on these in analog, but we need to upgrade them further.

As for the application released in DX SMARTCONSTRUCTION, we need to evolve further. To optimize solution resources will be limited if Komatsu tries to do on our own. We'd rather accelerate the evolution of SMARTCONSTRUCTION with partners who have most advanced technology and expertise. And this is one of our objectives. Especially what matters is, in the feud, product is speed to develop platform application and a device fast and offer them to customers is critical.

By achieving these, Komatsu will retain customers with solution and sell more of our hardware of excellent affinity, including ICT construction equipment and automated construction equipment. Since last year, we have launched SMARTCONSTRUCTION retrofit kit. In FY 2020, we retrofit 1,200 to 1,300 kits. In FY 2021, we plan to retrofit 4,000 to 5,000 kits. By accelerating series of products and solution by platform and application.

Customers' productivity will improve and eventually we'll be able to contribute to solve the social problem of labor shortage. And bearing these in mind, we decided to set up this new company as JV this time.

Yasufumi Tsuge: Well, understood. Thank you.

Operator: Thank you.

Though we received more questions, as it is a scheduled time to close the meeting, I would like to conclude the Q&A session. With this I would like to close our business results meeting. Thank you very much for joining us today.