Mitsubishi Motors Corp

Thank you very much for waiting. Thank you for joining our fiscal year 2020 third quarter financial results announcement call. I would like to introduce today's speaker, Koji Ikea, representative executive officer and CFO. In addition, Hiroshi Nagaoka and Yoichiro Yatabe, representative executive officers and co-CEOs. and Noriaki Hirakata, Executive Officer. They are also joining the call for Q&A session. Today, we would first like to present our results for the third quarter 2020, and then we would like to take questions from the floor. The meeting is scheduled to end at 7.30 p.m. Please turn to page three, Ikea-san, please. First, please refer to fiscal year 2023 quarter summary. Sales decreased 43% year-on-year to 952.8 billion yen due to sluggish global demand for automobiles resulting from the spread of COVID-19. Operating loss, mainly due to global sales stagnation, was reduced by company-wide efforts to reduce overhead and fixed costs and restructuring activities However, the cumulative third quarter operating loss amounted to 86.7 billion yen. Ordinary profit was negative 92.9 billion yen, and net income was negative 244 billion yen, mainly due to the recording of an extraordinary ordinary loss from the implementation of a structural reform. Free cash flow turned positive from the second quarter, and the cumulative negative free cash flow shrank significantly. Sales volume was 569,000 units globally. In the third quarter, from October to December, net sales were 377.9 billion yen. Operating loss was 4.1 billion yen. Ordinary loss was 5.9 billion yen. And net loss was 34.1 billion yen. And unit sales was 218,000 units. Earnings momentum has improved since hitting bottom in the first quarter as we confirm a return to profitability in December. In the third quarter, we were able to recover to the point where we are close to profitability. Please turn to page four. The factors behind the year-on-year changes in operating profit are as shown here. In terms of volume and mix, a decrease in unit sales had a negative impact of 120.9 billion yen. However, there was a positive impact of 6.3 billion yen due to improvements in the regions and model mix, resulting in a total negative impact of 114.6 billion yen. Despite an increase in sales expenses in some regions associated with new car sales, sales expenses improved by 6.3 billion yen from the previous year due to the effects of restraints in line with the plan. Cost reductions, et cetera, were largely affected by production adjustments in the first half of this year, and the effect of material cost reduction shrank. Structural reforms and R&D cost reviews, which we have been working on since the beginning of the term, proceeded at a faster pace than expected and produced significant positive effects. And in other elements, including deterioration in after-sales business and increase of quality cost, The cumulative total worsened by 18.2 billion yen year-on-year. The Thai baht, which is a cost currency, showed an improvement, but there was no impact on earnings due to the impact of the deterioration in the U.S. dollar, Russian ruble, and other currencies. Please turn to page five. This slide explains the factors behind year-on-year changes in operating profit for the third quarter of fiscal year 2020. In terms of volume mix, the impact of lower sales was partially offset by improvement in the mix of regions and models and the improvement in marginal profit from cost structure reforms. The negative profit impact was limited to 20.9 billion yen. Although we were able to control sales expenses in line with our plan, there was an increase in sales expenses for the new car launch in some regions, which caused a slight duration in sales expenses. Cost reduction, including materials, were affected by lower capacity utilization, resulting in a decrease in profit of 4.2 billion yen. On the other hand, the positive effects of structural reforms amounted to 12.3 billion yen. The decrease in R&D expenses reflects the difference from the third quarter of last year, in which major product development projects was nearing its final stage. New product development of ASEAN is progressing faster than expected. Overall, yen appreciation had an impact, but the favorable turn in the Thai baht, which is a cost currency, contributed to a 1.1 billion yen year-on-year profit increase. Please turn to page six. Our total sales in all regions decreased by 35% from the previous year to 569,000 units. Global automobile demand is on a recovery trend in China, the United States, and other countries. but the recovery in the regions where we excel has been delayed. The core market for us from the previous year. In Australia and New Zealand, a moderate recovery continued, and the decline of our sales tended to improve from the first half of the year. Our sales were down 28% from the previous year to 49,000 units. In Japan, overall demand for automobiles was recovering, but the impact of the spread of COVID-19 has been increasing again recently. We are implementing structural reforms, such as restraining fleet sales and revising selling prices, which resulted in a 37% year-on-year decrease to 43,000 units. The new Eclipse Cross PHED we launched in December last year was well received by the automotive media. And with the increasing customer interest in EVs, we have made a strong start in other regions. There was no significant change in the external environment. And in all regions, there was a decrease of around 30% compared to the previous year. Please turn to the page seven. Next, I would like to explain our performance outlook for the fiscal year 2020. Please turn to page eight. As mentioned earlier, in the winter when virus becomes more active, national mobility restrictions are becoming more stringent. In addition, uncertainty in the external environment has again intensified, including a shortage of supply in the semiconductor supply chain due to strong demand. On the other hand, we have been able to implement our cost structure reforms faster than anticipated and even taking into account the harsh sales condition, there is a clear prospect that we will be able to curb losses compared to our initial plan. Contributing to the recovery in earnings are restraining on discounts and revisions to initiatives for fleet sales. We have revised down the full year unit sales forecast from 824,000 units to 802,000 units and accordingly revised down the full year net sales forecast from 1.48 trillion yen to 1.46 trillion yen, taking into account risk items such as the re-expansion of COVID-19 and changes in import duty measures in ASEAN region. On the other hand, we are making steady progress in improving profitability. Operating losses revised upward from the previous forecast of 140 billion yen to a loss of 100 billion yen. Ordering losses revised upward from 160 billion yen to 120 billion yen. Net loss is revised upwards from 360 billion yen to 330 billion yen. Although the uncertain external environment continues, we will continue to work together on the structural reform in order to achieve the new full year earnings forecast. Please turn to page nine. In line with the revision of the full year operating profit outlook, we have also revised the factors behind changes compared to the previous fiscal year. In terms of volume and mix, we expect a slight deterioration from the previous forecast due to the revised impact of the decrease in unit sales and the review of the mix and selling price improvement. With regard to selling expenses, we have revised selling expenses in each country in line with our basic policy of selection and concentration, and we are expecting a positive effect in line with the previous forecast. Regarding cost reductions, Production adjustments in line with sales reduction and inventory reduction plans following the COVID-19 prevented material cost reduction activities from progressing as usual. However, the impact is expected to improve compared to the previous forecast due to the success of efforts to curb plant-related expenses. We anticipate significant positive effects from the progress of structural reforms and the concentrated R&D investment in core regions and products as scheduled. Other items incorporate risks such as after-sales business and quality-related expenses. Regarding the impact of foreign exchange rates, we have revised the four-year rates for each country again in line with the current market environment as shown on the slide. As a result, we expect a negative effect of 600 million year-on-year. Please turn to page 10. The factors behind changes from the previously announced forecast are as follows. In terms of volume and mix, we will limit the impact of the decline in sales through improving mix and revising selling prices, et cetera, to a $2.9 billion deterioration compared to the previous forecast. As for sales expenses, we anticipate a slight upturn from the previous plan. With regard to cost reduction, while material and other cost reductions are impacted by lower operation rates, we expect a positive effect of about 15.2 billion yen from the previous forecast due to greater than expected progress in curbing plant-related expenses. Structural reforms and R&D expenditures are all on track to achieve greater than expected progress, so we anticipate significant positive effects. In other items, we expect after sales business, domestic subsidiary business, quality costs, et cetera, to all improve from the previous forecast. Regarding the impact of foreign exchange rates, we have revised the full year rates for each country again in line with the current market environment. As a result, an upturn of around 1.4 billion yen is forecast compared to the previous forecast. Please turn to page 11.

The forecast of retail sales volume for FY 2020 by region is as shown in this slide. As I mentioned at the beginning, there is a possibility that the recovery in automobile demand will again slow down due to the expansion of mobility restrictions in each country as a measure to prevent the spread of the COVID-19, the transformation of import tariff measures at the end, and the shortage of supply in semiconductor supply chain. Based on these impacts, we revised our sales outlook for FY 2020 from 824,000 units to 805,000 units. In ASEAN, which is our core market, the recovery trend in Vietnam and Malaysia has been apparent. In Indonesia, stricter mobility restrictions have been adopted to combat COVID-19, and the economy has been sluggish as a result. In the Philippines, the pace of recovery in demand has slowed down due to the restrictions on economic activities and the issuance of safeguards. In addition, the spread of COVID-19 is again expanding in Thailand, and there are concerns that sales will slow down in the future. As a result of factoring these elements, we lowered unit sales forecast from the previous plant 196,000 units. On the other hand, in Australia and New Zealand, The recovery trend is continuing moderately, and our sales are gradually recovering. Therefore, we will slightly raise the full year forecast to 70,000 units. In Japan, where demand for automobiles was recovering, uncertainty increased again due to the impact of the state of emergency issued at the beginning of the year. Sales of the new Eclipse Cross, which we launched in December 2020, have been strong. But taking into account the impact of the worsening external environment, we will keep the full-year forecast of 75,000 units unchanged. In addition, the Chinese market continued to recover from April onwards. However, although we halted the significant decrease in sales in the first half of FY2020, we feel that it will be difficult to dispel the decline overall. decided to lower the forecast from the previous plan to 106,000 units. In North America, the market as a whole is on a recovery trend, but forecast remains unchanged. But this fiscal year, we prioritized a strategic wind battery adjustment and improved sales quality, and the previous forecast remains unchanged at 112,000 units. In Europe, in addition to the impact of the repeated lockdown, and we anticipated a significant decrease in sales due in part to the impact of our change in development strategy. However, the situation is trending gradually, and we will slightly raise the forecast to 146,000 units. This is our sales forecast with awareness of uncertainty in the market, in which we excel. But we will do our utmost to achieve our budget. Please turn to page 12. So next, I would like to explain our business highlight in third quarter. Please turn to page 13. As indicated, all structural reforms have progressed faster than planned or as planned. We also expect most of the reform costs to be recorded during the current fiscal year. Regarding the reduction of fixed costs in the new midterm plan, small but beautiful, we set a target of a 20% fixed cost reduction by the end of FY21, comparing to the FY19 level. Despite the extraordinary factors caused by the COVID-19, we expect to be able to achieve a reduction of around 18% in total fixed cost compared to the previous year due to the acceleration of various measures. In terms of specific implementation status, first, we were able to optimize our workforce, including reallocation, restraint on new hiring, and voluntary retirement system, as well as reviewing our compensation system. And these measures were conducted in accordance with the plan. And this will result in cost reduction that is slightly higher than the planned amount. With regard to marketing expenses, we expect to achieve significant reductions in our overall budget while improving cost effectiveness by controlling costs in non-core regions and concentrating a portion of those costs in core regions. This is in line with the basic concept of selection and concentration. As announced in the first quarter, depreciation and amortization will be reduced as planned through impairment losses on fixed assets. Similarly, we worked on selection and concentration on the development cost, curbing development costs for noncore regions and concentrating investment in core regions, thereby establishing a system that enables us to develop products in line with our strategy. As a result, we expect to achieve reductions that exceed our plans and more efficient development. Reductions that exceeded the plan will lead to strengthening of our strategic production at the end, and also that will be used as an investment for future development strategies such as complying with carbon neutral requirements. Regarding the restructuring of the production system, as announced in July, we made a decision to suspend production PMC and consolidating the production lines, thereby putting in place a high capacity utilization system in line with sales. As for D&A expenses, we can expect substantial reduction due to greater than expected reductions in all items, such as travel expenses and outsourcing expenses, and also consolidating subsidiaries and other offices into the head office building. Please turn to page 14. Among the elements we should focus on during the current midterm plan, which I mentioned in July, we will deliver to our customers attractive products that enable them to experience a sense of security and driving enjoyment through the promotion of the environmental technologies that we excel at and also evolving our genetic four-wheel drive technologies and off-road performance. In line with this major policy, the new environmental plan package announced recently, we're calling for the promotion of electrification focused on PATV technologies. As already mentioned, in the third quarter, FY 2020, we began sales of the new Eclipse cross model, which also added the PATV model. In addition, we began producing and selling Outlander PATV in Thailand in preparation for increasingly stringent environmental regulations. In the domestic market, we have upgraded our EK cross and EK cross space to equip safety features and have launched the special edition model of G Plus Edition. And we have also launched a full model change of compact minivan Delica D2 at the end of December. On February 17, Japan time, we are planning to hold an online presentation meeting for the crossover SUV Outlander, which has undergone a full model change. We plan to follow up and announce the streaming link later to you so that you can see the presentation. We plan to launch the new Outlander globally, starting with the United States and Canada and Puerto Rico. We continue to develop technologies and expand our lineup of environmentally friendly models in accordance with our plan. So last page, page 15. The global automobile demand is gradually recovering. Particularly in developed countries, the second and third wave infections of the COVID-19 seem to have resulted in stricter restrictions on activities in each country again. Currently, the impact of the shortage in the supply chain for semiconductors is beginning to affect on the automobile production, and the environment surrounding us remains challenging and uncertain. Even in this environment, we have made it our highest priority to steadily implement these structural reforms, and centered on selection and concentration, and to firmly establish a foundation for recovery in business performance. We have been implementing these measures thus far. As a result, the reforms have progressed faster and deeper than expected, and in the current third quarter, we are able to revive upward our full year forecast as we saw a clear earnings improvement. In particular, we felt that greater than expected progress in structural reforms led to a major improvement in profitability despite the significant decline in its sales in the third quarter. We will continue to promote structural reforms without relaxing our policies and further solidify our profitability in FY 2021. Thank you. Thank you.

Part of the presentation, the Japanese presentation was inaudible. I apologize for that. And let's start the Q&A. English Channel is listened only. So if you have a question, press star followed by 1. And when your name is called, please start your question. And if you want to cancel your request for question, please press star and 2. We will take up to two questions from each speaker. Thank you for waiting. from Goldman Sachs. from Goldman Sachs. Do you hear me? Thank you. My first question, I understand that there is uncertainty, but the net generate too much profit. The shipment is about 300,000 units and then about 500 units. First quarter numbers. Is there any, like, improvement in the efficiency or something for the fourth quarter? And the second question, this is a kind of broad question, but your business in the U.S., so the new Biden administration, so I think there is a chance that some electric vehicle policies may change. And You've been working for the past nine years on inventory adjustment to survive in the market. But it's hard for us to see any improvements toward returning to profitability. So your US business, what's your plan or what's your outlook about your US business? About the roadmap toward profitability, Ikea is going to answer your question, your first question. So our result up to third quarter, considering that, the fourth quarter forecast seemed a bit conservative. I think that's the key point of your question. Let me talk about that. If you just calculate simply, take a subtract one portion from the total, in terms of volume, so we are in the 13.3 billion yen in the red. So why it is lower than the third quarter? I think that's your question. And for us, it is basically the basic fourth quarter PL. The level, the PL, profit and loss level for the fourth quarter is basically the same level as the one for third quarter, but we incorporated some risks. So first quarter first. So we will have an increase we will see we see the increased volume due to the recovery of the market but we need to yeah move up the posting of the losses and also we have some deterioration in the situation in terms of the materials raw materials like rhodium and so on so we need to reinforce the sales and then the increase in the cost of raw materials, including precious metals or rhodium, and also we foresee improvement, sorry, increase in the cost compensation for the suppliers. So the base number is similar, but we need to incorporate some risk factors for the fourth quarter. The first point, first risk is the spread of COVID-19 in ASEAN again, and also the impact of the Philippines government safeguard policies and some impact on our procurement due to shortage in semiconductor supply. So the profit level should be almost the same as third quarter, but in addition to that, we have incorporated some risk factors for the fourth quarter. Okay, then next is the outlook of our U.S. business. Yatabe is going to answer that. For the U.S., first, we need to secure profitability through building lean operation of business. We need to make steady efforts. So in the area of network and how we sell cars and our policies concerning fleet sales, So selling expenses, like we took measures in those areas. So on the cost side, we are seeing some effects of our initiatives. And as Ikea said earlier, shortly we'll have the new Outlander coming to the market. So while securing profit with this model, then how to solidify our business base in the United States. So we are in discussion with various parties related to the US business. This is Hirakata. I would like to add something. Mr. Izawa, if you look at, I think you were talking while looking at the appendix. So you said like we have in the red in terms of 19.6. But you see the sales is half. So on the one hand, revenue is half, but the profit is just like the reduction. The profit is lower only by 5 billion yen. I wanted to ask you to ask a question like this. So we have taken measures, and then our brand does not have very strong presence, but the market is low. we are affected even more than the strong like a brand prayer. But when the market recovers, we should be able to see the better results according to the market recovery, right? Yeah, I should have asked my question that way. Sales. I'm looking forward to seeing your sales picking up. And Outlander can be a catalyst or like, of your growth in sales. Thank you very much. Thank you. Next, Morgan Stanley Securities, . from Morgan Stanley Securities. I have two questions. The first one, again, the third quarter financial results, the summary of the results. It was, you are in the red ink. but not that much in terms of the level of the loss. So against your initial plan, yeah, I think you have seen good results of the structural reform. I would like to know specifically about what part of the structural reform have worked well. And in the appendix, you see profit level by region. From second to third quarter, basically, Japan The sales remain almost the same, but the fixed cost, I mean, the level of loss has come down. And I would like to know the reason, the causes, why. And then for the fourth quarter in the next fiscal year, I would like to see how you, will steer your business into the next fiscal year for the Japanese business. Okay, then first the summary of the third quarter financial results. Ikea-san, please. Summary of the third quarter financial results. In a nutshell, we have started this year this structural reform, and this is not just fixed costs, but this includes the drastic change in our sales strategies. And then I think both areas, we are making good progress in both areas. For one thing, the fixed costs. So we explained about this at the first half announcement. Our original aim is to reduce 20 percent of fixed costs over two years, but now we are at already 18 percent. We will see more effect in the next fiscal year. But the area related to the marginal profit, if you compare second quarter and third quarter, there are two major points. The first point is the improvement in the mix, like a model and destination mix. We have focused on this. And then according to Small and Beautiful, which is our midterm plan, so low-profit fleet, we want to reduce that part of the business. And then we have proceeded with the strategy to focus on the high-profit areas, Thailand, Philippines. These are high-profit markets. And then the sales volume increased by 20,000 from 37,000 to 57,000 in those areas. So I think this is one result. And another area is manufacturing. So cost efficiency improvement according to the increase in the sales volume. So we have seen some positive points. I think the improvement of marginal profit, not just the fixed cost reduction, but the improvement of marginal profit, I think this is working pretty well so far. Then about domestic sales.

About domestic sales, as you know, for the third quarter, the new Equivix Cross PITV was launched. And thanks to you, it has been well received from the market. And we also feel that too. And then from the beginning of the term as well, like we already talked about in the US market, high cost structure needs to be converted into more lean structure. And then we also worked on our sales network and the way that we roll out the sales activities. So sales channels, so the ones that are loss making, we basically cut off that channel and also revising the relationship with our dealers as well. And the impact from those initiatives are now bearing fruit gradually. And we will continue to do what we have been doing. And then for the Q4 for this fiscal year, of course, continue working on these measures to achieve the target, and then at the earliest possible timing in the next year, at least bringing our performance to the break-even point. And about the financing lease from Ikeasa. So about the sales financial services. So MMC Diamond Finance has been consolidated for three years. So not only for the consolidated financing activities, but from this year, the plan is like we launched with a tie up. And this is not only for the younger people, but for the elderly people as well, that people can make an arrangement including insurance. So together with the domestic sales and then also with the financing company, we are promoting our sales activities with such tools as well, and it is also bearing fruit now. Thank you very much. Any more follow-up questions? OK. Thank you. So the question channel is open. So if you have any questions, please press the Start button first, and then press 1. So Okasan Securities, Narase-san. So this is Narase speaking. I have two questions. One, so you already mentioned about the enforcement of the sales capabilities in Sales Network. I would like to know if you could elaborate a little bit more on this. So even though you are launching competitive models, but still, it didn't really help in your sales volume. And also you mentioned about converting sales structure more lean, reinforcing the sales network or channel. So as now you have the new model of Outlander, so I think you're focusing more on the quality rather than quantity. But what are the exact activities that you do to reinforce the sales network? So that's the first question. And then the second one is about VATV, so Eclipse and also the local production in Thailand. And next year, I'm sure Outlander is coming. But for this fiscal year, what is the volume are you aiming at? So you always disclose about the Outlander PHEV plan in terms of the volume. So the actual sales and also the target volume and pertaining strategies, if you can give us more commentary on that as well, then that would be helpful. So Yatabe-san? So first, about the sales network or sales channel. So it is very difficult to narrow down to just pinpoint one initiative that worked for the overall sales network, but for the US and also Japan. For those regions, we sorted out the unprofitable dealers and then also worked more on improving the ones that can make more profit. And then our core market ASEAN region, as it was already mentioned, in the future we are planning to launch new models. So for the ASEAN market we will enhance our existing sales channel, but at the same time we will reinforce the, say, capability of the sales channel in the quantitative manner as well so to that we are making adjustment and arrangement so that's to the first question so about that point sorry maybe um my memory uh um doesn't serve well but say overall say if you it's a scale of 100 like how much of the percentage do you think you're already achieving so this is hirakata speaking So I think we should focus on the ASEAN region to answer to your question about the maturity rate of those initiatives, because it varies depending on the region. For example, metro area in Thailand, for the past four years, we have focused more. But for example, in the future, if we wanted to sell pickup trucks, then we have less manpower in the rural areas. So from this key, we have started reinforcing our sales capabilities in those areas as well, but we cannot reveal the detail any further. And for example, Indonesia, we are planning to increase the product lineup. So simply, we need to increase the number of outlets and also shopping malls, and shopping centers where we're very good at in hosting events. So we will provide training for that in Vietnam. There are many areas in Vietnam which we haven't tapped or covered, so we need to increase the ratio of province coverage, and then using a leverage on POV. we can increase more potential. So we have started this initiative 18 months ago. So what percentage of the completion rate of the initiative? It's really depending on the country. But between 22 to 23, we at least would like to finish reinforcing the stores so that we have the true transformation through the channel. So that's our ambition towards that time frame. And PHEV? So the volume of PHEV. So I have the number for the Outlander. But from this year, we have PHEV for the Eclipse closer. We are kind of in the transition period. But for the up until Q3, Outlander overall, 132,000 units, of which 25,000 PHEV. But then in the domestic, PHEB eclipses crosses coming in Japan as well. So we have the time of the transitioning period as well. Did those answer to your question? Understood very well. But in terms of the PHEB overall target, it is too early for you to disclose that target. That is correct. understood, then maybe the next opportunity. Thank you very much. And then number of securities, Mr. Kunimoto. So thank you. First question is about the impact on Outlander. So how should we read on the benefits coming from Outlander? So you said 132,000 up until Q3. So to what volume level would you like to stretch? And also, what kind of impact can you expect on the profitability side? I'm sure it increased the depreciation amount for the mold, and maybe that eroded the profitability. Next term, I don't know, maybe you'll be focusing more on the gasoline-based vehicles. But if you can talk about a benefit you think you can get from the PHEV outlanders, then I would appreciate. And the second question is that, again, the volume. So in Europe, so you are planning to reduce the amount of the management resource from Europe, and I believe Up until last year, annually, you were producing somewhere around, say, 600,000. But next year, domestically, how much of the management resources will be transferred back to Japan? for the level of 820,000 that you have for this year, and what level would you like to achieve next year? I know the situation in the environment is changing recently, but if you can give us a comment on that, I would appreciate that.

Okay, Ikea is going to answer. First is the effect of Outlander. We have high expectation on this model. But this is about next year, things to come. Please allow us not to share that topic today. The second point, Hirakata is going to answer. So a little over 800,000, how much growth do we foresee in the future? So we reduced the inventory by about 140,000 units as we run. Next, so if we compare first half next year and this year. So this year, first half, so TIV was like challenging. In the market, we were stronger. So and this fiscal year, like it recovered and then we couldn't catch up. And if all the markets going to normalize, like we don't think like we will lose. the competition so from some maybe 1.2 million maybe too much but a retail volume we hope to increase the sales volume from currently like a little over 800 000 to not about like a one over one million so i could not give i cannot give you specific answers okay so a little over like a 1.1 something um million units that you're talking about wholesale volume. Yes, that is right. If possible. So this year, Indonesia and Philippines, you had a drop in sales. But what about your outlook for the next fiscal year? Your market share is stabilizing or any recovery in the market? So could you comment a bit more on your major markets? Okay, this is Yatabe talking about ASEAN. As you know, the market itself, like the situation varies from market to market. But Indonesia, which is the biggest market in ASEAN for us, so we are seeing some signs of recovery. And our sales, like December and January, our sales results exceeded our plan. So things are coming back. And Vietnam and Malaysia, They are quite successfully recovering from the COVID pandemic in Vietnam, mainly Xpanda. We grew sales. We have grown sales versus last year. And then at the end of last year, we made record high sales. In Malaysia last year, in October, we started local production of Xpanda. that we received more orders than we expected. So we had to keep our customers wait for the cars. In Thailand, the market was recovering, but now it is being hit by another wave of COVID-19. So first half of last year, when there was a big hit of COVID-19. So we controlled our activities in Thailand, but after that, mainly pickup truck sales, we carried out sales activities mainly in rural areas. We focused on that in the second half of this year, and then we saw an increase in the number of prospects in Thailand, but December, like late December to January, the market slowed down in Thailand. So in this market, we will continue what we have done so that we can make further recovery. Talking about Triton, if I may continue, Thailand in that sense, has not, like we have not achieved our plan, the level of our plan, but it has been received well in other markets. For example, Malaysia, segment share 20%. We are now able to get 20% segment share. So New Zealand and Australia, Triton is very popular for lots of orders. And sometimes we cannot fulfill all the orders because of high demand globally. sales of Triton are in line with our plan. OK, thank you very much. Thank you. Next is from Daiba Securities. Hello. I'm looking at page 13, progress of structural reform, the smiling mark, smiling faces, the marketing marketing costs and yeah another thing so uh marketing costs and r d expenses why why um is it progressing better than you expected so the reason why that's my first question and the second question related to that point you said that the um surplus part of this success of the structural reform will be used for carbon neutral, like a requirement to fulfill the requirements for carbon neutral and so on. So I would like to know whether your policy or your direction will be changed anyway. Okay, about the R&D expenses, like if we can save more R&D expenses and how we are going to use that in detail. Overall, as I said, so we need to put focus on certain areas. So we have a review of everything. And then, of course, for ASEAN, we will grow our business in those strategic areas. But other areas where the profit is not good and the unprofitable models, we put less focus on that. As a result, value-wise, about 30% reduction, like a down. But the content, we put quite focus on that. So we have carried this out in a thorough manner. This is Hirakata, let me add. If you go to page 10, sales expenses. So we underspent by 300 million yen. and there's a mix and then a price and we have a 2.5 billion yen 2.5 but without using 4.3 and while saving and then we increase mix and selling price so we have been able to do that while controlling our costs But on the other hand, we can improve the mix and selling price. That is the reason of this smiling face. And Nagaoka is going to explain about R&D expenses. R&D expenses. Until 2019, the level of R&D expenses was slightly high. The reason was we adopted the globally global growth strategy. So we previously tried to develop global models, but this time we shifted our policy, and then we froze new model development in Europe, and then we froze development of certain models. So we made efforts to reduce R&D expenses. And as Ikea said, in fiscal 19, so we did R&D work, and then part of the work was done this year or so. But the global model, some remaining, Eclipse, Cross, Outlander, those remaining global models. So we have reduced the level of development of those global models. That is the main reason of the R&D expenses reduction. We have foreseen this. But going to ASEAN. that we set out in our midterm plan. So we need to increase the part. So we built up our R&D spending plan according to that plan. But we learned lessons from our past. And a little over 4% of our sales, that's the level of R&D expenses. That is important to lay solid foundation for our future. Based on that policy, we are reviewing our R&D activities, more specifically in . So we introduced a platform which has high cost competitiveness, and we are promoting very efficient R&D development work. So we have made efforts to reduce the development cost of each model. And we also made efforts to decentralize the R&D work, which was previously focused on a very short period of time, but then we scattered it. And by doing that, we would like to have a solid foundation for ASEAN. But at the same time, we want to do work for plug-in hybrid technology. So the reason of our savings in the R&D course is doing all these different types of work in a very efficient way. And how are we going to utilize that going forward as of now? There is no specific thing that we have made decision to do, but different various studies are underway. One of them is achieving carbon neutral. Many ideas are coming up and being studied. And our initial target of achieving 50% electrification level by 2030. Yeah, we thought that we looked ahead into 2050 eventually, but there's a chance that we can move up some of the initiatives. So maybe we need to revise our plan. And maintaining ASEAN, we will launch attractive models in this region, and on top of that, we look at global market or Japanese market, we want to introduce attractive models also in those regions. So the savings that we made in the area of R&D expenses, we would like to use that money for that purpose, introduction of attractive models. And I cannot explain in detail today, in a nutshell. So more competitive models incorporating electrification. So that's how we are going to use the money. That's all.

Thank you very much. About the first point, so trying to create a structure so that you can manage with the 4% of the revenue. So depending on where to set the revenue, if it's like 4% of $2 billion, that's about $100 billion. And is that a level of numbers that we can expect from next fiscal year onwards or a few years ahead? So depending on, so say 2.3 and 2.5, if you set that level as more than about $150 billion will be some kind of like a standard. And I think it's a line that we are starting to see some sign. of and would like to continue solidifying working on future with that kind of level in the view. But of course, that stage we're talking about is the baseline. So depending on how the economy or the environment will change and based on the changes that happen in the future and if that will mandate us to spend more, on certain areas. And of course, we will discuss and invest as needed. Thank you very much for your detailed explanation. So we are getting close to the closing time. So I would like to take one more question. So Steven Securities, . Yes. Mr. Yoshida, it seems like your voice is disconnected. Can you hear me? Yes, but I think we can kind of hear you. My apology. About the third quarter, the ship volume is 213,000, getting very close to the break-even point. so uh that gave me an impression that you're actually generating profit and then for next year it's about 300 000 for the quarter base and then and based on that look thinking of your marginal profit most likely you have certain amount of profit but say in the host seller say destination so at the end the volume is increasing and then and the volume for china decreasing and also the cost reduction activities and now bearing fruits like you said so uh so i don't think um there is no i don't think this this um benefit is coming from the one of impact but it is more to do with the prolonged sustained efforts but can you elaborate on that point So your question is about the actual evaluation on the third quarter and then how that will link to our ability to earn profit for next year. So there are two main points. So I mentioned earlier the structural reforms are being promoted as planned or more than we expected, and that will continue this term and also next term as well. And for the marginal profit as well, we thoroughly implemented to reform the sales activities and then try to focus more of our resources on the margin-making areas and that are really working. And also for the manufacturing side, in the first quarter, the activities on the manufacturing side was a bit slow, but now it is picking up and reflecting on the result of the third quarter. So realignment of the vehicle mix and also working on the production side and also marginal profit as well. I mean, for the fourth quarter, as I mentioned earlier, there will be some extraordinary events expected, but we are going to maintain the momentum from the third quarter and also continue to work on the fixed cost. And then again, so one comment I would like to talk about the profitability on the next term, like Hirakata already commented earlier. But next year, 90% of 2019. So it's like about $117,000, $118,000 level. And then we have some, and also $15,000 of the inventory will be shrunk. So the remaining $200,000 we believe that we can achieve, even taking into account the wholesaler portion. And also the fixed cost reduction, the initial target of 20%, and as we said, we at least can achieve 18. And also closure of the PMC and also voluntary retirement services and also the impact coming from the impairment. So take into account those elements, we believe, so we can achieve a profitable result in next year. Additional comment to this? So at the moment, we don't have new vehicles. And we have a lot of products which are quite aged products. And with those aged products, we have managed to secure this amount of profitability. That really builds our confidence for this term. And we were able to make our management of performance sustainable just with the existing products. So when new products come into market, I'm sure we can do more. Thank you very much. So thank you very much. I know more questions are registered, but the scheduled time has passed, so we would like to conclude the meeting. Thank you very much for staying up quite late to attend this meeting. Thank you very much.