本田技研 (HMC) 2012 Q4 法說會逐字稿

Welcome to the Honda financial results audio presentation. On April 27, 2012, Honda Motor Company announced its financial results for the fiscal fourth quarter, which ended on March 31, 2012.

Through this audio presentation, we would like to review the financial results and highlight the major factors which influenced Honda's business operations during the period. The presentation material, which will serve as the basis for today's program, is available on Honda's Investor Relations website at http.//world.honda.com/investors. For those of you who have not yet downloaded the material, please do so now, as we will start immediately following a forward-looking statement.

This audio presentation contains forward-looking statements as defined in Section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities and Exchange Act of 1934, as amended. Such statements are based on management's assumptions and beliefs, taking into account information which is currently available.

Therefore, please be advised that Honda's actual results could differ materially from those described in these forward-looking statements, as a result of numerous factors including general economic conditions in Honda's principal markets and foreign exchange rates between the Japanese yen and the US dollar, the euro, and other major currencies, as well as other factors detailed from time to time. The various factors for increases and decreases in income have been classified in accordance with a method that Honda considers reasonable.

Before explaining the results, we would like to briefly review the global economic environment during the past quarter. The US market showed continued signs of a gradual recovery, as evidenced by a rise in GDP, consumer spending, and housing investments, accompanied by a drop in the unemployment rate. However, the high price of gasoline, and instability in the European financial markets continue to cause concern.

The European market experienced a sharp slowdown due to the heightened risk of instability in the financial markets of certain member countries, and a subsequent widespread rise in unemployment, which has dampened consumer spending.

Asia was led by steady growth in China and India, which served as a driver for recovery in surrounding countries in the region, despite wariness over the European financial crisis.

Japan's bleak economic situation remained unchanged. There was a jump in equipment investment, which contributed to a slight overall improvement for the quarter. But other economic factors remained largely unchanged, and unemployment edged upwards.

During the quarter, the automobile industry experienced strong demand in the US, Japan and Russia. China results were flat compared to the year before, and Europe dipped sharply lower.

Motorcycle demand in the industry was strong in Asia and Africa, but lower in South America and Europe.

We would now like to review the financial summary for the fourth quarter, which ended on March 31, 2012.

Please refer to slide 4. Honda realized a major recovery in automobile production and sales, predominantly in North America and Japan. Motorcycle sales set a new record for a quarter. And a contribution from stable Financial Services operations lead to higher revenue and operating income, compared to the same period last year.

With respect to sales, due to increased sales in Asia and other regions including South America, motorcycle unit sales totaled 3,456,000 units, up 17.8% compared to the same period last year, setting a record high for any quarter.

Regarding the Automobile segment, sales in Asia and countries in the Other Regions category were impacted the most of the flooding in Thailand, and recorded declines. Both Japan and North America posted extremely robust sales increases, leading to a total of 988,000 units, an increase of 14.9% compared to the fourth quarter of last year.

Power Product unit sales declined in Europe and Japan. But increases in North America and Asia resulted in a total of 2,010,000 units, up 15.1% from the previous year.

Revenue totaled JPY2,405 billion, a rise of 8.7%, due mainly to increased revenue from Motorcycle and Automobile operations, despite the negative impact from currency fluctuations.

Operating income amounted to JPY111.9 billion, an increase of 142.3% compared to the same period last year. This was mainly due to changes in business composition and the model mix, which resulted from higher revenues; as well as a reduction in SG&A costs, despite an increase in R&D costs and negative currency fluctuations.

Income before taxes totaled JPY93.0 billion. Equity in income of affiliates totaled JPY33.2 billion, an increase of 33.1% from the same period last year. Net income attributable to Honda Motor totaled JPY71.5 billion, an increase of 60.7% compared to the same period last year. EPS was JPY39.72 which represents a JPY15 increase from the same period last year.

With respect to ForEx during the period, the Japanese yen appreciated against the US dollar and the euro. The average yen exchange rate was JPY80 to the US dollar; JPY2 higher than the same period last year. The euro average was JPY104 per euro; JPY9 higher than the same period last year.

Please refer to the next slide. Next, I would like to summarize unit sales over the past 12 months. Motorcycle operations realized sales of 12,559,000 units, an increase of 9.7% compared to the previous fiscal year. Automobile sales totaled 3,137,000 units, a decrease of 10.7%. Power Product operations had sales of 5,819,000 units, a 5.6% increase.

Revenue for the 12 months totaled JPY7,948 billion, a decrease of 11.1%, primarily due to global supply chain disruptions caused by the 2011 Tohoku earthquake and the flooding in Thailand. Automobile sales for the 12-month period were down 375,000 units, a 10.7% decrease. This negative impact more than offset the increase in Motorcycle sales. Furthermore, the sharp rise in the yen against both the US dollar and the euro had a negative impact on earnings. Had the exchange rate remained unchanged from last year, revenue would have only decreased by 6.2%.

Operating profit totaled JPY231.3 billion, a decrease of 59.4%. Income before income taxes amounted to JPY257.4 billion. Equity in income of affiliates totaled JPY100.4 billion. Net profit totaled JPY211.4 billion, a drop of 60.4%. Earnings per share amounted to JPY117.34. This completes our 2011 (sic - see slides) fiscal year earnings summary.

Please turn to slide number 5. Next, I would like to briefly touch upon our 2012 fiscal year forecast. We aim to achieve the following targets for the respective earnings categories -- sales revenue, JPY10,300 billion; operating income, JPY620 billion; income before income taxes, JPY635 billion; equity in income of affiliates, JPY120 billion; net profit, JPY470 billion; net profit earnings per share for our shareholders, JPY260.78. For your reference, the above forecast is based on an exchange rate of JPY80 and JPY105 to the US dollar and the euro, respectively.

Next, please turn to slide 7. With regard to cash dividends, the Board of Directors resolved the distribution of a JPY15 year-end dividend per share. The annual dividend will total JPY60 per share, a JPY6 increase from last fiscal year. For the 2012 fiscal year ending March 2013, we project an annual dividend of JPY76 per share, an increase of JPY16.

Please turn to slide 9. Next, we would like to provide you with more details related to our fiscal results. Due predominantly to an increase in Motorcycle and Automobile operating revenue, our total revenue reached JPY2,213 billion, despite the negative impact of currency fluctuations of JPY102.9 billion. In the chart directly below, details of the 12-month fiscal year by business segment are shown.

Please turn to the next slide. Now I will explain our income before income taxes for the fiscal fourth quarter. Income before income taxes amounted to JPY93 billion, as shown in the bar on the right side of the graph. This was an increase of JPY16.4 billion compared to the same period last year.

Operating income for the fourth quarter, shown at the bottom right, totaled JPY111.9 billion; an increase of JPY65.7 billion, compared to operating income of JPY46.2 billion in the same period last year, as shown in the bottom-left corner. This represents an increase of JPY65.7 billion.

Regarding the operating profit increase from last year, Automobile business operations made a positive contribution of JPY62.7 billion, due to changes in sales volume and the model mix and a decrease in incentives. Cost reduction resulted in a positive contribution of JPY40.4 billion. This was achieved due to an increase in production volume which resulted in lower fixed costs, despite the increase in raw material costs and the negative impact of currency fluctuations.

SG&A savings resulted in a positive impact of JPY14.5 billion. An increase in R&D expenses had a negative impact of JPY23.6 billion. The negative impact of ForEx changes on operating income amounted to negative JPY28.2 billion. Regarding pre-tax profit variances compared to the same quarter last year, Honda hedged ForEx and interest rate risk by using derivative financial instruments in order to reduce the substantial effects of currency fluctuations and interest rate exposure.

There were fair valuation losses and gains from derivative instruments that resulted in a negative impact of JPY6.6 billion. Other factors, which are mainly related to ForEx forward agreements, amounted to a negative impact of JPY42.6 billion, as the yen was higher compared to the same period last year.

Please turn to slide 11. Income before income taxes for the 12-month fiscal year amounted to JPY257.4 billion, a decrease of JPY373.1 billion. This was mostly due to changes in sales revenue and the business mix, which led to a decrease in profitability and a negative cost impact, due to decreased production volume. Other negative factors included an increase in R&D costs and the negative impact of currency fluctuations.

Please turn to the next slide. Now we would like to elaborate on Honda's business performance by business segment. Let me start with Honda's Motorcycle business operations for the fourth quarter. Unit sales for the quarter totaled 3,456,000 units, an increase of 522,000 units, or an increase of 17.8% compared to the same period of last year.

The next slide shows that sales revenue for the Motorcycle operations amounted to JPY358.5 billion, an increase of 1.5%. This was mainly due to increased sales in Asia and Brazil. Within Asia, strong growth was realized in India and Vietnam due to the popularity of Cub-type models and scooters. And growth in Thailand was driven by the Wave model. Sales in Brazil were driven by increased sales of the CG150, BIZ125 and CBR300R models. In Africa, which is in the Other Regions category, local production of the Ace CB125 model since September of last year spurred a sharp rise in Honda sells locally.

Operating income for the quarter totaled JPY32.8 billion, a decrease of 31.7%. An increase was ready realized due to changes in unit volume and a subsequent rise in profits. But, in comparison, to previous year's operating income included a one-time gain appropriated for technical licensing agreements. Negative influences this past quarter included increased selling costs and the negative impact of currency fluctuations. The operating margin for the quarter was 9.2%.

Next, I would like to elaborate on our Automobile business results for the fourth quarter. Please refer to slide 14 of the presentation. Unit sales for the quarter totaled 988,000, an increase of 120,000 units, or a rise of 14.9% compared to the same period last year. The increase in unit sales was achieved on the strength of increased sales in Japan and the US, despite the negative impact on Honda's global production and the subsequent supply constraints due to the flooding in Thailand.

In Japan, unit sales totaled 224,000, an increase of 57% or 82,000 units. This increase was due to strong sales of the recently introduced Fit Shuttle, Fit Shuttle Hybrid, Freed Hybrid, and N-BOX models; as well as a government eco incentive program, which provided subsidies for fuel-efficient vehicles.

In North America, unit sales totaled 463,000, an increase of 107,000 units, or a rise of 30%. This growth was achieved predominantly on the sales momentum created by the fully remodeled CR-V, as well as an increase in sales of the Civic.

In Europe, sales dropped sharply to 45,000 units, down by 11,000 units or 20% compared to last year. This decrease is primarily due to the sudden slowdown in the region, due to the European financial crisis and a subsequent slowdown in consumer spending.

In Asia, unit sales totaled 205,000 units, a decrease of 33,000 units or 14% decline compared to last year. This decrease was due to restricted supply of the City, Civic, Jazz and CR-V models, following the Thai flooding.

On a positive note, sales edged upwards in India and Indonesia on the strength of the Brio and the Freed, respectively. In other regions, led by sales declines in Brazil and Argentina, total unit sales totaled 51,000 units, a decrease of 17,000 units or 25% decline, mainly due to the negative impact of global supply-chain disruptions caused by the Thai flooding.

Please turn to slide 15. Revenue for Automobile business operations for the quarter amounted to JPY1,851 billion, an increase of 12.3% compared to last year, due mainly to an increase in unit sales despite unfavorable currency translation effects.

Honda reported operating profit of JPY45.1 billion, compared to a loss of JPY39.1 billion in the same period of the previous year, due mainly to increased unit sales and a reduction in SG&A expenses, despite increased R&D expenses and unfavorable currency effects. The operating margin for the quarter was 2.4%.

Next, I would like to summarize our results for the Power Products business. Please refer to slide 16. Unit sales of Power Products totaled 2,010,000 units, an increase of 264,000 units, or 15.1% compared to last year. This increase was due to strong lawnmower and OEM sales in North America early in the year, brought on by an unseasonably warm winter, as well as the fact that a long winter season a year ago had pulled sales lower.

Sales in Asia were also very strong, partly due to the need for Power Product equipment following the flooding in Thailand, as well as increased sales in Indonesia and India. This growth offset the sharp drop in sales in Europe, which was brought on by the sovereign debt crisis. Revenue for Power Product operations totaled JPY75.6 billion, a decrease of 9.0% from the same period last year. This decrease was primarily due to lower revenue in other businesses, and unfavorable currency translation effects, despite an increase in unit sales.

An operating loss of JPY2.0 billion was reported, a slight JPY0.3 billion improvement from the same period last year; due mainly to an increase in sales volume and mix, despite increased SG&A expenses. The operating margin for the quarter was minus 2.7%.

Next, I would like to address our Financial Services business. Please refer to slide 18. Revenue for Financial Services was JPY131.2 billion, a decrease of 4.5%, mainly due to unfavorable currency effects. Operating profit was JPY35.9 billion, a 9.2% decrease, mainly due to unfavorable currency translation effects. The operating margin for the Financial Services business was 27.4%.

Reviewing the operations of our Financial Services business in North America, American Honda Finance recorded solid operating results for this quarter, despite negative currency effects. Used vehicle prices have risen, supported by strong demand; and new car sales continued to show a gradual recovery.

Now I would like to review Honda's business results by geographical region for the quarter. Please refer to slide 19 for information on Japan. In Japan, revenue for the quarter amounted to JPY1,069 billion, a JPY175.2 billion increase, or 19.6% higher than the corresponding quarter last fiscal year. Operating profit was JPY12.5 billion, an increase of JPY34.4 billion from the corresponding period last year, due mainly to strong automobile sales and the model mix; as well as a reduction in SG&A expenses, despite a rise in R&D expenses. The operating margin was 1.2%.

Now I would like to review Honda's business results for North America. Please refer to the next slide. In North America, revenue for the quarter amounted to JPY1,200 billion, a JPY223.7 billion increase, or a gain of 22.9% from the corresponding quarter last fiscal year. This increase was mainly due to strong automobile sales during the quarter, despite unfavorable currency translation effects. Operating profit was JPY82.2 billion, an increase of JPY57.7 billion, or 234.8% higher than the corresponding period last year. The main reason for the gain was a revenue increase from a higher sales volume and the model mix, despite an increase in SG&A expenses and unfavorable currency translation effects. The operating margin was 6.8%.

Now I would like to specifically discuss the business environment in the US automobile market during the quarter. During the January-through-March quarter, industry sales maintain a seasonally adjusted annual rate of 14 million units for the first time since August 2009, when sales were boosted by the federal Cash for Clunkers program. This increase in sales comes in the midst of high gasoline prices, which are believed to have helped spur vehicle sales in the midsized and compact car segments.

Sales results for the quarter also reflect the fact that Japanese brands have recovered from last year's natural disasters. Unusually warm weather on the East Coast and high trade-in values, bolstered by historically high used-car prices, also contributed to retail sales during the quarter. Regarding Honda sales in the US during the quarter, steady sales were realized as the inventory situation improved. The Civic was the number-one model in sales in its segment during the quarter. And the newly remodeled CR-V, which was launched in December, set an all-time monthly sales record for any month in March.

To replenish dealer inventory following the twin disasters, and in anticipation of new model launch momentum, Honda's automobile production in North America during the quarter increased significantly, to 460,000 units, a 38% year-on-year increase.

Now I would like to review Honda's business results for Europe, which are shown on slide 21. In Europe, revenue for the quarter amounted to JPY165.8 billion, a decrease of JPY315 billion, or decline of 16% from the corresponding quarter last fiscal year. This was mainly due to a sharp decrease in automobile and motorcycle sales volume, due to a market slowdown associated with the ongoing debt crisis, as well as negative currency translation effects. Operating profit was JPY1.8 billion, an increase of JPY3.5 billion from the corresponding period last year. The operating margin was 1.1%.

Now I would like to review Honda's business results for Asia. Please refer to slide 22. In Asia, revenue for the quarter amounted to JPY391.5 billion, a decrease of 17.1% from the corresponding quarter last fiscal year. This was mainly due to a lower volume of automobile sales, as a result of the flooding in Thailand, and unfavorable currency translation effects, despite an increase in motorcycle sales. Operating profit was JPY16.5 billion, a reduction of 48.5% from the corresponding period last year. This was mainly due to lower revenue from decreased sales volume and the model mix; in addition to unfavorable currency translation effects, despite a reduction in SG&A expenses. The operating margin was 4.2%.

Now I would like to review Honda's business results for the Other regions, such as South America, the Middle East, Africa and Oceania. Please refer to slide 23. Revenue for the quarter amounted to JPY212.6 billion, a decrease of 19.5% from the corresponding quarter last fiscal year. This was mainly due to decreased revenue from lower automobile sales and unfavorable currency translation effects, despite a rise in motorcycle sales. The operating result for the quarter was an operating profit of JPY5.6 billion, a decrease of 57.3% from the corresponding period last year, due mainly to lower sales and unfavorable currency translation effects. The operating margin was 2.6%.

Honda's Brazilian operation, which is the largest contributor among the Other Regions category, adopts a calendar-year-based fiscal schedule. As such, please note that we have included its October-to-December quarterly results in our consolidated results. This concludes the geographical region portion of our explanation.

With regard to equity in income of affiliated companies, please refer to slide 24. Equity in income of affiliates totaled JPY33.2 billion, up JPY8.2 billion, or a 33.1% increase from the same period last year. Please note that equity in income of affiliated companies in Asia is included in this total.

The next slide summarizes the combined operating income and net income of affiliated companies in Asia. During the quarter, operating profit totaled JPY51.5 billion. The equity portion of Honda's profit totaled JPY21.5 billion.

With regard to CapEx for the fiscal year, please refer to slide 26. Total CapEx was JPY406.5 billion, an increase of JPY952 billion compared to last year. Please note the respective increases and decreases in capital expenditures for each business area, excluding the impact of unfavorable currency translation effects.

Next we would like to explain our unit sales forecast for each business area. Just a note about the change in the disclosure of unit sales information from the fiscal year ending March 31, 2013. Until the fiscal year ended March 31, 2012, Honda disclosed as unit sales the total of unit sales of completed products of Honda and its consolidated subsidiaries, and sales of parts for local production at Honda affiliates, accounted for under the equity method.

In order to facilitate a more accurate understanding of the scope of our global operations, from the fiscal year ending March 31, 2013, Honda will express its unit sales in two formats. As shown on slide 28, Honda will disclose the total unit sales of completed products of Honda, its consolidated subsidiaries, and its affiliates, accounted for under the equity method as Honda Group Unit sales.

As shown on slide 29, Honda will disclose consolidated unit sales in place of the Current unit sales. Consolidated unit sales is the total of unit sales of completed products of Honda and its consolidated subsidiaries, not including parts for local production at Honda affiliates accounted for under the equity method.

Please turn to slide 30 to view the Honda Group Unit Sales forecast for the fiscal year ending March 31, 2013. To serve as a reference, we have also expressed the results of the fiscal year ended March 31, 2012, in this same format. Unit sales for our Motorcycle operations are forecast to total 16.6 million units, an increase of 10.2%. Automobile unit sales are forecast to total 4.3 million units, an increase of 38.1%. Power Product operations unit sales are forecast to total 6.3 million units, an increase of 8.3%.

Consolidated unit sales are shown on slide 31. Motorcycle operations are forecast to total 9.9 million units. The forecast for Automobile operations was 3.54 million units. And the forecast for Power Product operations is 6.3 million units.

Next, we would like to explain our consolidated fiscal results forecast for the fiscal year ending March 31, 2013. Please refer to slide 32. Our forecast is for consolidated operating income of JPY620.0 billion; income before income taxes of JPY635.0 billion; and net income of JPY470.0 billion. For background information concerning the basis for this forecast, please turn to the next slide.

Increased revenue, due to changes in sales volume and model mix, is expected to have a positive influence of JPY472.8 billion. Cost reduction effects are forecast to have a positive influence of JPY156 billion. An increase in SG&A expenses is forecast to have an impact of JPY205.0 billion. A rise in R&D expenses is expected to produce an impact of JPY35.1 billion. No change is reflected for currency translation effects. A negative impact of JPY11.0 billion is tentatively forecast for losses and gains from fair value measurement of derivative instruments.

Now a note about the change in depreciation method. Honda principally uses the declining balance method for calculating the depreciation of property, plant and equipment, and plans to change this to the straight line method from the year ended March 31, 2013.

We believe that the straight line method better reflects the future usage of property, plant and equipment. The effect of the change in depreciation method is recognized prospectively as a change in accounting estimate. The change in depreciation method is anticipated to cause a decrease in depreciation expense of approximately JPY45.0 billion. The impact is included in cost reduction; the effect of raw material cost fluctuations; SG&A expenses, excluding currency effects; and R&D expenses.

Please turn to the next slide out for information on investment in plant and equipment, depreciation of property, and R&D expenses for the fiscal year ending March 31, 2013. Investment in plant and equipment is expected to be JPY580.0 billion. Depreciation of property, reflecting the change to the straight line method for calculating depreciation, is forecast to be JPY28.5 billion. R&D expenses are expected to be JPY55.5 billion.

This concludes our financial results presentation. We hope that you found this audio explanation helpful, and we would like to thank you for your continued interest in Honda's activities.

Statements in English on this transcript were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.