本田技研 (HMC) 2013 Q4 法說會逐字稿

Welcome to the Honda financial results audio presentation. On April 26, 2013, Honda Motor Company announced its financial results for the fiscal fourth quarter and full year, which ended on March 31, 2013. 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 www.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 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 US dollar, the euro, or 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.

Now the financial summary. We would now like to review the financial summary for the full fiscal year which ended on March 31. Please refer to slide 3.

Honda realized a major recovery from the Great East Japan Earthquake and the Thai flooding. New vehicle introductions and other measures led to a large increase in Automobile sales, predominantly in North America, Asia and Japan, resulting in operating income of JPY544.8 billion, an increase of 135.5%.

With respect to Group Motorcycle unit sales, a decline in Brazil, within the Other Regions category, was more than offset by growth in Asia and North America, leading to a total of 15.5 million units, or a 2.9% increase.

Within Automobile operations, all regions recorded production gains compared to a year earlier, when the Japan earthquake and Thai flooding caused supply network disruptions. The production total for the fiscal year was 4,014,000 units, a 29.2% rise.

In Power Product operations, growth was realized in North America, Asia and Other Regions, leading to unit sales of 6,071,000, a 4.3% increase.

Financial highlights for the fiscal year. Net sales and other operating revenue totaled JPY9,878 billion, a 24.3% increase. This was mostly due to growth in Automobile business operations, as well as a rise in net sales due to foreign exchange fluctuations.

Operating income rose to JPY544.8 billion, a 135.5% increase, due to a rise in unit sales, incremental fixed costs associated with higher production, cost reduction efforts, as well as the positive impact from a weaker yen.

Income before income taxes totaled JPY488.8 billion. Equity and income of affiliates amounted to JPY82.7 billion. Net income attributable to Honda Motor was JPY367.1 billion. EPS totaled JPY203.71.

ForEx for the fiscal year was JPY84 to $1, JPY5 to $1 lower than the previous year. The euro was JPY108 per EUR1, unchanged from a year earlier.

Please turn to the next slide. Now the financial forecast for the fiscal year ending March 31, 2014. With respect to our financial forecast for the new fiscal year, based on an expected increase in Automobile unit sales in all regions, as well as positive ForEx translation effects from a weaker yen, we are aiming to achieve the following.

Net sales and other operating revenue of JPY12,100 billion, operating income and income before income taxes of JPY780 billion, equity in income of affiliates of JPY115 billion, and net income of JPY580 billion.

The earnings per share forecast is JPY321.81. The ForEx assumption for the fiscal year is JPY95 to $1, and EUR120 to $1.

The next slide highlights unconsolidated financial results for the past fiscal year, as well as the unconsolidated fiscal 2014 forecast.

Now please turn to slide 6 for information on the dividend. The record date is March 31, 2013. The dividend for the fourth quarter is expected to be JPY19 per common stock, a JPY4 increase compared to the same period a year earlier. The total expected annual dividend is JPY76 per common stock, a JPY16 increase. Further, the total expected annual dividend for fiscal 2014 is JPY80 per common stock.

Now financial highlights for the fourth quarter. Next we would like to discuss the results for the fiscal fourth quarter which ended on March 31. Please turn to slide 8.

Regarding Motorcycle business operations, Honda Group unit sales totaled 3,962,000, a decrease of 4.9% compared to the same period last year. A slight increase was realized in North America, but declines were recorded in Brazil within the Other Regions category and Asia, among others.

In Automobile business operations, Group unit sales rose to 1,033,000, a 1.1% increase, due predominantly to gains in Asia and Brazil within the Other Regions category.

Group unit sales in Power Product business operations totaled 1,963,000, a 2.3% decrease, due to declines in Asia and Other Regions, despite an increase in North America.

With respect to net sales and other operating revenue, a strong recovery from the Thai flooding resulted in an increase in Automobile business operation net sales. A positive impact from ForEx fluctuations was also realized, leading to a total of JPY2,745 billion, a 14.1% increase.

Operating income was JPY135.9 billion, a 21.4% increase compared to the same period last year, due to cost-down efforts and the positive impact of a weaker yen.

Income before income taxes was JPY98 billion, a 5.4% increase. Equity in income of affiliates totaled JPY13 billion, a decrease of 60.7%. Net income for the fourth quarter was JPY75.7 billion, a 5.8% increase. Earnings per share for the quarter were JPY42.03, a JPY2.31 increase.

Next, operating income analysis. For your reference, details regarding the profit walk for the full fiscal year are shown on the bottom half of the next slide.

Next we would like to explain the positive and negative factors impacting income before income taxes for the quarter. Please refer to slide 10.

Income before income taxes was JPY98 billion. This was a JPY5 billion increase compared to the same period of the previous year. Operating income totaled JPY135.9 billion, a JPY24 billion increase compared to the same period of the previous year.

With respect to revenue and model mix, a JPY32.2 billion decrease was realized, as the positive impact from an increase in Automobile unit sales in Asia was more than offset by a decrease in Motorcycle unit sales in Brazil within the Other Regions category, a decline in Automobile unit sales in North America and Japan, as well as other factors.

Regarding cost reduction effects, a decline in raw material prices, among other factors, led to a JPY15 billion positive influence.

SG&A had a negative impact of JPY8 billion due to higher costs associated with an increase in net sales, as well as a rise in advertising expenditures.

An increase in R&D expenses had a negative impact of JPY8.1 billion.

The positive impact from currency effects totaled JPY57.4 billion.

In the area of other income and expenses, fair valuations related to derivative instruments resulted in a positive impact of JPY20.4 billion.

In the Other category, a negative effect from differences between average sales and transaction rates, as well as other factors, resulted in a negative impact of JPY39.4 billion.

Please turn to the next slide. Now we would like to explain the factors behind the change in income before income taxes for the full fiscal year.

There were negative effects from increased SG&A and R&D expenses. However, positive effects from revenue and the model mix, cost reduction efforts and other factors, contributed to an increase in income, which along with the positive effect of currency fluctuations, resulted in operating income of JPY488.8 billion, a JPY231.4 billion increase.

Next business segments. Please turn to slide 12. Now I would like to discuss the fourth quarter results for each business area.

In Motorcycle business operations, Group unit sales decreases in Brazil within the Other Regions category, as well as in Indonesia, led to a total of 3,962,000 units, a 4.9% decline.

Please turn to the next slide. ForEx translation effects had a positive influence on net sales, leading to a total of JPY375.3 billion, an increase of 4.7%.

Operating income was JPY25.2 billion, a decrease of 23.2%, predominantly due to the negative effect of revenue and the model mix on income, as well as increased R&D costs. The operating margin for the quarter was 6.7%.

Please turn to the next slide. Now we would like to discuss Automobile business operations.

It is important to note that last year's fourth quarter unit sales in North America and Japan were extremely robust, as an enormous effort was made to make up for production lost due to the earthquake in Japan. As such, quarterly comparisons for these two regions reflect lower numbers than for the same period last year.

Within Asia, sales in Thailand increased, as they recovered from the flood and benefited from the introduction of the Brio Amaze model.

European unit sales also rose, due to the introduction of a 1.6 liter diesel powered Civic. Total sales for the quarter were 1,033,000 units, an increase of 1.1%.

Please turn to slide 15 for financial highlights on this business segment for the quarter.

An increase in consolidated unit sales, as well as a rise in net sales due to the positive impact of ForEx fluctuations, resulted in net sales of JPY2,141 billion, an increase of 15.6%.

With respect to operating income, an increase in SG&A expenses was more than offset by the effect of cost reduction efforts and the positive impact of ForEx fluctuations, resulting in a total of JPY77.2 billion, a 71.1% rise compared to the same period of the previous year. The operating margin was 3.6%.

Please turn to the next slide. Now we would like to review Power Product business operations for the fourth quarter.

Honda Group unit sales rose in North America due to heightened demand for OEM engines as well as generators. But lower sales in Asia had a negative impact on overall sales for this segment, resulting in a total of 1,963,000 units, a decrease of 2.3%.

Please turn to the next slide. In the Power Products and Other Businesses segment, a decrease in net sales for Other Businesses, as well as other negative factors, were more than offset by the positive impact of ForEx fluctuations, resulting in a total of JPY83.1 billion, an increase of 9.9%.

An operating loss of JPY7.4 billion was reported due to an increase in R&D and other expenses, a decline of JPY5.3 billion compared to the same period a year ago. The operating margin was a negative 8.9%.

Please turn to slide 18. In the Financial Services Business segment, the total assets of finance subsidiaries at the end of the fourth quarter totaled JPY6,765 billion.

Net sales totaled JPY154.9 billion, a rise of 18.1%, predominantly due to an increase in operating leases, as well as the positive impact of currency effects.

Operating income was JPY40.9 billion, an increase of 13.8%, due to a reduction in SG&A expenses, as well as positive currency effects. The operating margin was 26.4%.

And now geographical regions. Please turn to the next slide. We would like to review Honda's business results by geographical region for the quarter.

In Japan, revenue for the quarter amounted to JPY1,059 billion, 0.9% lower than the corresponding quarter last fiscal year, mostly due to lower Motorcycle net sales.

Operating income for the quarter was JPY46.6 billion, an increase of 270.7%, as a negative impact from volume and the model mix was more than offset by a reduction in SG&A expenses and positive currency effects. The operating margin was 4.4%.

Please turn to the next slide. Net sales in North America for the fourth quarter amounted to JPY1,342 billion, an increase of 11.8% compared to the corresponding quarter a year ago, due mainly to the positive influence of currency fluctuations amounting to JPY189.7 billion, which more than offset a decline in Automobile sales.

Operating income was JPY29 billion, a decline of 64.7%, due mainly to the negative impact on income from volume and the model mix, as well as an increase in SG&A expenses. The operating margin was 2.2%.

Now we would like to specifically discuss the business environment in the US automobile market.

During the January through March quarter, industry sales were robust, and the seasonally-adjusted annual rate remained above 15 million units for the period.

As mentioned earlier, although wholesale units in North America declined by 40,000 units compared to the same period last year when efforts were made to make up for lost production, retail sales continued solid growth, driven by the fully remodeled Accord. Looking at the six-month period since its introduction last September, Accord sales are up by 50% compared with the same period of the previous year. Furthermore, the fully remodeled Accord and refreshed Civic have not needed to rely on incentives, despite the highly competitive market.

On the Acura side, strong sales were driven by the fully remodeled RDX, which set an 11th consecutive monthly sales record since going on sale in May 2012.

The all new flagship RLX sedan, debuted on March 15, and the all new MDX will be launched this summer. The fully remodeled MDX will raise the bar in its category, with higher performance, class-leading fuel economy, and innovative interior features.

Thanks to its new Earth Dreams powertrain and a more lightweight and aerodynamic body, it achieves an EPA estimated 21 miles per gallon combined fuel economy, and the new front-wheel drive model is EPA rated at 23 miles per gallon combined.

Regarding industry sales for 2013, we expect that the market will reach 15.3 million units.

Please turn to slide 21. Net sales in Europe amounted to JPY206,008 million, an increase of 24.7%, mainly due to the positive impact of currency effects on net sales, as well as other factors.

Operating income was JPY20.4 billion, an increase of JPY18.5 billion due to the positive impact of sales volume and the model mix, a reduction of SG&A expenses as well as other factors. The operating margin for the quarter was 9.9%.

Please turn to the next slide.

Net sales in Asia amounted to JPY665,009 million, an increase of 70.1%, mainly due to an increase in Automobile net sales, as well as the positive impact of currency effects on sales.

Operating income was JPY38 billion, an increase of 129.9% compared to the same period last year, mostly due to the positive impact of sales volume and mix, as well as cost reduction efforts, which more than offset the negative impact of a rise in SG&A expenses. The operating margin was 5.7%.

Please turn to slide 23. Net sales for the Other Regions, which include South America, the Near and Middle East, Africa, as well as Oceania amounted to JPY223.9 billion, an increase of 5.3%. This was mainly due to an increase in Automobile sales, which more than offset a decline in Motorcycle sales.

Operating income was JPY10.2 billion, an increase of 81.6%, mainly due to the positive impact of sales volume and mix, as well as cost reduction efforts, which more than offset the negative effects of currency fluctuations. The operating margin was 4.6%.

Please turn to the next slide.

Now equity in income of affiliates. Equity in income of affiliates amounted to JPY13 billion, a decrease of 60.7%. This decrease was predominantly due to a decline in income from Asia, as well as losses associated with certain affiliates in Japan. Equity in income of affiliates in Asia alone totaled JPY13.9 billion.

Please refer to slide 25, capital expenditures.

Consolidated capital expenditures for the 12-month fiscal period amounted to JPY593.6 billion, an increase of JPY187 billion, mainly due to construction of production plants in Japan and Asia, as well as investment for new model introductions in North America.

For your reference, fluctuations in capital expenditures by business segment due to currency translation effects are shown in the boxes at the bottom of the page.

Please turn to the next slide.

Now Group unit sales forecasts. We would now like to review the unit sales forecasts for the new fiscal year which started on the 1st of this month.

The Honda Group unit sales forecast is as follows. Motorcycle operations, 17,400,000 units; Automobile operations, 4,430,000 units; Power Products operations, 6,200,000 units.

Please turn to slide 28.

Consolidated unit sales forecasts are as follows. Motorcycle operations, 11 million units; Automobile operations, 3,670,000 units; Power Products operations, 6,200,000 units.

Please turn to the next slide. We would now like to highlight the fiscal 2014 consolidated financial forecast.

The forecast for both operating income and income before income taxes is JPY780 billion. Our aim for net income attributable to Honda Motor is JPY580 billion.

Please turn to the next slide to see the consolidated results for the past fiscal year, as well as a profit walk simulation for fiscal 2014. A summary of the key points is as follows.

Revenue and model mix is expected to be a positive JPY131.6 billion. Cost reduction is expected to be a positive JPY20 billion. SG&A expense is expected to be a negative JPY17 billion. R&D expense is expected to be a negative JPY47.5 billion. Currency effects is expected to be a positive JPY248 billion. Other income and expenses is expected to be a positive JPY55.9 billion.

Now please turn to the next slide.

Finally, we would like to highlight our forecast for capital expenditures, depreciation and R&D expenses. The forecast for capital expenditures is JPY700 billion. The forecast for depreciation and amortization is JPY360 billion. The forecast for R&D expenses is JPY630 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.