本田技研 (HMC) 2014 Q1 法說會逐字稿

Welcome to the Honda financial results audio presentation.

On July 31, 2013, Honda Motor Company announced its financial results for the fiscal first quarter, which ended on June 30, 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 investors relations website at 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.

Forward-looking statement.

This audio presentation contains forward-looking statements as defined in Section 27-A of the Securities Act of 1933 as amended, and Section 21-E 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 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 the method that Honda considers reasonable.

Financial summary.

We would now like to review the financial summary for the fiscal first quarter, which ended on June 30.

Please refer to slide 3.

Operating income for the first quarter was JPY184.9 billion, a 5.1% increase compared to the same period last year.

A number of factors, including a decrease in sales volume and model mix, had a negative impact on earnings.

The currency effects, due to a weaker yen, helped to boost earnings.

With respect to Motorcycle group unit sales, sales declined in Brazil within the other regions category.

A number of factors, including the positive impact of new model introduction, led to a rise in Asia, resulting in a total of 4,054,000 units or a 3.7% increase.

Within Automobile operations, unit sales rose in all regions except for Japan where the end to an eco-incentive program led to a decline.

The unit sales total for the quarter was 999,000 units, unchanged from a year earlier.

In Power Product operations, robust lawnmower sales led to higher sales in North America, but sales declined in Asia, resulting in unit sales of 1,589,000, a decrease of 2.2%.

Financial highlights for the first quarter.

Net sales and other operating revenue totaled JPY2.834 trillion, a 16.3% increase.

This was primarily due to a rise in net sales due to the positive impact of foreign exchange fluctuations.

Operating income rose to JPY184.9 billion, a 5.1% increase, mostly due to the positive impact of a weaker yen as well as cost reductions.

Income before income taxes totaled JPY172 billion.

Equity in income of affiliates amounted to JPY31.7 billion.

Net income attributable to Honda Motor was JPY122.4 billion.

EPS totaled JPY67.97.

Forex for the quarter was JPY99 to the dollar, JPY19 lower than a year earlier.

The euro rate was JPY129 to the euro, JPY25 lower compared to the same period last year.

Please turn to the next slide.

Financial forecast for fiscal year 2014.

With respect to our financial forecast for the current fiscal year, the numbers are unchanged from our previous announcement.

The forex assumption for the second quarter is JPY95 to the dollar and EUR125 to the dollar.

The forex assumption for the fiscal year is JPY96 to the dollar and EUR126 to the dollar.

Please turn to slide 5 for information on the dividend.

The annual dividend for fiscal year 2014 is expected to be JPY80 per common stock, a JPY4 increase per stock compared to a year earlier.

This is unchanged from our April 26 announcement.

The first quarter dividend is expected to be JPY20 per common stock, a JPY1 increase compared to the same period last year.

Operating income analysis.

Next, we would like to discuss the results for the fiscal first quarter, which ended on June 30.

Please turn to slide 7.

A positive impact from forex fluctuations led to net sales and other operating revenue of JPY2.834 trillion, an increase of 16.3%.

Excluding the impact of forex fluctuations, details concerning Honda's revenue by business segment for the first quarter are as shown.

Please turn to slide 8. Next, we would like to explain the positive and negative factors which impacted income before income taxes for the quarter.

Income before income taxes was JPY172 billion, a decrease of JPY22.7 billion compared to the same period last year.

Operating income amounted to JPY184.9 billion, an increase of JPY8.9 billion.

With respect to revenue and model mix, an increase in unit sales was realized in Asia and other regions, while unit sales declined in Japan.

A change in model mix in Japan and North America, as well as other factors, led to a negative impact of JPY46.7 billion.

Regarding cost reduction efforts, expenses associated with the startup of a new plant as well as a rise in depreciation expenses led to a negative impact of JPY17.4 billion.

An increase in SG&A expenses had a negative impact of JPY100 million.

An increase in R&D expenses had a negative impact of JPY9.6 billion.

The positive impact of currency effects on operating income was JPY82.9 billion.

In the area of other income and expenses, fair valuations related to derivative instruments resulted in a negative impact of JPY7.5 billion.

In the other category, the negative effect from differences between average sales rates and transaction rates, as well as other factors, resulted in a negative impact of JPY24.1 billion.

Business segment.

Please turn to slide 9. Next, I would like to discuss the first quarter results for each business area.

In Motorcycle business operations, group unit sales decreased in Brazil within the other regions category.

But the positive impact of new model introductions and other factors led to a large increase in Asia, resulting in total group unit sales of 4,054,000 units, a 3.7% rise.

Please turn to the next slide.

Forex translation effects had a positive influence on net sales, leading to a total of JPY396.8 billion, an increase of 14.5%.

Operating income increased to JPY42.5 billion, an increase of 15.7%, primarily due to a reduction in SG&A expenses and the positive impact of forex fluctuations, despite the negative effect of increased R&D costs.

The operating margin for the quarter was 10.7%.

Please turn to slide 11.

Next, we would like to discuss Automobile business operations.

With respect to Automobile group unit sales, a decrease occurred in Japan associated with the end of the eco-incentive program, which had been in place during the same period last year.

A large increase in unit sales was realized in Asia, led by the positive impact of the Amaze model introduction in India, resulting in a total of 999,000 units, unchanged from a year earlier.

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

Net sales rose to JPY2.201 trillion, an increase of 16.2%, primarily due to the positive impact of forex fluctuations.

With respect operating income, a positive impact from forex fluctuations with more than offset by lower income from a decrease in sales volume and model mix as well as higher R&D expenses, resulting in a total of JPY96.3 billion, a 4.3% decline compared to the same period of the previous year.

Operating margin was 4.4%.

Please turn to slide 13.

Next, we would like to review Power Product business operations for the first quarter.

Honda group unit sales rose in North America, due to robust lawnmower demand.

But lower sales in Asia and other regions had a negative impact on overall sales for the segment, resulting in a total of 1,589,000 units, a decrease of 2.2%.

Please turn to the next slide.

In the Power Products and other business segment, the positive impact of Forex fluctuations resulted in net sales of JPY77.9 billion, an increase of 11.4%.

Operating income rose to JPY1.3 billion, an increase of JPY3.6 billion, primarily due to the positive impact of forex fluctuations as well as a reduction in SG&A expenses.

Operating margin was a negative 1.7%.

Please turn to slide 15.

In the Financial Services business segment, the total assets of finance subsidiaries at the end of the first quarter totaled JPY7.207 trillion.

Net sales totaled JPY167.9 billion, a rise of 25.3%, in part due to the positive impact of currency effects.

Operating income was JPY44.6 billion, an increase of 9.3%, due to positive currency effects, despite a rise in SG&A expenses.

Operating margin was 26.6%.

Geographical regions.

Please turn to slide 16.

Next, we would like to review Honda's business results by geographical region for the quarter.

In Japan, revenue for the quarter, which includes both domestic and export sales, amounted to JPY975.8 billion, 3.1% lower than the corresponding quarter of last fiscal year.

Operating income for the quarter was JPY62.1 billion, an increase of 2%, as a negative impact from volume and model mix as well as higher R&D expenses was more than offset by positive currency effects.

Operating margin was 6.4%.

Please turn to the next slide.

Net sales in North America for the quarter amounted to JPY1.501 trillion, an increase of 23.6% compared to the corresponding quarter a year ago, due mainly to higher revenue from Automobile and Financial Services operations as well as the positive influence of currency fluctuations and other factors.

Operating income was JPY71.8 billion, a decline of 12.6%, due mainly to the negative impact on income from volume and model mix as well as an increase in SG&A expenses which more than offset positive currency effects and other factors.

Operating margin was 4.8%.

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

Despite a slow start early in the quarter, SAR grew steadily through June and is on pace with our 2013 forecast of 15.3 million units.

Regarding Honda sales for the quarter, wholesale units increased by 9000 units and retail sales also displayed strong growth.

The popular Accord has sold over 30,000 units for four consecutive months, and strong demand in the light truck segment has served as a tailwind for the CRV and Pilot, which both set monthly sales records in June.

Acura sales have been bolstered by strong sales of the RDX, which set its 14th consecutive monthly sales record since its launch in May of last year.

The all-new flagship RLX sedan debuted in March and the popular MDX underwent a full model change in the latter half of June.

Earlier this year, production capacity at our Alabama and Indiana plants was raised by 40,000 and 50,000 units respectively, bringing Honda's North America production capacity up to 1.72 million units.

Please turn to slide 18.

Net sales in Europe amounted JPY175.9 billion, an increase of 19%, mainly due to the positive impact of currency effects on net sales, in addition to other factors, which more than offset lower motorcycle sales and other factors.

Operating losses amounted to JPY9.7 billion, a deterioration of JPY2.1 billion, due to the negative impact of sales volume and model mix, despite a reduction of SG&A expenses.

Operating margin for the quarter was a negative 5.5%.

Please turn to the next slide.

Net sales in Asia amounted to JPY706.6 billion, an increase of 37.8%, mainly due to an increase in automobile and motorcycle net sales as well as a positive impact of currency effects on sales.

Operating income was JPY53.7 billion, an increase of 69.3% compared to the same period last year, mostly due to the positive impact of sales volume and mix as well as positive currency effects.

Operating margin was 7.6%.

Please turn to slide 20.

Net sales for other regions, which includes South America, the near and Middle East, Africa, as well as Oceana, amounted to JPY240.7 billion, an increase of 9.2%.

This was mainly due to an increase in automobile sales as well as positive currency effects on revenue, which more than offset a decline in motorcycle sales and other factors.

Operating income was JPY5.4 billion, [an increase] of 55.9%, mainly due to an increase in SG&A expenses, including expenses associated with quality issues and the negative impact of currency effects.

Operating margin was 2.2%.

Please turn to slide 21.

Equity in income of affiliates.

Equity in income of affiliates amounted to JPY31.7 billion, an increase of 53.2%.

This increase was predominantly due to an increase in income of affiliates in Asia, as well as recognition of impairment loss on investments in certain affiliates in Japan during the same period a year earlier.

Equity in income of affiliates in Asia, as illustrated by the green bar graph, totaled JPY25.1 billion.

Please refer to slide 22.

Capital expenditures.

Consolidated capital expenditures for the first quarter amounted to JPY171.4 billion, an increase of JPY75.4 billion, mainly due to construction of an automobile production plant in Japan and an increase in investments associated with new model introductions in North America, among other factors.

For your reference, increases and decreases in capital expenditures by business segment, excluding the impact of currency translation effects, is shown in the chart on the bottom left side of the slide.

Please turn to slide 24.

Group unit sales forecast.

We would now like to review the unit sales forecast for the fiscal year for each business operation.

The Honda group unit sales forecast is as follows.

Motorcycle operations, 17.4 million units.

Automobile operations, 4,430,000 units.

Power Product operations, 6.2 million units.

These numbers are unchanged from our April 26 forecast.

Please turn to slide 25.

Consolidated unit sales forecasts are as follows.

Motorcycle operations, 11 million units.

Automobile operations, 3,670,000 units.

Power Product operations, 6.2 million units.

These numbers are unchanged from our April 26 forecast as well.

Please turn to the next slide.

We would now like to highlight the fiscal year 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.

This forecast is unchanged from our April 26 announcement.

Please refer to slide 27 to see the consolidated results for the past fiscal year as well as a profit [walk] simulation for fiscal year 2014.

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 would like to thank you for your continued interest in Honda's activities.