本田技研 (HMC) 2014 Q2 法說會逐字稿

Welcome to the Honda financial results audio presentation.

On October 30, 2013 Honda Motor Company announced its financial results for the fiscal second quarter, which ended on September 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 investor relations website at 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 contained 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 managements' 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 second quarter, which ended on September 30. Please refer to slide 3.

Operating income for the second quarter was JPY171.4 billion; a 70% increase compared to the same period last year. A number of factors contributed to this boost in earnings, including higher automobile sales in North America; a rise in motorcycle sales in Asia, due largely to the positive impact of new model introductions in India and Indonesia; as well as positive currency effects due to a weaker yen.

Please turn to the next slide. With respect to Honda Group unit sales, motorcycle operations realized higher sales, mainly in Asia, resulting in a total of 4,216,000 units, or a 10.8% increase compared to the same period last year.

Within automobile operations, stable market conditions in North America as well, as buoyant sales of mini vehicles in Japan, led to unit sales of 1,047,000 units; an increase of 5.1%.

In power product operations, robust engine and lawnmower sales in North America more than offset declines in Asia and the Other Regions category, resulting in sales of 1,295,000 units; a slight increase of 0.5%.

Consolidated unit sales for the respective business areas are as shown.

Please turn to slide 5; financial highlights for the second quarter. Net sales and other operating revenue totaled JPY2,890 billion; a 27.3% increase. This was due to a rise in automobile and motorcycle net sales, the positive impact of foreign exchange fluctuations, as well as other factors.

Operating income rose to JPY171.4 billion, a 70% increase, mostly due to a rise in income associated with changes in sales volume and model mix; as well as the positive impact of a weaker yen, which more than offset a rise in SG&A costs; and an increase in depreciation costs due to the startup of a new manufacturing plant.

The operating margin for the quarter was 5.9%.

Income before income taxes totaled JPY165.5 billion.

Equity and income of affiliates amounted to JPY31.6 billion.

Net income attributable to Honda Motor was JPY120.3 billion.

Earnings per share totaled JPY66.79.

ForEx for the quarter was JPY99 to $1, JPY20 lower than a year earlier; and JPY131 to EUR1, JPY33 lower compared to the same period last year.

Please turn to the next slide; financial highlights for the first half. Honda's group unit sales for the fiscal first half were as follows, motorcycle operations recorded sales of 8,270,000 units.

Automobile operations recorded sales of 2,046,000 units.

Power product operations recorded sales of 2,884,000 units.

Financial highlights for the fiscal first half are as follows. Net sales and other operating revenue totaled JPY5,724 billion; a 21.6% increase.

Operating income rose to JPY356.4 billion.

Income before income taxes totaled JPY337.6 billion.

Equity and income of affiliates amounted to JPY63.4 billion.

Net income attributable to Honda Motor was JPY242.8 billion.

Earnings per share totaled JPY134.75.

Please turn to slide 7; financial forecast for fiscal 2014. Our financial forecast for the current fiscal year, which incorporates a decrease in income from other income and expenses, as well as an increase in income from equity and income of affiliates is as follows. Net sales and other operating revenue, JPY12,100 billion.

Operating income, JPY780 billion.

Income before income taxes, JPY765 billion.

Equity and income of affiliates, JPY130 billion.

Net income attributable to Honda Motor, JPY580 billion.

Earnings per share is expected to be JPY321.81.

The ForEx assumption for the fiscal second half is JPY95 to $1, and JPY125 to EUR1.

The ForEx assumption average for the fiscal year is JPY97 to $1, and JPY127 to EUR1.

Please turn to the next slide. The unconsolidated forecast for the current fiscal year is as shown.

Please turn to slide 9 for information on the dividend. As previously announced, the second quarter dividend is expected to be JPY20 per share of common stock; a JPY1 increase compared to the same period last year.

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

Operating income analysis. Next, we would like to explain the results of the fiscal second quarter. Please turn to slide 11.

Net sales and other operating revenue total JPY2,890 billion; a 27.3% increase. This was driven by a rise in motorcycle and automobile net sales, the positive impact of foreign exchange fluctuations, as well as other factors.

Excluding the JPY450.6 billion positive impact of ForEx fluctuations, details concerning Honda's revenue by business segment for the second quarter are as shown.

Please turn to the next slide. Accumulative net sales and other operating revenue for the first half are summarized here for your reference.

Now, please refer to slide 13. Next, we would like to explain the positive and negative factors which impacted income before income taxes for the quarter.

Income before income taxes for the fiscal second quarter was JPY165.5 billion; an increase of JPY59.3 billion compared to the same period last year.

Operating income amounted to JPY171.4 billion; an increase of JPY70.5 billion.

With respect to volume and the model mix, an increase in unit sales volume let to a positive impact of JPY34.6 billion.

Regarding cost reduction efforts, cost reductions were realized. But these were more than offset by an increase in depreciation costs associated with the startup of a new plant, as well as other factors, resulting in a negative impact of JPY17.6 billion

With regard to SG&A expenses, an increase in advertising expenses, as well as other factors, resulted in a negative impact of JPY36 billion.

An increase in R&D expenses had a negative impact of JPY4.1 billion.

The positive impact of currency effects at the operating income level was JPY93.6 billion.

In the area of other income and expenses, fair valuations related to derivative instruments resulted in a positive impact of JPY22 billion.

In the other portion of this area, the negative effect from differences between average sales rates and transaction rates, as well as other factors, resulted in a negative impact of JPY33.3 billion.

Please turn to the next slide. At this time, we would like to explain the positive and negative factors which impacted income before income taxes for the fiscal first half.

Higher SG&A costs, and costs related to the start up of a new plant, among other factors, had a negative impact on income. But this was more than offset by the positive impact of currency fluctuations, resulting in a total of JPY337.6 billion; an increase of JPY36.5 billion compared to the same period a year earlier. Details are as shown.

Business segments. Please turn to slide 15. Next, we would like to discuss the second quarter results for each business area. In motorcycle business operations, Honda Group unit sales increased due to the positive effect of new model introductions in India and Indonesia, as well as a rise in sales in Brazil, resulting in total Group unit sales of 4,216,000 units; a 10.8% rise.

Please turn to the next slide. Due to higher motorcycle unit sales, and the positive impact of ForEx translation effects, net sales increased to JPY418 billion; an increase of 35%.

Operating income increased to JPY45.5 billion; an increase of 79.3%, primarily due to higher income related to an improvement in sales volume and mix, as well as the positive impact of ForEx fluctuations, which more than offset the negative effect from increased SG&A costs and other factors.

The operating margin for the quarter was 10.9%.

Please turn to slide 17. Next, we would like to discuss automobile business operations. With respect to Honda Automobile Group unit sales, an increase in Accord, CR-V, and Civic sales; as well the positive impact of the introduction of the fully remodeled Acura MDX model in North America; higher sales of the N-ONE and other models in Japan; and the positive impact of the introduction of the Amaze in India, resulted in a total of 1,047,000 units, an increase of 5.1%.

Please turn to the next slide for financial highlights on this business segment for the quarter. Net sales rose to JPY2.233 trillion; an increase of 26.2%, primarily due to the higher unit sales in North America, as well as the positive impact of ForEx fluctuations on net sales.

With respect to operating income, the negative impact of higher SG&A costs, and other factors, was more than offset by an increase in income associated with an improvement in sales volume and the model mix, as well as the positive effect from ForEx fluctuations, resulting in a total of JPY80.1 billion; a 115.8% increase compared to the same period of the previous year.

The operating margin was 3.6%.

Please turn to slide 19. Next, we would like to review the operations of power products and other businesses for the second quarter. Honda Group unit sales rose in North America due to robust engine and lawn mower demand, which more than offset lower sales in Asia and the Other Regions category, resulting in a total of 1,295,000 units; an increase of 0.5%.

Please turn to the next slide. In the power products and other businesses segment, the positive impact of ForEx fluctuations and other factors resulted in net sales of JPY75.9 billion; an increase of 12.9%.

Operating loss was JPY800 million, due to start up costs associated with other businesses.

The operating margin was negative 1.1%.

Please turn to slide 21. In the financial services business segment, the total assets of finance subsidiaries at the end of the second quarter totaled JPY7.404 trillion.

Net sales totaled JPY172.5 billion; an increase of 29.6%.

Operating income was JPY46.5 billion; an increase of 21.7%, due to positive currency effects and other factors.

The operating margin was 27%.

Please turn to the next slide. A summary of the fiscal first half results by business segment is as shown.

Geographical regions; please turn to slide 23. Next, we would like to review Honda's business results by geographical region for the second quarter.

In Japan, operating income for the quarter was JPY49.2 billion; an increase of 64%, primarily due to the positive impact on income from an improvement in sales volume and model mix, as well as positive ForEx effects.

In North America, operating income was JPY46 billion; an increase of 72.1%, due mainly to the positive impact on income from an improvement in sales volume and model mix, as well as positive currency effects.

We would like to take a moment to specifically discuss the business environment in the US automobile market. During the July-through-September quarter, industry sales fluctuated to some degree, but basically the market remains strong.

Based on market conditions, we expect that US demand in calendar year 2013 will surpass our original seasonally adjusted annual rate assumption of 15.3 million units.

Regarding Honda's sales during the quarter, wholesale transactions in North America increased by 43,000 units; an increase of 10.6% compared to the same period last year. Retail sales also enjoyed solid growth.

In the US, both the Civic and the CR-V achieved double-digit growth compared to the same period last year.

We recently announced that the all new Accord Hybrid, which achieves a 50-mile-per-gallon city fuel economy rating from the US EPA, would be launched on October 31. We expect that the strong appeal of the enhanced Accord lineup will provide further sales momentum for this model.

For the Acura brand, solid sales were driven by the fully remodeled RDX, which set its 17th consecutive monthly sales record since going on sale in May 2012.

The fully remodeled MDX also achieved strong growth, achieving a 14% year-on-year increase during the period.

On September 23, we announced a plan to start construction of a new transmission plant in Mexico. The plant will be located near the new automobile plant that will begin mass production of the fully remodeled 2015 Honda FIT early next year. The transmission plant will begin producing continuously variable transmissions in the second half of 2015.

The new transmission plant in Mexico will join existing Honda transmission manufacturing operations in Ohio and Georgia, increasing Honda's annual transmission production capacity in North America from the current 1.375 million units to more than 1.7 million units in 2016; and to more than 2 million units when the Mexican plant reaches full capacity.

With the production startup of the fully remodeled FIT in Mexico next year, Honda in North America will be manufacturing automobiles for all sales segments, from subcompact to light truck models.

In addition to expanding capacity, Honda is introducing the company's Earth Dreams technology power trains to provide customers with exceptional performance, and fuel efficiency, in Honda and Acura products.

In Europe, operating losses amounted to JPY13.5 billion; a deterioration of JPY4.8 billion. This was primarily due to the negative impact on income from lower sales volume and model mix, despite a reduction of SG&A expenses and positive ForEx effects.

In Asia, operating income was JPY60 billion; an increase of 64.9% compared to the same period last year, primarily due to the positive impact on income from an improvement in sales volume and model mix, as well as positive ForEx effects.

Operating income for the Other Regions area, which includes South America, the Near- and Middle-East, and Oceania, was JPY18.6 billion; an increase of 76.9%, mainly due to the positive impact on income from an improvement in sales volume and model mix.

Please turn to slide 24. A summary of the results for the fiscal first half by geographic segment is as shown.

Please turn to the next slide; equity and income of affiliates. Equity and income of affiliates amounted to JPY31.6 billion, mainly due to ForEx effects in Asia, as well as other factors.

Equity and income of affiliates in Asia totaled JPY28.3 billion.

Please refer to slide 26; capital expenditures. Consolidated capital expenditures for the fiscal first half amounted to JPY303.7 billion; an increase of JPY52.9 billion, mainly due to an increase in investment for plant and equipment within automobile operations, as well as the impact of foreign currency fluctuations.

For your reference, increases and decreases in capital expenditures by business segment, excluding the impact of currency translation effects, are shown in the attached chart.

Please turn to slide 28; Group unit sales forecast. We would now like to review the unit sales forecasts for the fiscal year for each business operation.

The Honda motorcycle group unit sales forecast is as follows. Reflecting a slowdown in the motorcycle business in India and Brazil, as well as an expansion of sales in Indonesia, the forecast for motorcycle operations is 17.32 million units; a decline of 80,000 units from our previous forecast.

The forecast for automobile operations is 4.43 million units; unchanged from our previous forecast.

The forecast for power product operations is 6 million units, reflecting a 200,000 unit decrease from our previous forecast.

Please turn to the next slide. The Honda consolidated unit sales forecast by business segment also reflects an expected decline in sales. The forecasts for both motorcycle and power product operations have been revised downwards to 10.65 million units and 6 million units, respectively.

There is no change in the automobile operation's forecast.

Please turn to slide 30. We would now like to highlight the fiscal 2014 consolidated financial forecast. As mentioned earlier, the outlook is as follows. Operating income, JPY780 billion.

Income before income taxes, JPY765 billion.

Net income attributable to Honda Motor, JPY580 billion.

The increase and decrease factors behind the changes from the previous fiscal year are shown in the profit walk simulation on slide 31.

Changes in sales volume and model mix, other, plus JPY143.6 billion.

Cost down other, plus JPY20 billion.

SG&A increase, minus JPY129 billion.

R&D increase, minus JPY47.5 billion.

ForEx effects, plus JPY248 billion.

Other income and expenses, plus JPY40.9 billion.

Please turn to the next slide. As mentioned earlier in this presentation, the negative impact, which is expected to be incurred from other income and expenses, is taken into account in our comparison with the previously announced fiscal year forecast.

Sales volume and model mix other, plus JPY12 billion.

SG&A increase, minus JPY12 billion.

Other income and expenses, minus JPY15 billion.

Please note that the positive ForEx effect resulting from the yen weakening against the US dollar, as well as the negative ForEx effect resulting from the weakening of the currencies of emerging countries against the yen, are also reflected in this forecast.

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

The forecast for depreciation costs and amortization is JPY370 billion; an increase of JPY10 billion compared to the previous forecast, due to the impact of ForEx effects, as well as other factors.

The forecast for R&D expenses is JPY630 billion.

This concludes our financial results presentation. We hope that you've found this audio explanation helpful, and 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.