本田技研 (HMC) 2015 Q3 法說會逐字稿

2015 Third Quarter Financial Results. Welcome to the Honda financial results audio presentation. On January 30, 2015, Honda Motor Company announced its financial results for the fiscal third quarter, which ended on December 31, 2014. 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.

Forward-looking statements; 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 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.

Financial summary. We would now like to review the financial summary for the fiscal third quarter, which ended on December 31, 2014. Please refer to slide three. The third quarter was marked by severe competition in the automobile market in Japan, an increase in quality-related expenses in North America and other markets as well as a positive effect from strong automobile sales in Asia. These developments combined with the positive effect of foreign currency fluctuations and other factors, resulted in operating income of JPY177.2 billion for the quarter.

Please turn to slide four. With respect to motorcycle group unit sales, strong sales in India, Indonesia and other countries led to a total of 4,432,000 units or a 4.3% increase. Within automobile operations, difficult market conditions and lower sales, particularly in Japan, China and other countries, resulted in sales of 1,028,000 units, a 5% decrease. In power product operations, a decline in sales in Asia as well as other countries resulted in group unit sales of 1,148,000 units, a 1.2% decrease. The consolidated unit sales totals for each business area are as shown.

Please turn to slide five. Financial highlights for the third quarter. Net sales and other operating revenue totaled JPY3,289.9 billion, an 8.9% increase compared to the same period last year. This was primarily due to a rise in motorcycle unit sales, the positive impact of foreign exchange fluctuations and other factors. Operating income amounted to JPY177.2 billion, a 22.5% decrease. This was mostly due to lower profits as a result of a negative change in sales volume and model mix as well as an increase in SG&A expenses, including quality-related expenses despite favorable foreign currency effects.

The operating margin was 5.4%. Income before income taxes totaled JPY194.1 billion. Equity in income of affiliates amounted to JPY28.5 billion. Net income attributable to Honda Motor for the quarter was JPY136.5 billion. EPS for the quarter totaled JPY75.75. ForEx for the quarter was JPY114 to $1, JPY14 lower than a year earlier and JPY144 to EUR1, JPY5 lower compared to the same period last year.

Please turn to the next slide. Financial highlights for the nine-month period of fiscal year 2015; Honda Group unit sales for the fiscal nine months were as follows. Motorcycle business operations, 13,150,000 units; automobile business operations, 3,160,000 units; power product business operations, 3,944,000 units. Net sales and other operating revenue was JPY9,293 billion, operating income was JPY539.7 billion, income before income taxes, JPY572.7 billion, equity in income of affiliates amounted to JPY89.9 billion, net income attributable to Honda Motor was JPY424.9 billion, EPS for the fiscal nine months totaled JPY235.77.

Please turn to slide seven. Financial forecast for fiscal year 2015; with respect to our financial forecast for the current fiscal year, reflecting severe business conditions in Japan, China and other countries, a rise in quality-related expenses primarily in North America as well as positive ForEx effect from a weaker yen, we have revised our forecast as follows. Net sales and other operating revenue, JPY12,900 billion; operating income JPY720 billion; income before income taxes, JPY745 billion; equity in income of affiliates JPY120 billion; net income attributable to Honda Motor JPY545 billion. EPS is forecast to be JPY302.39, the ForEx assumption for the fourth quarter is JPY115 to $1 and JPY130 to EUR1. The ForEx assumption for the fiscal year is JPY109 to $1 and JPY138 to EUR1.

Please turn to slide eight for information on the dividend. Unchanged from our previous announcement, the third quarter dividend is JPY22 per common stock, JPY2 increase compared to the same period last year. The annual dividend for fiscal year 2015 is expected to be JPY88 per common stock, JPY6 increase per share of common stock compared to a year earlier.

Revenue and operating income analysis. Next, we would like to discuss details of the results for the fiscal third quarter, which ended on December 31, 2014. Please turn to slide 10. For the fiscal third quarter, an increase in motorcycle unit sales as well as the positive impact from ForEx translation effects led to net sales and other operating revenue of JPY3,289.9 billion. For your reference, net sales and other operating revenue for the fiscal nine months are shown on slide 11.

Please turn to the next slide. Next, we would like to explain the positive and negative factors which impacted income before income taxes for the third quarter. Income before income taxes was JPY194.1 billion, a decrease of JPY22.4 billion compared to the same period last year. Operating income amounted to JPY177.2 billion, a decrease of JPY51.3 billion compared to the same period last year. With respect to revenue and model mix, a negative impact of JPY46.5 billion was realized. This was primarily due to a change in unit sales volume, the reverse impact of a revision to the North American pension system during the same period last fiscal year as well as other factors.

Regarding cost reduction efforts, a positive impact of JPY3 billion was realized. An increase in SG&A expenses had a negative impact of JPY46.1 billion. This was primarily due to an increase in quality-related expenses, the reverse impact of a revision to the North American pension system during the same period of last fiscal year as well as other factors. An increase in R&D expenses had a negative impact of JPY5.5 billion. At the operating income level, the positive impact of ForEx currency effects was JPY43.9 billion. In the area of other income and expenses, fair valuations related to derivative instruments resulted in a positive impact of JPY17.1 billion. In the other category, differences between average sales rates and transaction rates and other factors resulted in a positive impact of JPY11.6 billion.

Please turn to slide 13. With respect to income before income taxes for the fiscal nine months, an increase in SG&A expenses, including quality-related expenses, a rise in R&D expenses, as well as other factors was more than offset by cost reduction efforts and positive currency translation effects, resulting in a total of JPY572.7 billion, an increase of JPY18.5 billion.

Please turn to the next slide, business segments. Next, we would like to discuss the third quarter results for each business area. In motorcycle business operations, the positive impact of robust sales in India, Indonesia and Vietnam and other countries led to total group unit sales of 4,432,000 units, a 4.3% rise. Please turn to slide 15. An increase in consolidated unit sales as well as the positive impact of ForEx translation effects resulted in net sales and other operating revenue of JPY463.4 billion, an increase of 15.8%. Operating income increased to JPY53.5 billion, an increase of 55.2% compared to the same period last year. This was primarily due to an increase in profits associated with a positive change in volume and mix, as well as a positive change in ForEx translation effects. The operating margin for the quarter was 11.6%.

Please turn to slide 16. Next, we would like to discuss automobile business operations. With respect to automobile group unit sales, strong sales were realized in India, in Indonesia, but this was more than offset by lower sales in Japan and China, which was brought on by the tough market environments, resulting in a total of 1,028,000 units, a decrease of 5.0%. Please turn to the next slide for financial highlights on this business segment for the quarter. Net sales rose to JPY2,549.1 billion, an increase of 7.2% due to the positive impact of ForEx fluctuations on sales revenue as well as other factors despite a decrease in consolidated unit sales. With respect to operating income, the positive impact from cost reduction efforts and positive ForEx translation effects was more than offset by a decline in profits associated with negative volume and mix as well as a rise in SG&A expenses, which includes quality-related expenses, resulting in a total of JPY76.4 billion, a 50.4% decrease compared to the same period of the previous year. Operating margin was 3.0%.

Please turn to slide 18. Next, we would like to review our product business operations for the third quarter. Honda group unit sales rose in Japan due to higher OEM engine and snow blower sales, but lower OEM engine and water pump sales in Asia had a negative impact on overall sales in the segment, resulting in a total of 1,148,000 units, decrease of 1.2%. Please turn to the next slide. In the power products and other businesses segment, net sales and other operating revenue increased to JPY79.8 billion, a 1.6% increase primarily due to the positive impact of ForEx translation effects on sales revenue as well as other factors despite a decrease in net sales in the other businesses segment. Operating loss totaled JPY3.8 billion, a decline of JPY0.9 billion primarily due to the negative impact of ForEx translation effects despite a decline in SG&A expenses and other positive factors. The operating margin was a negative 4.8%.

Please turn to slide 20. In the financial services business segment, the total assets of finance subsidiaries at the end of the third quarter totaled JPY9,457.4 billion. Net sales totaled JPY216.3 billion, a rise of 21.8%, primarily due to the positive impact of a rise in operating lease revenues, positive currency effects as well as other factors. Operating income was JPY51 billion, an increase of 19.6% due to positive currency effects and other factors. Operating margin was 23.6%. The results for the fiscal nine months for each business segment are highlighted on the next slide.

Geographical regions; next, we would like to review Honda's business results by geographical region for the quarter. Please turn to slide 22. In Japan, operating income for the quarter was JPY42 billion, a 29.1% decrease compared to the same period a year earlier as lower income associated with the negative change in volume and model mix as well as higher SG&A expenses more than offset positive ForEx effects and other factors. Operating income in North America for the quarter amounted to JPY82.1 billion, a decrease of 37.4%, primarily due to the negative impact from higher SG&A expenses, including quality-related expenses, the reverse impact of a revision to the North American pension system during the same period last year, a civil penalty issued by NHTSA as well as other factors.

In Europe, operating losses amounted to JPY4 billion, an improvement of JPY4.6 billion due to the positive impact from a reduction in SG&A expenses as well as other factors. Operating income in Asia was JPY73.3 billion, an increase of 46.5% compared to the same period last year, mostly due to the positive impact on income related to a change in sales volume and mix, cost reduction efforts, positive ForEx effects and other factors. Operating income for other regions, which include South America, the Near and Middle East and Africa as well as Oceania was JPY13 billion, an increase of 64.4%, mainly due to the positive impact of cost reduction efforts and other factors. For your reference, nine-month results by geographic region are shown on slide 23.

Please turn to the next slide. Equity in income of affiliates; equity in income of affiliates amounted to JPY28.5 billion, a decrease of 9.7%. This decrease was primarily due to lower sales in China as well as other factors. Please refer to slide 25. Capital expenditures; consolidated capital expenditures for the fiscal nine months amounted to JPY428.5 billion, a decrease of JPY21.9 billion due to a reduction in expenditures in all business segments. For your reference, increases and decreases in capital expenditures by business segment, excluding the impact of currency translation effects are as shown.

Please turn to slide 27. Group unit sales forecast; we would now like to review the unit sales forecasts for the fiscal year for each business operation. The Honda Group unit sales forecast is as follows. Motorcycle business operations, 17,815,000 units. This is a decrease of 135,000 units compared to our previous forecast. Automobile business operations, 4,450,000 units. This is a decrease of 170,000 units from our previous forecast and is based on the assumption that difficult market conditions will continue to exist predominantly in Japan and China. Power product business operations, 6,120,000 units. This is a decrease of 65,000 units compared to our previous forecast and assumes lower engine sales in Asia as well as other factors.

Please turn to slide 28. With respect to consolidated unit sales, changes in sales units have been reflected in the forecasts for each business segment as follows. Motorcycle business operations, 10,790,000 units; automobile business operations, 3,650,000 units; power product business operations, 6,120,000 units. Please turn to slide 29. We would now like to highlight the fiscal year 2015 consolidated financial forecast. The forecast for operating income is JPY720 billion, the forecast for income before income taxes is JPY745 billion. Our expectation for net income attributable to Honda Motor Company is JPY545 billion.

Please refer to slide 30 to see the profit walk simulation impacting operating income for fiscal year 2015 versus the previous fiscal year. The increase and decrease factors are as follows. Revenue, model mix, etcetera, minus JPY19.2 billion; cost reduction, etcetera, plus JPY45 billion; increase in SG&A expenses, minus JPY112 billion; increase in R&D expenses, minus JPY12 billion, currency effects, plus JPY68 billion; other income and expenses, plus JPY46.3 billion.

Please turn to slide 31. As mentioned earlier, we assume that unfavorable market conditions will continue in certain markets, leading to lower unit sales. In addition, higher quality-related expenses mainly in North America as well as the impact of foreign currency effects expected to impact our previous fiscal year forecast are as follows. Revenue, model mix, etcetera, minus JPY93 billion; cost reduction, etcetera, plus JPY2 billion; decrease in SG&A expenses, minus JPY28 billion; currency effects, plus JPY69 billion; other income and expenses, plus JPY30 billion.

Please turn to slide 32. Finally, we would like to highlight our forecast for capital expenditures, depreciation and R&D expenses for fiscal year 2015. The forecast for capital expenditures is unchanged at JPY670 billion. The forecast for depreciation and amortization is unchanged at JPY415 billion. The forecast for R&D expenses is JPY650 billion, an increase of JPY5 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.