本田技研 (HMC) 2016 Q2 法說會逐字稿

(interpreted) Welcome to the Honda financial results audio presentation. On November 4, 2015 Honda Motor Co. announced its financial results for the fiscal second quarter which ended on September 30, 2015. Through this audio presentation, we would like to review the financial results and highlight the major factors that 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 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 that 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.

Before discussing details of the fiscal 2016 second-quarter results, which are based on international financial reporting standards or IFRS, please note that to facilitate comparison, the fiscal 2015 results shown in this presentation have been restated based on IFRS.

Financial summary. To begin, we would now like to review the financial summary for the fiscal first half, which ended on September 30. Please refer to slide three. Operating profit for the first half was JPY404.1 billion, a 7.9% increase compared to the same period last year. This was primarily due to robust automobile sales in North America, the positive effect of regional introductions of the new HRV and cost reduction efforts.

Please turn to the next slide for information on Honda's second-quarter sales. With respect to Honda group unit sales, motorcycle business operations realized higher sales in Vietnam, Pakistan and other countries, which more than offset declines in Indonesia, China, South America and other regions, resulting in a total of 4,370,000 units or a 0.5% increase compared to the same period last year.

Within automobile business operations, the positive impact of new model introductions and other factors led to higher unit sales in North America and China, resulting in a total of 1,139,000 units, a 10.5% increase. In power product business operations, an increase in sales in North America and Japan resulted in group unit sales of 1,275,000, an increase of 2.3%. The consolidated unit sales totals for the respective business areas are as shown.

Please turn to slide five. Financial highlights for the second quarter. Sales revenue totaled JPY3,621.2 billion, a 15.6% increase compared to the same period last year. This was primarily due to a rise in unit sales in every business segment and the positive impact of foreign exchange fluctuations.

Operating profit amounted to JPY164.8 billion, a 2.5% decrease. This was mostly due to higher SG&A expenses, including quality related costs, which more than offset the positive impact of a change in revenue and model mix as well as cost reduction efforts. While there was a positive ForEx impact from the yen's valuation against the US dollar, the negative ForEx impact of the US dollar valuations against other currencies resulted in foreign currency exchange rates being a negative factor for the quarter. The operating margin was 4.6%.

Share of profit of investments accounted for using the equity method amounted to JPY34.1 billion. Profit before income taxes totaled JPY210.9 billion. Profit for the period attributable to the owners of the parent for the quarter was JPY127.7 billion, an increase of 6.9% compared to the same period last fiscal year. EPS for the quarter totaled JPY70.88. ForEx for the quarter was JPY122 to the dollar, with the yen JPY18 weaker than a year earlier.

Please turn to the next slide. Financial highlights for the first half of fiscal 2016. Honda group unit sales for the first half of the fiscal year were as follows. Motorcycle business operations, 8,475,000 units. Automobile business operations, 2,286,000 units. Power product business operations, 2,833,000 units.

Sales revenue was JPY7,326 billion. Operating profit was JPY404.1 billion. Share of profit of investments accounted for using the equity method amounted to JPY72.5 billion. Profit before income taxes totaled JPY493.2 billion. Profit for the period attributable to owners of the parent was JPY313.7 billion. EPS for the first half of the fiscal year totaled JPY174.11.

Please turn to slide seven. Financial forecast for fiscal 2016. Sales revenue is forecast to total JPY14,600 billion. With respect to operating profit for the current fiscal year, in view of the decrease in automobile sales in Japan, an increase in quality-related costs, an increase in automobile sales in North America as well as cost reduction efforts, our forecast is JPY685 billion, unchanged from our previous announcement.

Share of profit of investments accounted for using the equity method, JPY135 billion. Profit before income taxes, JPY805 billion. Profit for the year attributable to owners of the parent, JPY525 billion. EPS is forecast to be JPY291.30.

The ForEx assumption for the second half is JPY115 to the dollar. The average exchange rate for the fiscal year is JPY118 to the dollar.

Please turn to slide eight for information on the dividend. The second-quarter dividend is JPY22 per share of common stock, unchanged from our previous announcement and the same as the quarterly dividend last year. The annual dividend for fiscal 2016 is expected to be JPY88 per share of common stock, unchanged from a year earlier.

Please turn to slide 10. Group unit sales summary. Next we would like to discuss Honda group unit sales for the second quarter. In motorcycle business operations, group unit sales decreased primarily in Indonesia, China and South America but the positive impact of robust sales in Vietnam and Pakistan led to total group unit sales of 4,370,000 units, a 0.5% increase.

Please turn to the next slide. In automobile group unit sales, the positive effect of the HRV Vezel inspection in conjunction with an increase in CRV sales in both North America and China led to a total of 1,139,000 units, an increase of 10.5%.

Please turn to the next slide. Next we would like to review power product group unit sales for the second quarter. Unit sales rose in North America due to higher lawnmower, portable generator and OEM engine sales. Japan also saw higher OEM engine sales but OEM engine sales decreased in China. The net result was a total of 1,275,000 units, an increase of 2.3%. For your reference, Honda group unit sales for the first half of this fiscal year by business area are highlighted on slide 13.

Sales revenue and operating profit analysis. Next we would like to discuss details of the results for the fiscal second quarter which ended on September 30. Please find please turn to slide 14. For the fiscal second quarter, an increase in motorcycle, automobile and power product unit sales, an increase in financial services business revenue and the positive impact of ForEx translation, in addition to other factors, led to sales revenue of [JPY3,621.2 billion]. The increases and decreases in sales revenue for the respective business segments, excluding the positive currency effect of JPY272.7 billion, are as shown. For your reference, sales revenue for the fiscal first half is shown on slide 15.

Please turn to the next slide. Next we would like to explain the positive and negative factors that impacted profit before income taxes for the second quarter. Before income taxes was JPY210.9 billion, an increase of JPY20.3 billion compared to the same period last year. Operating profit amounted to JPY164.8 billion, a decrease of JPY4.1 billion compared to the same period last year.

With respect to revenue and model mix, a change in unit volume and model mix resulted in a positive impact of JPY54.2 billion. Regarding cost reduction efforts and changes in material costs, a positive impact of JPY25.9 billion was realized. An increase in SG&A expenses, including quality-related costs as well as higher advertising expenses and other factors, had a negative impact of JPY87.5 billion. A decrease in R&D expenses had a positive impact of JPY11.4 billion. At the operating income level, the positive effect of the yen versus the US dollar exchange rate was more than offset by the negative impact of currency effects of the US dollar versus the Brazilian real, the Canadian dollar, the Mexican peso and other currencies, resulting in a negative impact of JPY8.3 billion. Share of profit of investments accounted for using the equity method resulted in a positive impact of JPY29 billion. Finance income and finance costs resulted in a negative impact of JPY4.5 billion.

Please turn to slide 17. With respect to profit before income taxes for the fiscal first half, an increase in SG&A expenses, including quality-related costs and other factors, was more than offset by an increase in revenue and model mix, cost reduction efforts and other factors, resulting in a total of JPY493.2 billion, an increase of JPY59.1 billion.

Please turn to the next slide. Business segments. Next we would like to discuss the second-quarter results for each business area. In motorcycle business operations, an increase in consolidate unit sales, as well as the positive impact of ForEx translation effects, resulted in sales revenue of JPY453.2 billion, an increase of 4.7%. Operating profits increased to JPY49 billion, an increase of 11.3% compared to the same period last year. This was primarily due to cost reduction efforts and an increase in income related to sales volume and model mix, which more than offset the negative impact of ForEx effects and other factors. The operating margin for the quarter was 10.8%. Please turn to the next slide for financial highlights on the automobile business segment for the quarter.

Net sales rose to JPY2,655.5 billion, an increase of 15.2%, due to an increase in consolidated unit sales, the positive impact of ForEx fluctuations on sales revenue and other factors. With respect to operating profit, the positive impact from sales volumes and model mix, as well as cost reduction efforts, was more than offset by an increase in SG&A expenses, including quality-related costs, the negative impacts of ForEx effects and other factors, resulting in a total of JPY67.7 billion, a 12.4% decrease compared to the same period of the previous year. Operating margin was 2.6%.

Please turn to slide 20. In the power products and other businesses segment, the positive impact from ForEx translation effects as well as other factors led to sales revenue of JPY88.2 billion, a 12% increase compared to the same period a year earlier. Operating loss totaled JPY3.8 billion, a worsening of JPY2.7 billion, primarily due to expenses associated with other businesses as well as other factors. The operating margin was a negative 4.4%.

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 JPY9,377.7 billion. Sales revenue totaled JPY465.1 billion, a rise of 28.5%, primarily due to the positive impact of a rise in operating lease revenues, an increase in revenue from the sale of returned leased vehicles and positive currency effects as well as other factors. Operating profits totaled JPY51.8 billion, an increase of 6.7%, primarily due to positive currency effects, despite higher SG&A costs and other factors. Operating margin was 11.1%.

The first-half results 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 23. In Japan, operating profit for the quarter was JPY26.1 billion, a 58.5% decrease compared to the same period a year earlier. This decrease was due to a decrease in sales volume and model mix, an increase in SG&A expenses as well as other factors, which more than offset positive ForEx effects and other factors. Operating profit in North America for the quarter amounted to JPY37.4 billion, a decrease of 12%, mainly due to an increase in SG&A expenses, including quality-related costs, as well as the negative impact of cross rates between the US dollar and currencies such as the Canadian dollar and Mexican peso, which more than offset the positive impact from a change in volume and model mix and other factors. In Europe, operating profit amounted to JPY3.1 billion, an improvement of JPY8.8 billion, mainly due to the positive impact of a change in volume and model mix, as well as cost reduction efforts, despite negative ForEx effects. Operating profit in Asia was JPY86 billion, an increase of 40.7% compared to the same period last year, mostly due to cost reduction efforts and the positive impact related to a change in sales volume and mix and positive ForEx effects, which more than offset an increase in SG&A expenses. Operating income for other regions, which includes South America, the Near and Middle East, Africa and Oceania, was JPY7.2 billion, a decrease of 47.2%. The decrease was primarily due to the negative impact of ForEx effects, which more than offset cost reduction efforts and an increase in sales volume and model mix. For your reference, first-half results by geographic region are shown on slide 24.

Please turn to slide 25. Share of profits from investments accounted for using the equity method. Share of profits from investments accounted for using the equity method amounted to JPY34.1 billion. This increase was primarily due to an increase in unit sales in China, the realization of impairment losses on investments for certain Japanese affiliated companies during the same period a year earlier and other factors. Share of profits from investments accounted for using the equity method in Asia totaled JPY28.9 billion, as indicated at the bottom right of the slide.

Please refer to slide 26. Capital expenditures. Consolidated capital expenditures for the first half amounted to JPY283.2 billion, a decrease of JPY12.2 billion, due to a reduction in expenditures in the automobile business segment, despite negative ForEx effects and other factors. 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 28. Group unit sales forecast. We 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 business operations, 17,515,000 units. This is a decrease of 710,000 units compared to our previous forecast and is based on the assumption that an unfavorable market and sales environment will persist, especially in Asia and South America. Automobile business operations, 4,730,000 units. This is an increase of 15,000 units from our previous forecast and is based on the assumption that higher sales in Asia, North America and Europe will more than offset decreased sales in Japan and other regions. Power product business operations, 5,945,000 units. This is a decrease of 415,000 units compared to our previous forecast and assumes lower sales, predominantly in Asia.

Please turn to slide 29. With respect to consolidated unit sales, changes in sales units have been reflected in the forecast for each business segment, as follows. Motorcycle business operations, 10,860,000 units. Automobile business operations, 3,680,000 units. Power product business operations, 5,945,000 units.

Please turn to slide 30. We would now like to highlight the 2016 fiscal year consolidated financial forecast. The forecast for operating profit is JPY685 billion. The forecast for profit before income taxes is JPY805 billion. Our expectation for profit for the year attributable to owners of the parent is JPY525 billion. Please refer to slide 31 to see the profit [walk] simulation impacting operating profit for fiscal year 2016 versus the previous fiscal year. The increase and decrease factors are as follows. Revenue, model mix, etc., plus JPY143.3 billion. Cost reduction, etc., plus JPY92 billion. Increase in SG*A expenses, minus JPY82 billion. Increase in R&D expenses, minus JPY51 billion. Currency effects, minus JPY88 billion. Share of profit of investments accounted for using the equity method, plus JPY38.9 billion. Finance income and finance costs, minus JPY54.5 billion.

Please turn to slide 32. With respect to our previous forecast, we assume increased automobile unit sales predominantly in North America, but this is expected to be more than offset by lower automobile unit sales in Japan as well as a decrease in motorcycle unit sales primarily in Asia and South America. As a result, the revenue model mix is forecast to be minus JPY36 billion. Reflecting continuing cost reduction efforts and changes in material costs, cost reduction is expected to be plus JPY50 billion. Despite efforts to reduce expenses, an increase primarily in quality-related costs is expected to result in an increase in SG&A expenses or minus JPY22 billion. A decrease in R&D expenses is expected to be plus JPY8 billion. At the operating profit level, the yen/US dollar exchange rate will have a positive effect but the impact of currency cross rates between the US dollar versus the Brazilian real, the Canadian dollar and the Mexican peso, as well as other currencies, will have a negative effect. Reflecting these assumptions, our forecast for the fiscal year is unchanged from our previous announcement.

Please turn to slide 33. Finally, we would like to highlight our forecast for capital expenditures, depreciation and R&D expenditures for fiscal 2016. The forecast for capital expenditures is JPY670 billion. The forecast for depreciation and amortization is JPY455 billion. The forecast for R&D expenditures is JPY735 billion.

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