本田技研 (HMC) 2016 Q3 法說會逐字稿

Fiscal 2016 third quarter financial results. Welcome to the Honda financial results audio presentation.

On January 29, 2016, Honda Motor Company announced its financial results for the fiscal third quarter, which ended on December 31, 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 third 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.

Fiscal third quarter topics. To begin, we would like to introduce you to some of the news topics from the fiscal third quarter.

In automobile business operations, the 10th generation Civic was launched in North America. The vehicle's product appeal and cost competitiveness were greatly enhanced, and it has received high marks from all quarters. Recently at the North American International Auto Show in Detroit, it received the prestigious North American Car of the Year award.

In China, Dongfeng Honda launched the brand new Greiz model.

In motorcycle business operations, a new Pioneer series model, equipped with the newly developed powertrain was introduced in the side-by-side segment.

In the power product and other businesses segment, lease sales of the Honda Walking Assist device began in Japan in November. Further HondaJet received type certification from the FAA in December. First deliveries of the aircraft began in the same month.

Utilizing a mutually complementary relationship in the area of automobile production, exports of the Japan produced Fit model bound for North America began in earnest following a ramp-up of exports for the Japan produced Jazz model bound for Europe in previous months.

This concludes the third quarter topics overview.

Financial summary. We would now like to review the financial summary for the fiscal third quarter, which ended on December 31. Please refer to slide 4.

Firstly, to summarize the fiscal nine-month period, full model changes of core models in North America, the positive effect of HR-V introductions in various markets, and cost reduction efforts, led to an improvement in the Company's fundamental profit structure.

However, an increase in quality-related costs, as well as the negative ForEx impact of the US dollar valuations against other currencies, starting with the Brazilian real, resulted in operating profit of JPY567.2 billion.

Please turn to the next slide for information on third-quarter sales. With respect to Honda Group unit sales, motorcycle business operations realized higher sales in Vietnam, Pakistan, and other countries. But this was more than offset by declines in Indonesia, China, South America and other regions, resulting in a total of 4.407 million units, or a 3.9% decrease compared to the same period last year.

Within automobile business operations, an increase in sales in Asia, primarily China, Indonesia, and Malaysia, as well as other factors, and a decline in sales in Japan and other countries, resulted in a total of 1.228 million units, a 4.6% increase.

In power product business operations, an increase in sales in Asia and North America resulted in Group unit sales of 1.177 million, an increase of 3.4%.

The consolidated unit sales totals for the respective business areas are as shown.

Please turn to slide 6: financial highlights for the third quarter. Sales revenue totaled JPY3,617.2 billion, a 3.4% increase compared to the same period last year. This was primarily due to a rise in unit sales in automobile business operations, and an increase in financial services business revenues.

Operating profit amounted to JPY163.0 billion, a 22.3% decrease compared to the same period last year. This was primarily due to higher SG&A expenses, including quality-related costs, and the negative ForEx impact of the US dollar valuations against other currencies, 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 4.5%.

Share of profit of investments accounted for using the equity method amounted to JPY45.0 billion.

Profit before income taxes totaled JPY200.8 billion. Profit for the period attributable to the owners of the parent for the quarter was JPY124.1 billion.

EPS for the quarter totaled JPY68.91.

ForEx for the quarter was JPY122 to $1, with the yen JPY7 weaker than one year earlier.

Please turn to the next slide: financial highlights for the nine-month period of fiscal 2016. Honda Group unit sales for the fiscal nine months were as follows: motorcycle business operations, 12.882 million units; automobile business operations, 3.514 million units; power product business operations, 4.010 million units.

Sales revenue was JPY10,943.2 billion. Operating profit was JPY567.2 billion. Share of profit of investments accounted for using the equity method amounted to JPY117.6 billion.

Profit before income taxes totaled JPY694.1 billion. Profit for the period attributable to owners of the parent was JPY437.9 billion.

EPS for the fiscal nine months totaled JPY243.01.

Please turn to slide 8: financial forecast for fiscal 2016. Sales revenue was forecast to total JPY14,550 billion, a decrease of JPY50 billion compared to our previous forecast. This reflects the positive impact of currency translation effects on sales due to a weaker yen, as well as a downward revision in the consolidated unit sales forecast.

With respect to operating profit for the current fiscal year, reflecting a decrease in consolidated automobile unit sales, an increase in quality-related costs, the recent exchange rate trends of currencies of emerging countries, and 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. These are all unchanged from our previous forecast.

EPS is forecast to be JPY291.30, also unchanged since our last forecast.

The ForEx assumption for the fourth quarter is JPY115 to $1. The average exchange rate for the fiscal year is JPY120 to $1.

Please turn to slide 9 for information on the dividend. The third 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 third quarter.

In motorcycle business operations, Group unit sales decreased, primarily in Indonesia, China, Brazil and other regions, offsetting an increase in sales in Vietnam and Pakistan and other countries. Total Group unit sales were 4.407 million units, a 3.9% decrease.

Please turn to the next slide. In automobile Group unit sales, increases in unit sales of the XR-V and Vezel models in China, as well as the positive effect of the HR-V introduction in Indonesia, Malaysia and other countries, more than offset a decline in N-WGN and N-BOX unit sales in Japan. This led to a total of 1.228 million units, an increase of 4.6%.

Please turn to slide 13. Next, we would like to review power product Group unit sales for the third quarter. Unit sales of water pumps were higher in Thailand, Indonesia and other countries in Asia.

In North America, an increase in unit sales of portable generators, as well as an increase in sales of OEM engines used for construction-related applications and high-pressure sprayers, led to a total of 1.177 million units, an increase of 3.4%.

For your reference, Honda Group unit sales by business area for the fiscal nine months are highlighted on slide 14: sales revenue and operating profit analysis.

Next, we would like to discuss details of the results for the fiscal third quarter, which ended on December 31; please turn to slide 15.

For the fiscal third quarter, an increase in automobile unit sales, an increase in financial services business revenue and other factors led to sales revenue of JPY3,617.2 billion.

The increases and decreases in sales revenue for the respective business segments, excluding the negative currency effect of JPY2.3 billion are as shown.

For your reference, sales revenue for the fiscal nine-month period is shown on slide 16.

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 third quarter. Profit before income taxes was JPY200.8 billion, a decrease of JPY63.5 billion compared to the same period last year.

Operating profit amounted to JPY163.0 billion, a decrease of JPY46.9 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 JPY22.8 billion.

Regarding cost-down effects, an increase in depreciation costs was more than offset by cost reduction efforts and changes in material costs, resulting in a positive impact of JPY18.5 billion.

An increase in SG&A expenses, including quality-related costs and other factors, had a negative impact of JPY51.6 billion.

An increase in R&D expenses had a negative impact of JPY17.5 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 JPY19.1 billion.

Share of profit of investments accounted for using the equity method resulted in a positive impact of JPY8.3 billion.

Finance income and finance costs resulted in a negative impact of JPY24.9 billion.

Please turn to slide 18. With respect to profit before income taxes for the fiscal nine-month period, an increase in SG&A expenses, including quality-related costs and other factors, more than offset an increase in revenue and model mix, cost reduction efforts and other factors, resulting in a total of JPY694.1 billion, a decrease of JPY4.4 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 negative impact of ForEx translation effects resulted in sales revenue of JPY442.1 billion, a decrease of 6.5%.

Operating profits decreased to JPY49.5 billion, a decrease of 6.6% compared to the same period last year. This was primarily due to the negative impact of ForEx effects and other factors, which more than offset the positive impact of cost reduction efforts and other factors.

The operating margin for the quarter was 11.2%.

Please turn to slide 20 for financial highlights on the automobile business segment for the quarter. Net sales rose to JPY2,684.5 billion, an increase of 2.9%, due to an increase in consolidated automobile unit sales, the positive impact of ForEx fluctuations on sales revenue and other factors.

With respect to operating profit, the positive impact from sales volume 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 impact of ForEx effects and other factors, resulting in a total of JPY69.5 billion, a 36.5% decrease compared to the same period of the previous year.

Operating margin was 2.6%.

Please turn to slide 21. In the power products and other businesses segment, an increase in consolidated unit sales, as well as other factors was more than offset by the negative impact of currency translation effects, leading to sales revenue of JPY82.0 billion, a 4.1% decrease compared to the same period a year earlier.

Operating loss totaled JPY7.4 billion, a worsening of JPY4.7 billion primarily due to expenses associated with other businesses, as well as other factors.

The operating margin was a negative 9.1%.

Please turn to slide 22. In the financial services business segment, the total assets of finance subsidiaries at the end of the third quarter totaled JPY9,431.9 billion.

Sales revenue totaled JPY447.8 billion, a rise of 16.2%, primarily due to the positive impact of a rise in operating lease revenues, an increase in revenue from the sale of returned lease vehicles, and positive currency effects, as well as other factors.

Operating profits totaled JPY51.4 billion, an increase of 2.6%, primarily due to positive currency effects and other factors.

Operating margin was 11.5%.

The fiscal nine-month 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 24.

In Japan, operating profit for the quarter was JPY27.7 billion, a 63.3% decrease compared to the same period a year earlier. This decrease was primarily due to an increase in SG&A expenses, including quality-related costs and other factors.

Operating profit in North America for the quarter amounted to JPY37.9 billion, a decrease of 52.6%, mainly due to an increase in SG&A expenses, including quality-related costs, the negative impact of cross rates between the US dollar and currencies, such as the Canadian dollar and Mexican peso, as well as other factors.

In Europe, operating loss amounted to JPY5.3 billion, a worsening of JPY2.7 billion, mainly due to the negative impact of SG&A expenses, including quality-related costs, the negative impact of currency effects and other factors.

Operating profit in Asia was JPY88.2 billion, an increase of 14.5% 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.

Operating income for other regions, which includes South America, the Near and Middle East, Africa and Oceania, was a negative JPY300 million, a worsening of JPY10.4 billion. 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, nine-month results by geographic region are shown on slide 25.

Please turn to slide 26: share of profits from investments accounted for using the equity method. The share of profits from investments accounted for using the equity method amounted to JPY45.0 billion, an increase of 22.6% compared to the same period a year ago. This increase was primarily due to an increase in unit sales in China and other factors.

Share of profits from investments accounted for using the equity method in Asia totaled JPY39.4 billion, as indicated at the bottom right of the slide.

Please refer to slide 27: capital expenditures. Consolidated capital expenditures for the fiscal nine-month period amounted to JPY463.1 billion, an increase of JP20.1 billion, due to currency translation effects and other factors, despite a reduction in expenditures in the automobile business segment.

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

Please turn to slide 29: 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, 17.190 million units. This is a decrease of 325,000 units compared to our previous forecast and is based on the assumption that an unfavorable market and sales environment persist, especially in Asia and South America.

Automobile business operations, 4.735 million units. This is an increase of 5,000 units from our previous forecast and is based on the assumption that higher sales in China and other regions will more than offset decreased sales in Japan and other regions.

Power product business operations, 5.925 million units. This is a decrease of 20,000 units compared to our previous forecast and assumes lower sales, predominantly in other regions and North America, despite an increase in Asia.

Please turn to slide 30. 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, 10.715 million units; automobile business operations, 3.640 million units; power product business operations, 5.925 million units.

Please turn to slide 31. We would now like to highlight the FY16 consolidate 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 32 to see the profit walk simulation impacting operating profit for FY16 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 JPY118 billion; increase in SG&A expenses, minus JPY114 billion; increase in R&D expenses, minus JPY51 billion; currency effects, minus JPY82 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 33. With respect to our previous forecast, although there is a decrease in consolidated unit sales, there was also a decrease in incentives and other factors. As a result, there is no change in our expectation for revenue and model mix.

Cost reduction is expected to be plus JPY26 billion. Despite efforts to reduce expenses, an increase primarily in quality-related costs is expected to result in an increase of SG&A expenses, leading to our forecast of minus JPY32 billion.

There is no change in our expectation for R&D expenses.

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 Mexican peso as well as other currencies will have a negative effect. Reflecting these assumptions, our forecast for the fiscal year is a JPY6 billion increase compared to our previous announcement.

Please turn to slide 34. 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.

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.