本田技研 (HMC) 2017 Q2 法說會逐字稿

FY17 second-quarter financial results. Welcome to the Honda financial results audio presentation.

On October 31, 2016, Honda Motor Company announced its financial results for the fiscal second quarter, which ended on September 30, 2016. 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 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 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.

Please note that the FY17 second-quarter results are based on international financial reporting standards, or IFRS.

Please turn to slide 3; news topics. To begin, we would like to introduce you to some of the recent news topics. The fully remodeled Freed and a new derivative model called the Freed+ were introduced in Japan in September.

The models proved to be a big hit, with accumulated orders totally 27,000 units in the first month following the launch.

The hybrid motor, which is unique to the Freed, adopts the world's first hybrid vehicle motor magnet, free of heavy rare earth elements.

The fully remodeled Civic hatchback was launched in North America in September. This model is produced at Honda's Swindon plant in the UK and exported to the US.

A brand new Acura model, named the CDX was launched in China in July. This is the first Acura model to be produced locally in China. In Japan, production at the Kumamoto plant resumed normal production utilization in September, following recovery efforts from the earthquake.

On October 5, it was announced that Honda and Yamaha Motor Company Limited have begun discussions toward a possible business alliance in the Japanese market, in the Class 1 category, which includes scooters with a 50 cc engine or electric motor.

Next, we would now like to review the financial summary for the fiscal first half, which ended on September 30, 2016.

Financial summary; please refer to slide 4. Operating profit for the first half was JPY494.9 billion, a 22.5% increase compared to the same period last year.

This was primarily due to the positive impact from the introduction of brand new and fully remodeled automobiles.

Cost-reduction efforts: a reduction in quality related expenses and the impact of pension accounting treatment, despite negative ForEx effects due to the appreciation of the yen and other factors.

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 India and other countries, which more than offset declines in Indonesia, Brazil and other countries, resulting in a total of 4,538,000 units or a 3.8% increase compared to the same period last year.

Within automobile business operations, an increase in sales, primarily in China, resulted in a total of 1,218,000 units, a 6.9% increase.

In power product business operations, a decrease in sales, primarily in Japan, resulted in Group unit sales of 1,240,000, a decrease of 2.7%.

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

Please turn to slide 6; financial highlights for the second quarter. Sales revenue totaled JPY3,362.9 billion, a 9.9% decrease compared to the same period last year.

This was primarily due to the negative impact of foreign exchange fluctuations and other factors, despite an increase in sales in automobile, financial services and motorcycle business operations.

Operating profit amounted to JPY228 billion, a 38.4% increase. This was mostly due to cost-reduction efforts, a reduction in SG&A expenses, including quality related expenses and the impact of pension accounting treatment, which more than offset the negative impact of foreign exchange fluctuations and other factors.

The operating margin was 7.0%. Share of profit of investments, accounted for using the equity method, amounted to JPY39.8 billion.

Profit before income taxes totaled JPY270.5 billion. Profit for the period attributable to the owners of the parent for the quarter was JPY177 billion.

EPS for the quarter totaled JPY98.26.

ForEx for the quarter was JPY102 to $1, JPY20 stronger than a year earlier.

Please turn to the next slide; financial highlights for the first half of FY17. Honda Group unit sales for the first half of the fiscal year were as follows: motorcycle business operations, 8,890,000 units; automobile business operations, 2,431,000 units; power product business operations, 2,728,000 units.

Sales revenue was JPY6,734.6 billion.

Operating profit was JPY494.9 billion. Share of profit of investments accounted for using the equity method amounted to JPY67 billion.

Profit before income taxes totaled JPY559 billion. Profit for the period attributable to owners of the parent was JPY351.7 billion.

EPS for the first half of the fiscal year totaled JPY195.19.

Please turn to slide 8; financial forecast for FY17. With respect to our forecast for the current fiscal year, in consideration of cost-reduction efforts, the positive impact of pension accounting treatment and other factors, despite the negative impact of foreign exchange fluctuations, we have made the following revisions to our guidance.

Sales revenue, JPY13,400 billion. Operating profit, JPY650 billion. Share of profit of investments accounted for using the equity method, JPY140 billion. Profit before income taxes, JPY770 billion. Profit for the year attributable to owners of the parent, JPY415 billion.

EPS is forecast to be JPY230.26. ForEx assumption for the second half is JPY100 to $1. The average exchange rate for the fiscal year is JPY103 to $1.

Please turn to slide 9 for information on the dividend. The annual dividend for FY17 is expected to be JPY88 per share of common stock, unchanged from our previous announcement on August 2, 2016.

The second-quarter dividend is JPY22 per share of common stock, unchanged from our previous announcement.

Please turn to slide 11; 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 Brazil, but the positive impact of robust sales of scooters in India, as well as strong sales primarily in Thailand, Vietnam and the Philippines, led to total Group unit sales of 4,538,000 units, a 3.8% increase.

Please turn to the next slide. In automobile business operations, robust sales, primarily in China, led to total Group sales of 1,218,000 units, an increase of 6.9% compared to the same period last year.

Please turn to the next slide. Next, we would like to review power product group unit sales for the second quarter. Lower OEM engine unit sales in Japan and North America resulted in a total of 1,240,000 units, a decrease of 2.7%.

For your reference, Honda Group unit sales for the first half of this fiscal year by business area are highlighted on slide 14.

Sales revenue and operating profit analysis; next, we would like to discuss details of sales revenue and operating profit for the fiscal second quarter which ended on September 30. Please turn to slide 15.

For the fiscal second quarter, an increase in automobile, financial services and motorcycle business revenue was realized. However the negative impact of ForEx translation, in addition to other factors, led to sales revenue of JPY3,262.9 billion.

The increases and decreases in sales revenue for the respective business segments, excluding the negative ForEx translation effect of JPY542.8 billion, are as shown.

For your reference, sales revenue for the fiscal first half 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 second quarter.

Profit before income taxes was JPY270.5 billion, an increase of JPY59.6 billion compared to the same period last year. Operating profit amounted to JPY228 billion, an increase of JPY63.2 billion compared to the same period last year.

With respect to sales revenue and model mix, the change in sales volume and model mix resulted in a positive impact of JPY15.7 billion.

Regarding cost-reduction effects, cost-reduction efforts and changes in raw material costs resulted in a positive impact of JPY55.3 billion.

With respect to SG&A expenses, lower quality related costs, as well as other factors, had a positive impact of JPY22.2 billion. An increase in R&D expenses had a negative impact of JPY11.8 billion.

At the operating income level, the negative effect of the yen versus US dollar exchange rate was further exacerbated by the negative impact of currency effects of the yen versus a number of Asian country currencies, resulting in a negative impact of JPY102.2 billion.

The impact of pension accounting treatment was a positive JPY84 billion. The pension accounting treatment reflects the impact of a reduction in the amount of debt that the Company needs to recognize at this time due to an extension of the retirement age, which results in a more gradual severance payment curve.

Share of profit of investments accounted for using the equity method resulted in a positive impact of JPY5.6 billion.

Finance income and finance costs resulted in a negative impact of JPY 9.2 billion.

Please turn to slide 18. With respect to profit before income taxes for the fiscal first half, negative ForEx currency effects and other factors were more than offset by cost-reduction efforts, a decrease in SG&A expenses, including quality-related costs, the impact of pension accounting treatment and other factors, resulting in a total of JPY559.0 billion, an increase of JPY65.7 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, the positive impact of an increase in consolidated unit sales was more than offset by the negative impact of ForEx translation effects, resulting in sales revenue of JPY409.3 billion, a decrease of 9.7% compared to the same period last year.

Operating profits increased to JPY59.5 billion, an increase of 21.3% 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 14.5%.

Please turn to the next slide for financial highlights on the automobile business segment for the quarter. Net sales totaled JPY2,377.4 billion, a decrease of 10.5% compared to the same period last year, primarily due to the negative impact of ForEx translation effects.

With respect to operating profit, the negative impact of ForEx effects and other factors was more than offset by cost-reduction efforts and other factors, resulting in a total of JPY131.8 billion, a 94.5% increase compared to the same period of the previous year.

Operating margin was 5.5%.

Please turn to slide 21. In the power products and other businesses segment, a negative impact from ForEx translation effects as well as other factors led to sales revenue of JPY73.5 billion, a 16.7% decrease compared to the same period a year earlier.

Operating loss totaled JPY1.0 billion, an improvement of JPY2.8 billion compared to the same period last year, primarily due to a decrease in SG&A expenses.

Operating loss for aircraft and aircraft engine business operations, which are included in the power products and other businesses segment, totaled JPY10.6 billion, an improvement of JPY1.7 billion compared to the same period a year ago.

Please turn to slide 22. In the financial services business segment, the total assets of finance subsidiaries at the end of the second quarter totaled JPY8,440.3 billion.

Sales revenue totaled JPY446.3 billion, a decline of 4.0%, primarily due to the negative impact of ForEx translation effects, which more than offset the positive impact of a rise in operating lease revenues, an increase in revenue from the sale of returned lease vehicles, as well as other factors.

Operating profits totaled JPY37.7 billion, a decrease of 27.2% compared to the same period a year earlier. This was primarily due to a rise in SG&A expenses and negative currency effects.

Operating margin was 8.5%.

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 24. In Japan, operating profit for the quarter was JPY85.8 billion. This was primarily due to the positive impact of pension accounting treatment, which more than offset the negative impact of ForEx effects.

Operating profit in North America for the quarter amounted to JPY38.1 billion, an increase of 1.7%, mainly due to an decrease in SG&A expenses, including quality related costs, as well as cost-reduction efforts, which more than offset the negative impact of foreign currency fluctuations.

In Europe, operating profit amounted to JPY100 million, a decline of 96.7% compared to the same period a year ago, mainly due to the negative impact of a change in revenue associated with sales volume and model mix.

Operating profit in Asia was JPY91.2 billion, an increase of 6.1% compared to the same period last year, mostly due to cost-reduction efforts, which more than offset negative ForEx effects.

Operating income for other regions, which includes South America, the Near and Middle East, Africa and Oceania was JPY13.4 billion, an increase of 86.1% compared to the same period last year. The increase was primarily due to cost-reduction efforts, which more than offset negative ForEx efforts, a decrease in revenue associated with sales volume and model mix and other factors.

For your reference, first-half results by geographic region are shown on slide 25.

Please turn to slide 26; share of profits of investments accounted for using the equity method. Share of profits of investments accounted for using the equity method amounted to JPY39.8 billion, an increase of 16.6% compared to the same period a year earlier. This increase was primarily due to an increase in unit sales in China.

Share of profits of investments accounted for using the equity method in Asia totaled JPY36.2 billion, as indicated at the bottom right of the slide.

Please refer to slide 27; capital expenditures. Consolidated capital expenditures for the fiscal first half amounted to JPY194.0 billion, a decrease of JPY89.1 billion. This was primarily due to a reduction in expenditures in each of the business segments and negative ForEx translation effects.

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, 18,270 units; this is a decrease of 90,000 units compared to our previous forecast and reflects the fact that difficult market environments persist in Asia, especially China and South America.

Automobile business operations, 4,980,000 units; this is an increase of 65,000 units from our previous forecast and is primarily due to robust sales in China.

Power product business operations, 6,060,000 units; this remains unchanged from our previous forecast.

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, 11,690,000 units; automobile business operations, 3,705,000 units.

Please turn to slide 31. We would now like to highlight the FY17 consolidated financial forecast. The forecast for operating profit is JPY650 billion. The forecast for profit before income taxes is JPY770 billion. Our expectation for profit for the year attributable to owners of the parent is JPY415 billion.

Please refer to slide 32 to see the profit walk simulation impacting operating profit and profit before income tax for FY17 versus the previous fiscal year.

The increase and decrease factors are as follows: revenue, model mix, etc., plus JPY28.6 billion; cost reduction, etc., plus JPY161 billion; decrease in SG&A expenses, plus JPY303 billion; increase in R&D expenses, minus JPY60 billion; currency effects, minus JPY370 billion; impact of pension accounting treatment, plus JPY84 billion; share of profit of investments accounted for using the equity method, plus JPY13.9 billion; finance income and finance costs, minus JPY26.0 billion.

Please turn to slide 33. In comparison to our previous forecast, our assumptions are as follows: due primarily to an increase in incentive spending, revenue and model mix, minus JPY21 billion; cost-reduction efforts and other factors, plus JPY48 billion; a decrease in SG&A expenses, plus JPY12 billion; an increase in R&D expenses, minus JPY6 billion; at the operating profit level, reflecting the negative ForEx effects due to the appreciation of the yen, minus JPY67 billion; impact of pension accounting treatment, plus JPY84 billion; impact on share of profit of investments accounted for using the equity method, plus JPY10 billion; finance income and finance costs, plus JPY5 billion.

Please turn to slide 34. Finally, we would like to highlight our forecast for capital expenditures, depreciation and R&D expenditures for FY17. The forecast for capital expenditures is JPY560 billion. The forecast for depreciation and amortization is JPY440 billion. The forecast for R&D expenditures is JPY690 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.