本田技研 (HMC) 2017 Q4 法說會逐字稿

Welcome to the Honda Financial Results audio presentation.

On April 28, 2017, Honda Motor Co.

announced its financial results for the fiscal fourth quarter, which ended on March 31, 2017.

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 U.S. 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.

Please note that the fiscal year 2017 fourth 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 to you some of the recent Honda news topics from the fiscal year.

Global automobile sales exceeded 5 million units, setting a new historical record.

U.S. automobile sales surpassed 1.6 million units, establishing a new all-time sales record.

The fully-remodeled Ridgeline went on sale in June 2016.

The fully-remodeled CR-V was launched in December 2016.

Automobile sales in China surpassed 1.3 million units for the first time, buoyed by strong sales of the CR-V, Vezel, XR-V, Accord and Civic.

In Japan, the Vezel was the top-selling SUV for the third consecutive year.

In addition, the N-BOX Series achieved highest sales in the mini-vehicle segment.

Within motorcycle business operations, Honda's production in India exceeded 5 million units for the first time.

In the area of open innovation and collaboration, significant developments during the fiscal year included the following.

On December 22, Honda and Waymo, an autonomous car developer and independent company under Alphabet Inc., Google's parent company, announced that they entered formal talks about a potential joint research partnership in the U.S. in the area of automated driving.

On January 30, Honda and GM announced the establishment of a joint venture to mass produce hydrogen fuel cell systems, which will be used in future products from each company.

Mass production of the fuel cell systems is expected to begin around 2020.

On March 24, Honda and Hitachi Automotive Systems announced that they had finalized a contract to establish a joint venture company to develop, produce and sell motors for electric vehicles.

Lastly, on February 28, Honda announced the establishment of R&D Center X, which will focus on robotics, mobility systems, energy management and other new value areas.

Next, we would like to review the financial summary for the fiscal year, which ended on March 31, 2017.

Financial summary.

Please refer to Slide 4. Operating profit for the fiscal year was JPY 840.7 billion, a 67% increase compared to the same period last year.

This was primarily due to increased unit sales as a result of the introduction of brand-new or fully-remodeled automobiles, cost reduction efforts, a reduction in quality-related expenses and the positive impact of a 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 unit sales.

With respect to Honda group unit sales, motorcycle business operations realized higher sales in India, Vietnam and other countries, which more than offset declines in Brazil and other countries, resulting in a total of 17,661,000 units or a 3.6% increase compared to the same period last year.

Within automobile business operations, new model introductions, primarily in China and North America, resulted in a total of 5,028,000 units, a 6% increase.

In power product business operations, an increase in sales, primarily in North America and Asia, resulted in group unit sales of 6,121,000 units, an increase of 2.6%.

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

Please turn to Slide 6. Financial highlights for the fiscal year.

Sales revenue totaled JPY 13,999.2 billion, a 4.1% 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 all business operations.

Operating profit amounted to JPY 840.7 billion, a 67% increase.

This was mostly due to cost reduction efforts; a reduction in SG&A expenses, including quality-related expenses; and a pension accounting treatment, which more than offset the negative impact of an increase in R&D expenses, foreign exchange fluctuations and other factors.

The operating margin was 6%.

Share of profit of investments accounted for using the equity method amounted to JPY 164.7 billion.

Profit before income taxes totaled JPY 1,006.9 billion.

Profit for the year attributable to the owners of the parent was JPY 616.5 billion.

EPS for the year totaled JPY 342.1.

ForEx for the year was JPY 108 to the dollar, JPY 12 stronger than a year earlier.

Please turn to Slide 7. The financial forecast for fiscal year 2018.

With respect to our financial forecast for this new fiscal year, we are aiming to achieve the following: sales revenue, JPY 14,200,000,000,000; operating profit, JPY 705 billion; share of profit of investments accounted for using the equity method, JPY 175 billion: profit before income taxes, JPY 875 billion; profit for the year attributable to owners of the parent, JPY 530 billion; the earnings per share forecast is JPY 294.07.

The ForEx assumption for the fiscal year is JPY 105 to the dollar.

Please turn to Slide 8 for information on the dividend.

The record date is March 31, 2017.

The dividend for the fourth quarter is expected to be JPY 24 per common stock as forecasted.

The total dividend for the fiscal year is expected to be JPY 92 per common stock.

Further, the total expected annual dividend for fiscal year 2018 is JPY 96 per common stock, JPY 4 higher than the previous fiscal year.

Please turn to Slide 10.

Financial highlights for the fiscal fourth quarter.

Next, we would like to discuss Honda group unit sales for the fourth quarter.

In motorcycle business operations, group unit sales increased primarily in Pakistan and Vietnam, which more than offset decreases in Indonesia and other countries, leading to total group unit sales of 4,248,000 units, a 1.8% increase.

In automobile business operations, robust sales due to new model introductions, primarily in China and Malaysia, led to total group sales of 1,285,000 units, an increase of 4.6% compared to the same period last year.

In power product business operations, an increase in sales, primarily in North America and Asia, led to group unit sales of 2,218,000 units, an increase of 13.5%.

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

Please turn to Slide 11.

Regarding financial highlights for the fiscal fourth quarter.

An increase in sales revenue, primarily in finance business operations and automobile business operations, resulted in sales revenue of JPY 3,763.4 billion, a 2.9% increase.

In terms of operating profit, cost reduction efforts and a decrease in SG&A expenses, including quality-related costs, along with other factors, more than offset an increase in R&D expenses, the negative impact of ForEx fluctuations and other factors, resulting in a total of JPY 138.1 billion, an increase of JPY 201.9 billion.

Share of profit of investments accounted for using the equity method, JPY 48.5 billion; profit before income taxes, JPY 186.9 billion; profit for the period attributable to owners of the parent, JPY 95.9 billion; EPS for the quarter totaled JPY 53.24.

The ForEx rate for the fourth quarter was JPY 114 to the dollar, JPY 1 higher than a year earlier.

Please turn to Slide 12.

Business segments.

Next, we would like to discuss the fourth quarter results for each business area.

In motorcycle business operations, increases in Honda group unit sales, primarily in Pakistan, Vietnam and Thailand, more than offset declines in North America, Indonesia and other countries, resulting in total group unit sales of 4,248,000 units, a 1.8% increase.

Please turn to Slide 13.

Next, we would like to discuss automobile business operations.

With respect to Honda automobile group unit sales for the fiscal fourth quarter, a decline in sales, primarily in North America, was more than offset by the positive effect of new model introductions in China as well as unit sales increases in Malaysia, Pakistan and other countries, resulting in a total of 1,285,000 units, an increase of 4.6%.

Please turn to Slide 14.

Next, we would like to review the operations of power products and other businesses for the fourth quarter.

Honda group unit sales increased predominantly due to an increase in sales of OEM engines in North America, Europe and Asia, resulting in a total of 2,218,000 units, an increase of 13.5%.

Please turn to Slide 15.

This slide highlights Honda group unit sales by business segment and geographic region for the full fiscal year.

Please turn to Slide 16.

This slide highlights the financial results for the fiscal fourth quarter by business segment.

An increase in finance business revenues and automobile unit sales resulted in sales revenue of JPY 3,763.4 billion for the fiscal fourth quarter.

Excluding the negative impact of JPY 42.8 billion from foreign currency translation effects, the increases and decreases in sales revenue for each business area are as shown.

Sales revenue by business segment for the entire fiscal year are highlighted on Slide 17.

Operating profit analysis.

Next, we would like to explain the positive and negative factors which impacted profit before income taxes for the fourth quarter.

Please turn to Slide 18.

Profit before income taxes for the fiscal fourth quarter totaled JPY 186.9 billion, an increase of JPY 245.6 billion compared to the same period last year.

Operating profit amounted to JPY 138.1 billion, an increase of JPY 201.9 billion compared to the same period last year.

Changes in volume and model mix, et cetera, resulted in a minus JPY 17.2 billion impact.

Cost reduction efforts resulted in a plus JPY 45.4 billion impact.

With regard to SG&A expenses, a decrease in quality-related costs and other factors resulted in a plus JPY 223.9 billion impact.

An increase in R&D expenses had a negative impact of JPY 28 billion.

The impact of currency effects at the operating profit level was a negative JPY 22.2 billion, reflecting yen versus dollar currency fluctuations.

Share of profit of investments accounted for using the equity method resulted in a positive impact of JPY 40.1 billion.

Finance income and finance costs resulted in a positive impact of JPY 3.5 billion.

Please turn to Slide 19.

With respect to profit before income taxes for the fiscal year, the negative impact of currency effects and other factors was more than offset by cost reduction efforts, a decrease in SG&A expenses, including quality-related costs, a pension accounting treatment and other factors, resulting in a total of JPY 1,006.9 billion, an increase of JPY 371.5 billion.

Please turn to the next slide.

Business segments.

Next, we would like to discuss the fourth quarter results for each business area.

In motorcycle business operations, an increase in consolidated unit sales and other factors resulted in sales revenue of JPY 453.7 billion, an increase of 3.8%.

Operating profits increased to JPY 38.1 billion, an increase of 38.1% compared to the same period last year.

This was primarily due to cost reduction efforts and other factors, which more than offset the negative impact of ForEx effects and other factors.

The operating margin for the quarter was 8.4%.

Please turn to Slide 21 for financial highlights on the automobile business segment for the quarter.

Led primarily by an increase in sales in the Asian region, net sales rose to JPY 2,746.7 billion, an increase of 0.9%.

With respect to operating profit, a decrease in revenue associated with the negative impact from sales volume and model mix and a rise in R&D expenses as well as other factors, were more than offset by a decrease in SG&A expenses, including quality-related costs, cost reduction efforts and other factors, resulting in a total of JPY 54.9 billion, an improvement of JPY 169.7 billion compared to the same period of the previous year.

The operating margin for the quarter was 2.0%.

Please turn to Slide 22.

In the power products and other businesses segment, the positive impact of an increase in consolidated unit sales in power product business operations and other factors resulted in sales revenue of JPY 114.8 billion, a 22.6% increase compared to the same period a year earlier.

Operating profit totaled JPY 2.7 billion, an improvement of JPY 17.4 billion, primarily due to a decrease in expenses associated with other businesses as well as other factors.

Operating loss associated with aircraft and aircraft engines, which is included in the other businesses area of power products and other businesses, totaled JPY 12 billion, an improvement of JPY 17.3 billion compared to the same period a year earlier.

Please turn to Slide 23.

In the financial services business segment, the total assets of finance subsidiaries at the end of the fiscal year totaled JPY 9,437,000,000,000.

Sales revenue totaled JPY 521.1 billion, a rise of 13.3%, primarily due to the positive impact of a rise in operating lease revenues, higher revenues from the sale of off-lease vehicles and other factors.

Operating profits totaled JPY 47.7 billion, an increase of 9.6%, primarily due to a rise in profit from higher revenues despite the negative impact of an increase in SG&A expenses and other factors.

Operating margin for the quarter was 9.2%.

The fiscal year 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 25.

In Japan, operating loss for the quarter was JPY 41.8 billion, an improvement of JPY 138.5 billion compared to the same period a year earlier.

This improvement was primarily due to a decrease in SG&A expenses, including quality-related costs and an increase in revenue associated with volume and model mix, which more than offset higher R&D expenses and other factors.

Operating profit in North America for the quarter amounted to JPY 105.5 billion, an increase of 298.9% compared to the same period a year earlier, mainly due to a decrease in SG&A expenses, including quality-related costs as well as the positive effect of cost reduction efforts despite a decrease in revenue associated with a change in volume and model mix.

In Europe, operating profit amounted to JPY 15.4 billion, a decrease of 29.6% compared to a year earlier, due primarily to a decrease in revenue associated with volume and model mix despite a decrease in SG&A expenses, including quality-related costs.

Operating profit in Asia was JPY 67.7 billion, an increase of 3.1% compared to the same period last year, mostly due to the positive impact of cost reduction efforts and a decrease in SG&A expenses, including quality-related costs.

Operating profit for other regions, which includes South America, the Middle East, Africa and Oceania, was JPY 2 billion, an improvement of JPY 21.7 billion compared to the same period last year.

This was primarily due to a decrease in SG&A expenses, including quality-related expenses as well as cost reduction efforts.

For your reference, fiscal year results by geographic region are shown on Slide 26.

Please turn to Slide 27.

Share of profits of investments accounted for using the equity method.

Share of profits of investments accounted for using the equity method amounted to JPY 48.5 billion, an increase of 479% compared to the same period a year ago.

This increase was primarily due to an increase in unit sales in China and the realization of impairment losses on investments for certain affiliated companies in Japan a year earlier.

Share of profits of investments accounted for using the equity method in Asia totaled JPY 43.8 billion, as indicated at the bottom right of the slide.

Please refer to Slide 28.

Capital expenditures.

Consolidated capital expenditures for the fiscal year amounted to JPY 541 billion, a decrease of JPY 106.4 billion, due to a reduction in expenditures in all business operational segments, a decrease in the impact of currency translation 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 30.

Group unit sales forecast.

We would now like to review the unit sales forecast for the 2018 fiscal year for each business operation.

The Honda group unit sales forecast is as follows: motorcycle business operations, 18,770,000 units; automobile business operations, 5,080,000 units; power product business operations, 6,165,000 units.

Please turn to Slide 31.

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, 12,220,000 units; automobile business operations, 3,685,000 units; power product business operations, 6,165,000 units.

Please turn to Slide 32.

We would now like to highlight the 2018 fiscal year consolidated financial forecast.

The forecast for operating profit is JPY 705 billion.

The forecast for profit before income taxes is JPY 875 billion.

Our expectation for profit for the year attributable to owners of the parent is JPY 530 billion.

Please refer to Slide 33 to see the profit walk simulation impacting operating profit before income taxes for fiscal year 2018 versus the previous fiscal year.

The increase and decrease factors are as follows: impact due to change in operating profit, minus JPY 135.7 billion; share of profit of investments accounted for using the equity method, plus JPY 10.2 billion; finance income and finance costs, minus JPY 6.4 billion; profit before income taxes is expected to decrease by JPY 131.9 billion.

Please refer to Slide 34 to see the profit walk simulation impacting operating profit for fiscal year 2018 versus the previous fiscal year.

The increase and decrease factors have been grouped together to enable an easier comparison of business performance.

By setting aside, currency effects minus, JPY 95 billion; impact of pension accounting treatment in fiscal year 2017, minus JPY 84 billion; and considering change factors of revenue, model, mix, et cetera, plus JPY 59.3 billion; cost reduction, et cetera, plus JPY 75 billion; increase in SG&A expenses, minus JPY 37 billion; increase in R&D expenses, minus JPY 54 billion; the forecast is for a rise in operating profit of JPY 43.3 billion.

Please turn to Slide 34.

Finally, we would like to highlight our forecast for capital expenditures, depreciation and R&D expenditures for fiscal 2018.

The forecast for capital expenditures is JPY 530 billion.

The forecast for depreciation and amortization is JPY 450 billion.

The forecast for R&D expenditures is JPY 750 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.