本田技研 (HMC) 2018 Q1 法說會逐字稿

2018 First Quarter Financial Results.

Welcome to the Honda Financial Results audio presentation.

On August 1, 2017, Honda Motor Co.

announced its financial results for the fiscal first quarter, which ended on June 30, 2017.

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 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 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 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.

Financial summary.

We would now like to review the financial summary for the fiscal first quarter, which ended on June 30.

Please refer to Slide 3. Fiscal first quarter topics.

To begin, we would like to introduce you to some of the news topics.

In May, Takuma Sato become the first Japanese driver to win the prestigious Indianapolis 500 in the 101st running of the race.

The 250cc class SuperSport CBR250RR was newly introduced, featuring completely new styling as well as new frame and power unit designs.

Over 3,700 orders were received within 3 days of its announcement.

In May, sales of the new Odyssey began in North America.

The new Civic Type R was launched in North America in June.

Its arrival marked the first time that any Honda-badged Type R has been officially sold there.

In July, the sales launch of the direct injection 1.5-liter CR-V Sport Turbo took place in China.

And in September, a 2-motor hybrid CR-V Sport Hybrid model will be launched, completing the dual type lineup.

Automobile sales in China reached 340,000 units in Q1, an all-time record for the fiscal first quarter on robust sales of the highly-acclaimed XR-V, Civic, Accord, Avancier and other models.

In July, the establishment of joint venture company Hitachi Automotive Electric Motor Systems, Ltd., which will develop, manufacture and sell motors for electric vehicles, was announced.

To further accelerate research of artificial intelligence, AI, Honda established a research project with Kyoto University's Graduate School of Informatics in April and initiated a separate project focusing on information security for artificial intelligence with Boston University in May.

This concludes the news topics overview.

Next I would like to review the financial results for the fiscal first quarter.

Please refer to Slide 4. In overview, the fiscal first quarter was negatively impacted by an increase in SG&A expenses and ForEx currency effects.

However, robust motorcycle sales in Asia, cost-reduction efforts and the reverse effect of the impact of the 2016 Kumamoto earthquake on business operations during the same period a year ago resulted in operating profit of JPY 269.2 billion, a 0.9% increase compared to the same period last year.

Please turn to the next slide.

With respect to Honda Group unit sales, motorcycle business operations recorded a decline in unit sales in Indonesia and other markets, but large gains in Asia, especially India and Vietnam, resulted in a total of 4,699,000 units, an increase of 8.0% compared to the same period last year.

Within automobile business operations, robust sales in China as well as higher unit sales in Japan more than offset the decline in North America, leading to a total of 1,267,000 units, a 4.5% increase.

In power product business operations, a decrease in sales, predominantly in North America, resulted in total sales of 1,331,000 units, a decrease of 10.6%.

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

Please turn to Slide 6. Financial highlights for the first quarter.

Sales revenue totaled JPY 3,713.0 billion, a 7.0% increase compared to the same period last year.

This was primarily due to an increase in sales revenue in motorcycle and Financial services business operations as well as the positive impact of foreign currency translation effects.

Operating profits rose to JPY 269.2 billion, a 0.9% increase.

This was mostly due to increased revenue related to the positive impact of revenue and model mix as well as cost-reduction efforts despite an increase in SG&A expenses and other factors.

The operating margin was 7.3%.

Share of profit of investments accounted for using the equity method amounted to JPY 52.9 billion.

Profit before income taxes totaled JPY 335.0 billion.

Profit for the period attributable to owners of the parent for the quarter was JPY 207.3 billion.

EPS for the quarter totaled JPY 115.04.

The average exchange rate for the quarter was JPY 111 to the dollar, JPY 3 weaker than a year earlier.

Please turn to the next slide.

Financial forecast for fiscal year 2018.

With respect to our financial forecast for the current fiscal year, we have reflected the impact of currency effects on our first quarter results and have revised our consolidated results forecast from our previous announcement as follows: sales revenue, JPY 14,500,000,000,000; operating profit, JPY 725 billion; share of profit of investments accounted for using the equity method, JPY 180 billion; profit before income taxes, JPY 900 billion; profit for the year attributable to owners of the parent, JPY 545 billion; earnings per share, JPY 302.39.

The average exchange rate assumption for the second through fourth quarters of this fiscal year is JPY 105 to USD 1. The average exchange rate for the full fiscal year is JPY 107 to USD 1.

Please turn to Slide 8 for information on the dividend.

Unchanged from our previous announcement, the annual dividend for fiscal 2018 is expected to be JPY 96 per common stock.

The first quarter dividend is expected to be JPY 24 per common stock.

Sales revenue and operating profit analysis.

Next, we would like to discuss the results for the fiscal first quarter, which ended on June 30.

Please turn to Slide 10.

Regarding Honda's Group unit sales for the first quarter, a decline in sales in Indonesia and other markets was more than offset by numerous positive factors, including robust scooter model sales, predominantly in India as well as growth in Vietnam and Thailand; the positive impact of the introduction of the new CBR250RR in Japan and the reverse effect of the impact of the 2016 Kumamoto earthquake on business operations during the same period a year ago.

This resulted in a total of 4,699,000 units, an increase of 8.0% compared to the same period of the previous year.

Please refer to the next slide.

Within automobile business operations, higher unit sales were realized mainly in China and India due to the introduction of new models and fully remodeled vehicles.

This more than offset the decrease in North America, predominantly due to a decline in sales of sedan models, resulting in a total of 1,267,000 units, a 4.5% increase.

Please turn to Slide 12.

Group unit sales in power product business operations totaled 1,331,000 units, a decline of 10.6% due to lower OEM engine unit sales in North America, which more than offset an increase in OEM engine unit sales in Europe.

Please turn to Slide 13.

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

Sales revenue totaled JPY 3,713.0 billion, a 7.0% increase compared to the same period last year.

This was primarily due to a rise in sales revenue in motorcycle and financial service business operations as well as the positive impact of foreign currency translation effects.

The increases and decreases in sales revenue for the respective business segments, excluding the positive currency translation effect of JPY 75.3 billion, are as shown in the chart in the center of the slide.

Please turn to Slide 14.

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

Profit before income taxes was JPY 335.0 billion, an increase of JPY 46.5 billion compared to the same period last year.

Operating profits amounted to JPY 269.2 billion, an increase of JPY 2.3 billion.

Now I would like to elaborate on the increase and decrease factors impacting profit before income taxes.

Revenue and model mix resulted in a positive impact of JPY 28.3 billion, which includes the reverse effect of the impact of the 2016 Kumamoto earthquake on business operations a year ago as well as a decrease in incentive spending.

Regarding cost-down effects.

Cost-reduction efforts were negatively impacted by a rise in material costs but still resulted in a positive impact of JPY 19.9 billion.

An increase in SG&A expenses resulted in a negative impact of JPY 27.6 billion.

An increase in R&D expenses had a negative impact of JPY 7.4 billion.

At the operating income level, currency effects had a negative impact of JPY 10.8 billion.

Share of profit of investments accounted for using the equity method resulted in a positive impact of JPY 25.7 billion.

Finance income and finance costs resulted in a positive impact of JPY 18.4 billion.

Business segment.

Please refer to Slide 15.

Next, I would like to discuss the first quarter results for each business area.

In motorcycle business operations, an increase in consolidated unit sales and other factors resulted in total sales revenue of JPY 508.5 billion, a 17.6% increase.

The positive impact of sales volume and model mix, the reverse effect of the impact of the 2016 Kumamoto earthquake during the same period a year earlier as well as other factors resulted in operating profit of JPY 78.8 billion, a 152.7% increase from the same period a year ago.

Operating margin was 15.5%.

Please turn to the next slide.

Next, we would like to discuss automobile business operations.

Sales revenue increased to JPY 2,624.5 billion, an increase of 3.5%, primarily due to a positive impact from currency fluctuations, which more than offset a negative impact from a decrease in consolidated unit sales and other factors.

With respect to operating profits, cost-reduction efforts and lower incentive spending more than offset an increase in SG&A expenses and a negative impact from lower revenue associated with sales volume and model mix, resulting in a total of JPY 140.3 billion, a 23.9% decrease compared to the same period of the previous year.

Operating margin was 5.3%.

Please refer to Slide 17.

In the power products and other businesses segment, an increase in other businesses and other factors resulted in sales revenue of JPY 83.1 billion, an increase of 2.7% compared to the same period last year.

An increase in SG&A expenses and other factors led to operating profits of JPY 100 million, a decrease of JPY 300 million compared to the same period a year ago.

The operating margin was 0.2%.

Operating loss associated with aircraft and aircraft engines, which is included in power products and other businesses, totaled JPY 8.5 billion, an improvement of JPY 200 million compared to the same period a year ago.

Please turn to Slide 18.

In the Financial services business segment, the total assets of finance subsidiaries at the end of the first quarter totaled JPY 9,494.4 billion.

Sales revenue totaled JPY 539.6 billion, an increase of 15.3%, primarily due to the positive impact of a rise in sales of returned leased vehicles and revenue from operating leases and other factors.

Operating profits totaled JPY 49.8 billion, a decrease of 1.4%, mainly due to an increase in SG&A expenses.

Operating margin was 9.2%.

Geographical region.

Please refer to Slide 19.

Next, we would like to review Honda's business results by geographical region for the quarter.

In Japan, the positive impact to revenue and model mix, favorable ForEx effects, the reverse effect of the impact of the 2016 Kumamoto earthquake on business operations during the same period a year ago and other factors resulted in an operating profit for the quarter of JPY 21.5 billion, an increase of JPY 41.3 billion compared to the same period last year.

In North America, a decrease in incentive spending, the positive impact of cost-reduction efforts and other favorable factors were more than offset by lower profit associated with a negative impact on revenue and model mix, an increase in SG&A expenses, including quality-related costs and other factors, resulting in operating profits for the quarter of JPY 101.5 billion, a decrease of 40.7%.

In Europe, operating profits amounted to JPY 6.6 billion, an improvement of JPY 5.4 billion compared to the same period last year.

This was primarily due to higher profit associated with positive impact on revenue and model mix as well as other factors.

Operating profits in Asia totaled JPY 97.8 billion, an increase of 8.3% compared to the same period last year.

This was mostly due to a reduction in SG&A expenses and the positive effect of cost-reduction efforts.

Operating income for other regions, which include South America, Middle East, Africa as well as Oceania, was JPY 14.7 billion, an increase of 2.8%.

This increase was primarily due to higher profit associated with revenue and model mix, which more than offset the negative impact of higher SG&A expenses and other factors.

Please turn to Slide 20.

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 52.9 billion, an increase of 94.5%.

This increase was predominantly due to an increase in unit sales in China as well as the realization of impairment losses on investments for certain affiliated companies in Japan during the same period a year ago.

Share of profits of investments accounted for using the equity method in Asia totaled JPY 46.3 billion, as indicated at the bottom of the slide.

Please refer to Slide 21.

Capital expenditures.

Consolidated capital expenditures for the first quarter amounted to JPY 77.8 billion, a decrease of JPY 23.3 billion compared to the same period a year ago, mainly due to a decrease in automobile business operation expenditures.

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

Please refer to Slide 23.

Financial forecast for fiscal year 2018.

With respect to Honda Group unit sales, there is no change from our previous announcement of: motorcycles, 18.77 million units; automobiles, 5.08 million units; power products, 6.165 million units.

Please turn to the next slide.

As shown in the chart on this slide, there are also no changes being made to our consolidated unit forecast for the fiscal year.

Please turn to Slide 25.

As mentioned earlier, our updated financial forecast for the current fiscal year is as follows: sales revenue, JPY 725 billion (sic) [JPY 14,500 billion]; profit before income taxes, JPY 900 billion; profit for the period attributable to owners of the parent, JPY 545 billion.

The increase and decrease factors for this forecast compared to the results of the previous fiscal year are as follows: revenue and model mix, et cetera, plus JPY 59.3 billion; cost reduction, et cetera, plus JPY 75.0 billion; increase in SG&A expenses, minus JPY 37.0 billion; increase in R&D expenses, minus JPY 54.0 billion; currency effects, minus JPY 75.0 billion; impact of pension plan amendments, minus JPY 84.0 billion; share of profit of investments accounted for using the equity method, plus JPY 15.2 billion; finance income and finance costs, minus JPY 6.4 billion.

Please turn to Slide 27.

In comparison to our previous forecast, our assumptions are as follows: at the operating profit level, currency effects of plus JPY 20 billion; impact on share of profit of investments accounted for using the equity method, plus JPY 5 billion.

Please turn to the next slide.

Finally, we would like to highlight our forecast for capital expenditures, depreciation and amortization and R&D expenditures for fiscal 2018, which are unchanged from our previous forecast.

Capital expenditures, JPY 530 billion; depreciation and amortization, JPY 450 billion; R&D expenditures, JPY 750 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.