本田技研 (HMC) 2018 Q2 法說會逐字稿

Thank you very much for coming to our financial results meeting despite your busy schedule.

Let us introduce our participants today.

We have Kuraishi Seiji, Executive Vice President and Officer and Director; and we have Takeuchi Kohei, Chief Officer for Business Management and Operations, Senior Managing Director; and we have [Jiro Misugosawa], Manager of Accounting division.

And my name is, Asanuma, Manager of Public Relations, and I will be serving as your facilitator today.

So now we invite Mr. Kuraishi to speak.

Thank you.

To begin with, I would like to explain Honda Motor Company's financial results for the fiscal second year quarter of FY '18.

To begin, I will summarize first half financial results.

Operating profit was JPY 422.1 billion, 14.7% decrease compared to the same period last year.

Excluding ForEx effects, the multidistrict class action litigation settlement and the impact of the pension accounting treatment during the same period last year, robust motorcycle sales, cost reduction efforts and other factors resulted real term profit increase of JPY 53.1 billion.

Profits for the quarter attributable to owners of parent due to a share of profit of investments accounted for using the equity method has increased.

It was JPY 381.3 billion, an 8.4% increase compared to the same period a year ago.

With respect to Honda's group unit sales for the fiscal half year, motorcycle business operations totaled 9,937,000 units.

Automobile business operations totaled 2,559,000 units.

Power products totaled 2,589,000 units.

I would like to speak in more detail about some of our main automobile markets such as Japan, North America and China, as well as motorcycle operations in India.

Beginning with Japan, automobile sales totaled 333,000 units, a 3.6% increase compared to the same period last year.

For the first -- fiscal first half, the N-Box series was the best-selling model in Japan, including registered vehicles.

The new addition, which was launched in September got off to a very strong start generating over 52,000 unit orders in its first month on the market.

Furthermore, starting with the N-Box and then followed by the Shuttle and Stepwgn models, Honda Sensing is offered as standard equipment across all trim levels.

In North America, total market automobile sales results were lower than last year.

However, strong sales of the Civic, HR-V, Acura RDX as well as other models resulted in Honda sales of 866,000 units, which is on par with the same period last year.

Production of the brand new Accord began in September, and according to plan, production of Acura MDX was shifted from Alabama to the East Liberty plant in Ohio, further enhancing Honda's supply network for light truck models.

In China, automobile sales totaled 729,000 units, an 18.9% increase, which is an all-time record for the fiscal first half.

Strong sales of the Civic, UR-V and Avancier models were realized.

And in September, the CR-V Sports Hybrid model was launched.

In addition, Honda announced that it would conduct joint development of EVs for the Chinese market with a local IT company named Neusoft.

Motorcycle sales in India for the first -- fiscal first half totaled 3,146,000 units, an increase of 17.7%.

Sales of the Activa and DIO scooter models were especially strong, elevating sales higher than overall market growth.

Furthermore, the #4 line of the #3 plant was expanded increasing Honda's overall motorcycle production capacity in India to 6,400,000 units.

Next, I would like to highlight some recent topics.

In October, Honda announced that in Japan, it would evolve its automobile production system and capability to further enhance Mono-zukuri, the art of making things.

To do this, automobile production at the Sayama plant and Yorii plant will be consolidated at the Yorii plant.

This is expected to be completed by around fiscal year 2022.

Specifically, Honda will pursue 2 key initiatives to evolve production operations in Japan to accommodate the rapid advance of new technologies, such as electrification and intelligent technologies and to refine these technologies and establish a structure where Japan operations will lead other Honda operations on a global basis.

Within motorcycle operations, cumulative worldwide production of the Super Cub series reached the 100 million unit milestone in October.

Mass production of the Super Cub C 100 started in August 1958.

And in keeping with Honda's principle of producing where the demand is, it is currently produced at 16 production bases in 15 countries.

It has become a big hit in markets around the world and is now sold in over 160 countries.

In September, Honda announced that the company was selected for the first time as a component of the Dow Jones Sustainability World Index.

Honda has also been selected as a component of the Dow Jones Sustainability Asia-Pacific Index for 3 consecutive years.

Next, financial highlights for the fiscal first half are as follows: Sales revenue was JPY 7,489.2 billion.

Operating profit was JPY 422.1 billion.

Share of profit of investments accounted for using the equity method amounted to JPY 135.2 billion.

Profit before income taxes totaled JPY 577.6 billion.

Profit for the period attributable to owners of the parent was JPY 381.3 billion.

EPS for the first half of the fiscal year totaled JPY 211.59.

With respect to our forecast for the current fiscal year, in consideration of the increase in consolidated unit sales in motorcycle operations, the positive impact of foreign exchange fluctuations as well as other factors, we have made the following revisions to our guidance: Sales revenue, JPY 15,050 billion; operating profit, JPY 745 billion, an increase of JPY 20 billion; share of profit of investments accounted for using the equity method, JPY 205 billion; profit before taxes, JPY 955 billion; profit attributable to owners of the parent, JPY 585 billion; EPS to be forecasted to be JPY 326.26.

The ForEx assumption for the fiscal third quarter is JPY 110 to USD 1. The assumption for the fourth quarter is JPY 105 to JPY 1. And average exchange rate for the fiscal year is JPY 109 to USD 1. The annual dividend for fiscal 2018 is expected to be JPY 96 per share of common stock, unchanged from our previous announcement.

The second quarter dividend is JPY 24 per share of common stock.

At the Board of Directors meeting convened today, a resolution was passed to purchase Honda's own shares.

Details of the acquisition of the company's own shares are as follows.

With the goal of improving capital efficiency and implementing a flexible capital strategy, the company will acquire a maximum of 24 million shares of common stock with a maximum amount of the acquisitions up to JPY 90 billion.

The period of acquisition start on November 2, 2017, and end on January 31, 2018, and it will take place in the market.

Next is the changes in dividend policy.

The purpose for change in the company's profit distribution strategy is to improve the capital strategy.

It has changed from to realize the shareholders return ratio of approximately 30%, including dividend payment and share acquisitions.

Two, to realize a returns ratio of approximately 30% with dividend payments alone.

It was changed so the acquisition of the company shares will be conducted in a matter which will realize objectives such as implementing flexible and timely capital strategy.

Changes in shareholder returns are as shown.

Next, I want to invite Kohei Takeuchi, Senior Managing Director and CFO, to explain the details of our financial results.

Let me explain.

First of all, I would like to discuss Honda Group's unit sales for the fiscal second quarter.

In motorcycle business operations, strong sales primarily India, Indonesia and Vietnam resulted in a total group sales of 5,238,000 units, a 15.4% increase compared to the same period a year ago.

In automobile business operations, sales declined in North America.

However, robust sales primarily in China and Japan led to total group sales of 1,292,000 units, an increase of 6.1% compared to the same period last year.

Next is Power Product.

Group unit sales for the second quarter.

Higher sales predominant in North America resulted in a total of 1,258,000 units, an increase of 1.5% year-on-year.

Consolidated unit sales are as shown.

Regarding the profit and loss situation for the fiscal second quarter, an increase in sales revenue in all business operations, the positive impact of ForEx translation effects as well as other factors led to sales revenue of JPY 3,776.1 billion, an increase of 15.7%.

As for operating profit, an increase in revenue related to the positive impact of revenue and model mix.

A decrease in SG&A expenses as well as other positive factors were realized.

However, the negative impact of the multidistrict class action settlement, the reverse effect of pension accounting treatment of the fiscal -- previous fiscal year as well as other factors resulted in operating profit of JPY 152.9 billion, a 32.9% decrease compared to the same period a year ago.

Operating margin was 4.1%.

Share of profit accounted for using the equity method was JPY 82.2 billion.

Profit before tax, JPY 242.6 billion.

Profit for the period attributable to the owners of the parent was JPY 174 billion.

EPS for the quarter totaled JPY 96.55.

The foreign exchange rate for the quarter was JPY 111 to USD 1, JPY 9 weaker than the same period a year earlier.

Next, I would like to touch upon Honda's group unit sales by business segment.

In motorcycle operations, sales totaled 5,238,000 units, a 15.4% increase compared to the same period last year.

This was mostly driven by increased sales in India, Indonesia and Vietnam as well as an increase in North America, due mainly to higher sales of sports motorcycles such as GROM 125 and the introduction of Rebel 500.

In automobile operations.

Honda Group sales totaled 1,292,000 units, a 6.1% increase compared to the same period last year.

This was predominantly due to robust sales of models such as Civic, Avancier in China and Freed and N-Box in Japan, which more than offset a decrease in sales of sedan models in North America.

In Power Products business operations, group sales totaled 1,258,000 units, a 1.5% increase compared to the same period last year.

This was mainly due to an increase in portable generator sales in North America, which more than offset the decrease in sales of engines to OEMs in Japan.

Cumulative Honda Group sales by business for the first 6 months of this fiscal year as shown.

The sales revenue for the fiscal second quarter totaled JPY 3,776.1 billion.

This was primarily due to increases in sales in each business segment as well as positive ForEx translation effect.

Sales revenue for each business segment, excluding ForEx translation effect of plus JPY 265 billion are as shown.

Cumulative sales revenue for the first half of the fiscal year is as shown.

And next, I would like to explain the positive and negative factors that impacted profit before income taxes for the second quarter.

Profit before income taxes was JPY 242.6 billion, a decrease of JPY 27.9 billion compared to the same period last year.

Operating profit amounted to JPY 152.9 billion, a decrease of JPY 75.1 billion on a year-on-year basis.

The increase and decrease factors are as follows.

With respect to sales revenue and model mix, and despite an increase in incentive expenses and other factors, a change in revenue associated with sales volume and our model mix generated a positive impact worth JPY 23.2 billion.

Cost reduction efforts in total had a positive impact of JPY 11.4 billion despite cost reduction, but negative impact from changes in raw material cost.

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A decrease in SG&A expenses had a positive impact of JPY 21.4 billion.

An increase in R&D expenses had a negative impact of JPY 16.1 billion.

At the operating profit level, currency effects generated a positive impact of JPY 22.6 billion.

Furthermore, pension accounting treatment, which was booked last year, produced a reversal effect this year amounting to minus JPY 84.0 billion.

A class action settlement had a negative impact of JPY 53.7 billion.

Share of profit of investments accounted for using the equity method generated a positive impact of JPY 42.4 billion.

And finance income and finance cost had a positive impact of JPY 4.7 billion.

Profit before income taxes for the fiscal first half includes the negative impact caused by the reversal effect of the pension accounting treatment booked last year as well as the negative impact resulting from the settlement of the class action.

However, these were more than offset by the positive impact of an increase in share of profit of investments accounted for using the equity method as well as by the positive impact from volume and model mix.

As a result, profit before income taxes came to JPY 577.6 billion, an increase of JPY 18.5 billion year-on-year.

Next, we'd like to discuss the second quarter results of each of the business areas.

In the motorcycle business operations, an increase in consolidated unit sales helped to generate sales revenue of JPY 510.1 billion, an increase of 24.6% compared to the same period last year.

Operating profit increased to JPY 68.5 billion, which was an improvement of 15.1% year-on-year.

This was primarily due to the increase in the income-related sales volume and model mix and operating margin for the quarter that was 13.4%.

Regarding the automotive and business segment for the quarter, our sales revenue totaled JPY 2,693.0 billion, an increase of 13.3% compared to the same period last year.

This was primarily due to an increase in consolidated unit sales as well as the positive effect of ForEx translation.

With respect to operating profit, despite SG&A expenses coming down, this was not enough to offset the negative impact of the reversal effect relating to pension accounting treatment last year as well as the negative impact caused by the class action settlement.

Consequently, we posted operating profit of JPY 39.2 billion, a 70.2% decrease compared to the same period last year.

Operating margin was 1.5%.

In the Power Products and other business segment, the increase in consolidated unit sales enabled us to post sales revenue of JPY 87.8 billion, a 19.3% increase year-on-year.

Operating loss totaled JPY 2.0 billion, dropping by JPY 1.0 billion compared to the same period last year.

This was due to the inclusion of the reversal effect relating to the pension accounting treatment introduced last year as well as other factors.

Operating losses from aircraft and aircraft engine business operations, which are included in the Power Products and other businesses segment, totaled JPY 13.6 billion, a decrease of JPY 3.0 billion compared to the same period last year.

In the financial services businesses segment, the total assets of financial subsidiaries at the end of the second quarter totaled JPY 9,688.7 billion.

Sales revenue totaled JPY 539.5 billion, an increase of 20.9%, primarily due to a rise in operating lease revenue.

Operating profits totaled JPY 47.2 billion, an increase of 25.1% year-on-year.

This was primarily due to a rise in profits associated with an increase in revenue despite accruals for credit losses increasing during the period.

Operating margin was 8.8%.

The cumulative fiscal first half results of each of the different segments are as shown.

Share of profits of investments accounted for using the equity method amounted to JPY 82.2 billion, an increase of 106.4% compared to the same period last year.

This was primarily due to an increase in unit sales in China as well as reversal of impairment loss.

Share of profits of investments accounted for using the equity method in Asia totaled JPY 57.9 billion.

Next, I would like to talk about capital expenditures.

Capital expenditures for the fiscal first half amounted to JPY 204.2 billion, an increase of JPY 10.1 billion year-on-year.

This was primarily due to ForEx translation effects.

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

Next, I would like to explain the forecast for the consolidated result for the fiscal year 2018 with regards to business operation.

The Honda Group unit sales forecast was as follows: Motorcycle business operation, 19,180,000 units.

This was an increase of 410,000 units compared to our previous forecast; automotive business operations, 5,130,000 units.

This increase reflects an increase of 50,000 units mainly in China.

Power Product business operations, 6,165,000 units.

This remains unchanged from our previous forecast.

With respect to consolidated unit sales, changes in sales units have been reflected in the forecast of each business segment and the numbers are as follows: The motorcycle business operations 12,620,000 units; automotive business operations, 3,690,000 units.

Next, I would like to explain are the details of financial year 2018 full year consolidated financial forecast, which Mr. Kuraishi, our Executive Vice President, mentioned earlier.

Forecast for operating profit is JPY 745 billion; and forecast for profit before income taxes is JPY 955 billion.

And our expectation for profit for the year attributable to owners of the parent is JPY 585 billion.

Next, I'd like to explain the changes impacting operating profit before income taxes for the fiscal year 2018 compared to the previous fiscal year.

The increases and decreases are shown as follows: The revenue and model mix, plus JPY 89 billion; cost reduction, et cetera, plus JPY 75 billion; increases in SG&A expenses, minus JPY 57 billion; increase in R&D expenses, minus JPY 54 billion; currency effects, minus JPY 11 billion; reversal effect of pension accounting treatment booked in the same period last year, minus JPY 84 billion; class action settlement, minus JPY 53.7 billion; share of profit of investments accounted for using the equity method, plus JPY 40.2 billion; finance income and finance cost, plus JPY 3.5 billion.

If one looks at the operating profit by rearranging the increase and decrease factors whereby we exclude ForEx effect and the pension accounting treatment from last fiscal year's results and compare it to the fiscal year 2018 forecast after removing the impact of the class action settlement, we are expecting, an increase of JPY 53 billion.

In comparison to our previous forecast, our assumptions are as follows: Revenue and model mix, plus JPY 29.7 billion; an increase in SG&A expense, minus JPY 20 billion; ForEx effect at the operating profit level, plus JPY 64 billion; class action settlement, minus JPY 53.7 billion; impact from share of profit of investments accounted for using the equity method, plus JPY 25 billion; finance income and financial cost, plus JPY 10 billion.

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

The forecast for capital expenditure is JPY 505 billion, a decrease of JPY 25 billion.

The forecast for depreciation and amortization is JPY 465 billion, an increase of JPY 15 billion.

The forecast for R&D expenditures is unchanged at JPY 750 billion.

This concludes my financial results presentation.

Thank you very much for your attention.

So now we would like to take questions from the floor.

If you have a question, please raise your hand.

We will bring the microphone over.

Please give us your name and your association.

Thank you.

My name is [Hoshi] from Nikkei.

Two questions.

First question, your summary on April-September.

And then second question is with regards to your dividend policy changes.

First question.

So your pension accounting treatment no longer impacting.

Also you have no impacts from the litigation settlement as well.

So what is your pure net result of April, September result.

Especially in the case of July, September, the automobile operating margin is 1.5%.

And if you look at by geography, North America is in the losses.

So how do you perceive this?

And also motorcycle, why is it it's recovering so much?

In the full year, it will be your driver.

So please give us a background as to the reason why motorcycle is recovering.

So then should I ask for the second question?

Okay then.

My second question is regarded to the changes in dividend policy.

So the market from before has always requested buybacks of the shares.

This was the focus for the management.

And now, what is the reason for why you've decided to change your timing of returns to the shareholders?

You have decided to have set up a limit of JPY 90 billion.

What is the grounds for that?

And you said that you will flexibly as needed do buybacks.

But what is your target cash position?

Do you have any?

That is all for me.

So then a summary of the first half.

So as I have just explained, in the previous year, we had the pension accounting treatment, which was JPY 84 billion oneoff expense.

And then we had to pay the settlement for the class action suit.

So those are the main reasons for losses.

But if you exclude ForEx impact, then the actual is improvement of JPY 53.1 billion in profit improvement.

Year-on-year, if you exclude the pension and litigation settlement, in all businesses and all regions, we have been able to realize increase in profit.

Now the reason for poor performance in automobile between April and September.

Because in the United States, we had a switched in our course, so we did have inventory adjustment of 25,000 units.

This is the biggest reason.

But in principle, we are in line with plan.

In fact, the sales of Accord is better than our plan.

There's been a nice switch to the new model.

So the second half, we have strong performance of motorcycle in Asia.

And in China, automobile.

And in United States, Americas, we have a new Accord in the second half, we have CR-V, which will come into full effect.

And we have done allocation adjustment, and we are trying to build a structure where we can produce light trucks.

So this will all become effective.

So including full model changes, we believe that we can improve demand.

And the reason for good motorcycle performance is Asia, especially India, is extremely good.

So that is one reason.

The other is Vietnam, where profitability is good.

Vietnam performance is strong.

So these are the 2 reasons for the great recovery -- strong recovery.

As for India, a new plant has started.

So now production capacity has reached 6.4 million.

So we believe we can continue to keep the strong performance.

And whether it's India or Vietnam or Indonesia, scooters which are highly profitable are growing, so that's the reason.

And the second question with regards to the changes in dividend policy and buybacks.

In principle, we have from the past believed that the most important management agenda is the return to the shareholders.

And the cash on hand, we have about JPY 2 trillion -- JPY 2.2 trillion on the surface.

And we have on the net basis JPY 1.6 trillion.

So we gained earnings for the future, CapEx for the future, expenditures and R&D.

When you take those things into consideration, we need to improve efficiency of capital structure, and we need to implement capital strategy.

So why will we continue to do this?

Well, we will continue to pursue capital efficiency.

And if it's necessary to acquire back, repurchase our shares, we will continue to do this.

Now the net JPY 1.6 trillion is a comfortable number.

Is that your sort of target?

Well, the cash on hand right now.

So let's say if there's some contingency, how much money do we need to have?

That we need to about 1 month turnover, which is about JPY 1.3 trillion, we should be able to deal with.

And also, we have to look at cash flows for the future.

So that's why -- those are the reasons why we determine on this amount.

So next person please, the person in the front row.

[Kimura] from Asahi (inaudible).

I have 2 questions, too.

With regards to FX, the impact of the currency pushed up profit.

So your thoughts about the currency.

What are your views in the second half of the year?

That's the first point.

And the second question is that, you talked about the United States, but all other regions are in the first half, I think, you said that the other profits have improved.

But as we go into the second half of the year, is there any risks or concerns both for Japan and international markets?

And for the currency, let me respond.

The currency trend, if we look at the most -- our recent situation, the general election in Japan have concluded and the LDP has ended up winning.

And so I don't think there is going to be a significant changes in policies.

In the case of United States, given the current situation, there may be an expectation for interest rates this year.

So as for the third quarter, we expect the current -- the exchange rate to continue.

And so JPY 110, so that's our forecast on somewhat a conservative basis.

But in the new year, there are some uncertainties.

So we have maintained JPY 105.

And so that's the basis upon which we have decided on the forecast for our FX rate in the second half of the year.

Now for the automobiles.

In the first half, for Honda, it was 105%.

And China, South America, these markets on a year-on-year basis, and also Japan and Asia, too, they are quite high on the year-on-year basis and it's North America and Europe where we see the numbers falling on a year-on-year basis.

But as compared to the plan, we are more or less are progressing in what is planned both in North America and Europe.

And so we decided 10,000 units in Japan, 40,000 units in China.

So that's an amount that we have adjusted upward on this location compared to the previous forecast.

And the target is the 5.2 million units in total.

So overall, the situation is quite strong.

So looking into the future, South America and Asia and Indonesia, there are some political issues still in certain areas.

But overall, we are seeing things progress more or less in line with the plans.

So I don't foresee a significant risk at this point in time.

Does that answer your question?

Next question please.

[Nakashima] from Kyoto Press.

With regards to Kobe steel and data alterations issue.

So in your -- you have said -- announced Honda's hood for its supply that you do not have any problems.

What is your research situation with regards to other suppliers?

And if there's a replacement, are you going to ask Kobe to cover the cost or are you planning to review, change your relationship with Kobe going forward?

So with regards to Kobe Steel, so what we have received as a report from Kobe on data alterations is only aluminum.

Door and hoods of automobile that's where they supplied.

But according to internal verification both in terms of safety and performance, it fulfills all the criteria, we haven't been able to verify that.

With regards to the production, aluminum materials, we will only use what we verify internally and where it qualifies.

So suppliers, these are components, parts suppliers.

Kobe Steel supplies to the suppliers, and they are the components that we use, materials that we use.

And among which are supplied by Kobe Steel, which is considered to have data altered include aluminum plate, aluminum cast products, steel powder and copper strip.

It is used in motorcycles, automobile and aircraft.

It's used in a wide range of products.

And we are actually verifying the impact.

But our suppliers have told us that they have checked the quality and so far there are no problems.

But in any case, we will only use what the suppliers have confirmed, including safety.

And we only use that for protection.

In any case, we are currently confirming the safety, and we will only use and produce with what the suppliers have confirmed.

At this point in time, we do not see any phenomena where we will be -- we will need to recall, do recalls.

But if recalls are necessary, we will deal with it accordingly.

But at this point in time, we don't have any concerns for recalls.

With regard to that, what about vendor relationship with Kobe steel in the future?

Are you planning to change that?

Not at this point in time.

But we will all follow our procurement rules, which looks at both cost and quality.

And also, you mentioned about aircraft.

It's used in HondaJet?

Yes.

So you mean where the data altered materials has been used?

Yes, partially.

But we have already verified the safety.

We have already filed to the U.S. authority.

And since it's not problematic, they have accepted it.

So with regards to basic safety, there's no issue.

Which component is it used in?

I do not know the detail.

I think it's used as components of various parts.

Anyone else?

Yes, the person in the second row from the front.

My name is [Okamara] from Automotive News.

I would like to ask about incentive.

The increases in incentive was one of the reasons that the profit had come down.

Now how big was this?

And right now, what the current levels of incentives?

With regards to your questions on the incentive, in the fourth quarter, or if I may actually make the comparison on a quarter-to-quarter basis, the second quarter to second quarter.

The second quarter, we were trying to sell out on the Accord and the previous model in the United States.

So we are spending somewhat of an incentive.

And so we are spending about JPY 15 billion more in the 3 months in comparison to the second quarter last year.

So this is on year-on-year basis.

And what's the level right now?

On an average?

It's probably at the lowest level in the industry.

Probably slightly less than $2,000, that's the level.

Is that okay?

Next question.

My name is Sean McLain from Wall Street Journal.

In this September, you launched Civic in Japan.

And I have a question about sales result.

Can you give us the number and the result?

How is it compared to your forecast?

How successful are you?

So that's my first question.

The second question, with regards to Honda Sensing.

The performance of Honda Sensing has improved.

That's what I have been told.

So I would like to know more about that.

And through that, what is the -- have you seen any changes in customers' impressions on Honda Sensing?

First of all, with regards to the sales situation of Civic, is that your question?

Yes.

With regards to orders, we have received about 12,000 units so far.

This is more than our expectations.

I believe customers are appreciating it.

In particularly, 5-door (inaudible), we are very sorry but we're very tight on supply.

We're making customers wait.

How much were you assuming initially in your plan?

Monthly sales, we were planning 2,000 units.

So this is equivalent to 6 months -- 5, 6 months.

In Type R, and what's the other popular?

Hatchback 5-door, that's popular.

So sedan will be after January.

Hatchback, next April.

Type R will be the summer time.

That's the situation today.

And we are trying to accelerate that as much as possible.

So we're asking production to accelerate it.

And what about Honda Sensing?

Honda Sensing is -- has been equipped and boxed.

It's a standard equipment in which in terms of MTOC basis, it's actually moving in the direction we did not assume.

So in many ways, it's been -- it's a standard equipment in the other models as well, but we're now falling short in our supply.

And in the beginning, it seems as though there were many customers who said it's too expensive, they don't want anything too expensive.

But I think when we see a lot of different accidents occurring, customers themselves are becoming more conscious of safety.

And I think that's the reason why there's a stronger demand for Honda Sensing.

So we believe that we hope we can continue to equip Honda sensing on a standard basis.

The lady in the front row.

My name is [Morikawa] from Toyo Keizai.

And you made the adjustment again after the second quarter and following the first quarter.

Now is this because of the China being very strong that you have been adjusting the forecast?

What's the current situation in China, and do you expect this momentum to maintain in the second quarter -- sorry, the second half of the year as well as the next year?

And overall, there seems to be some gap between the first half and the second half of the year, as for the earnings, and you had the class action settlement impact which is a more or less onetime.

So will this have some impact as well?

And also with regards to the aircraft, the business unit, when do you expect to break even for that?

First, let me respond to the situation in China.

Civic, Accord, CR-V, these are core models.

And they are performing quite strongly right now.

And SUVs, that's also are performing quite well.

And at this point in time, we have not been able to keep up with the demand as far as production is concerned.

And the Dongfeng Honda in particular, we're currently making preparation for #3 -- plan #3.

But we have not been able to keep up.

And we're actually running the plant with a special shift in wheels of (inaudible).

So we are expecting the unit and the sales to continue to pick up.

But we are unable to manufacture more.

So second half of the year, we expect the strong situation to maintain.

But we can't actually increase the number significantly because of the constraints from the production perspective.

And on this location, we have increased the forecast by 40,000 units.

And we are currently thinking 1.39 million units.

So the gap between the first and second half of the fiscal year.

And apologize that we always have this gap.

But based on our view right now, as I've said before, we had the class action settlement loss of JPY 53.7 billion in the first half of the year, which will disappear in the second half of the year.

That will be a gain.

So the FX assumption for the first half of the year was JPY 111.

In the second half of the year, JPY 110 and JPY 105 will give an average of JPY 107.5 and that will have negative impact of about JPY 50 billion.

So that will offset.

And in the second half of the year, we'll reduce cost more.

We expect to see more units sold for the automobiles.

And we also expect the incentive to be lower in the second half of the year versus the first half of the year because we will sell out the (inaudible) 2017 Accord in United States.

So that will be a positive impact.

But if we actually look at the difference between the full year and the first half of the year is as I've said, and the SG&A and R&D expenses, that will create a gap of about JPY 200 billion.

And if we actually offset by the JPY 90 billion to JPY 100 billion related to the cost reductions, so the remaining gap will be about JPY 100 billion.

And the timing of the expense occurring tend to be different between the first and the second half of the year for R&D expenses and expenses.

But we normally end up with a gap of this level.

So based on the current level, we are seeing about JPY 100 billion gap between the first and second half of the year.

And for Jet, as we say always, the aircraft business itself is different from the motorcycle, automobile business where we need to recuperate the investment over long term.

The delivery to the market of the aircraft, once this makes a strong progress and once we supply a lot, then we'll try to achieve breakeven inclusive of after-service and parts sales and things like that.

Apart from that, we are trying to improve the production efficiency, improving the assembly.

And so the amount of losses that we're making will be reduced.

But it will take a little bit more before we can break even.

We need to see more aircraft delivered before we get there.

At this point in time, we are delivering about 4 aircraft per month.

And we need to increase this to about 6 or 7 aircraft per month.

And once we are able to -- those are levels that it will lead to enabling us to achieve breakeven.

But it is a fact that the amount of losses are being decreased continuously.

And as you know in the first half of the year, we achieved the #1 sales in the class.

And the sales channel, we have been expanding that, including Asia and China.

It's a very well received aircraft.

And so we are continuing to target an expansion of sales.

So this would be the last question.

[Hayakawa] from NHK.

With regards to Kobe Steel related to the earlier question.

You said that you are not considering recalls so far.

But I guess, there must be some cost on the investigations you have done so far.

So are you planning to charge that to Kobe Steel?

I do not know exactly how much cost that has occurred.

So I am not able to say at this point in time whether we are going to charge to Kobe Steel or not.

Does that mean that you are going to consider charging against them?

I need to verify that internally including that question as well.

I guess, there's a little more time.

So next question.

Final question.

Yes.

The person at the front there please.

[Furuka] from (inaudible).

And it's related to the China and production is going well and you will reach until 1.39 million units.

But the regulation to be implemented from 2019, what you would do with regards to the production of electric vehicles.

How are you going to achieve that?

Are you going to purchase credits from others?

Can you share with us your thoughts?

Well, that law has been delayed by a year.

And next year, we don't need credits.

But in any case, next year, in China, we will launch the electrified vehicle.

That will be used as a credit in 1 sense.

And going into the future, how to expand sales of the electrified vehicle will become one of the keys.

And so the electrified vehicle we will be launching next year, the most important is for us to obtain the understanding of customers with regards to the vehicle.

So with this, I would like to conclude this -- the presentation meeting.

Thank you.