本田技研 (HMC) 2018 Q4 法說會逐字稿

(foreign language)

(foreign language)

(foreign language)

(foreign language)

(foreign language)

(foreign language)

Welcome to the Honda Financial Results Presentation for the Fourth Quarter of Fiscal Year 2018. We would like to begin our fiscal year 2018 fourth quarter results presentation.

First, to summarize the initiatives we have pursued during the fiscal year as we look ahead to 2030, in June of last year, Honda announced its 2030 Vision, which outlines the future direction that Honda feels is most important to aim for.

The areas which are key to the fulfillment of our 2030 Vision are creating value for mobility and daily lives. The resolve to create value in these areas is encapsulated in the statement: serve people worldwide with the joy of expanding their life's potential. To achieve this, Honda will aim to lead the advancement of mobility and the improvement of people's daily lives.

Toward the fulfillment of this vision, the most important thing is how we will transform and evolve our existing businesses and also create new value through efficient use of finite corporate resources. We express this concept as growth through the pursuit of quality.

First, to further enhance our capabilities in the area of inter-regional coordination and collaboration, our plant in the U.K. began to serve as the global export base for the Civic hatchback. This has led to an increase in the efficiency of our operations from a global perspective and also improved our plant utilization rate. In the current fiscal year, we will pursue new initiatives, including export of the CR-V from Japan to Europe to further strengthen inter-regional coordination and collaboration.

In terms of our global production infrastructure, a third automobile plant will be newly established at Dongfeng Honda in the first half of 2019 as the utilization rate at our plant in China continues to exceed our current capacity. This addition will further enhance our ability to meet demand as well as strengthen our capabilities to address vehicle electrification.

Further, to further improve plant utilization and production efficiency, vehicle assembly was discontinued at the #1 line in Thailand. In addition, integration of automobile production will take place between the Sayama and Yorii plants in Japan, and finished auto production in Brazil has been shifted to a newly established facility. These are among a number of measures being taken to optimize production allocation and solidify our existing business operations.

In the area of vehicle electrification, which includes hybrid vehicles, we expanded our lineup starting with launch of the Clarity series last year. During the current fiscal year, we will follow up with the launch of the all-new Insight and the expansion of sales of the Accord Hybrid. In addition, the CR-V Hybrid will be launched in Japan and Europe, serving to further strengthen sales as part of our ongoing effort to have electrified vehicles comprise 2/3 of our global sales by 2030.

In motorcycle business operations, increased sales, predominantly in Asia as well as an improvement in profitability in Brazil, led to a rise in earnings. Of particular significance, the startup of the fourth line at the #3 plant in India has led to the expansion of annual production capacity to 6.4 million units. It is expected that scooter sales will continue to be a strong driver of growth in that market, and we will continue our efforts to supply high-quality, attractive products to meet customer needs.

For the current fiscal year, our motorcycle sales plan is for over 20 million unit sales globally.

With respect to collaborative partnerships with third parties, this slide shows the announcements we have made in various business areas. Going forward, we will continue to focus our efforts on core development areas and through our open innovation strategy, proactively seek alliances with outside technology or business partners in the areas of Mono-zukuri, the art of making things to provide even more attractive products and services; and Koto-zukuri, innovative business solutions, to create new experiences with our customers.

We would now like to review the financial summary for fiscal year 2018 and our forecast for fiscal year 2019. Operating profit for fiscal year 2018 was JPY 833.5 billion, a decrease of JPY 7.1 billion compared to last fiscal year. If the impact of negative ForEx effects, the reverse effect of the pension accounting treatment during the same period last year and the negative impact of the multi-district class action litigation settlement and other such factors are excluded, an increase in revenue associated with volume and model mix, cost reduction efforts and other factors would have resulted in a real term improvement of JPY 94.1 billion.

Profit for the period attributable to owners of the parent totaled JPY 1,059.3 billion, an increase of 71.8%, primarily due to an increase in share of profit of investments accounted for using the equity method as well as a JPY 346.1 billion positive impact, resulting from a reduction in the U.S. federal corporate tax rate.

With respect to Honda Group unit sales for the fiscal year, motorcycle business operations totaled 19,554,000 units, automobile business operations totaled 5,199,000 units, power products totaled 6,262,000 units, unit sales for motorcycle, and automobile business operations set all-time records.

At this time, I would like to provide more details about developments in major markets.

In Japan, automobile sales totaled 725,000 units, a 2% increase. The N-BOX series was the top-selling model in Japan for fiscal year 2018. The Legend and Vezel models underwent mid-life cycle minor model changes and were launched in February.

In the U.S. market, Honda achieved sales of 1,639,000 units, virtually unchanged from a year ago. Cumulative automobile production in the U.S. reached the 25 million-unit milestone, and the number of vehicles equipped with Honda Sensing surpassed 1 million units. The Accord Hybrid was launched in March.

Automobile unit sales in China totaled 1,451,000 units, an increase of 11.5% compared to the previous fiscal year and a new all-time sales record. Cumulative automobile production at Guangzhou (sic) [Guangqi] Honda reached the 6 million unit milestone.

In India, motorcycle sales surged over 1 million units higher than the previous fiscal year to 5,775,000 units. In March, a brand-new 160cc sports model named X-Blade was introduced, and Activa, the top-selling scooter in the market, underwent a full model change.

Next, we would like to introduce some recent news topics. In April, the PCX and PCX150 scooter models as well as the Gold Wing motorcycle underwent full model changes. It was the first full model change for the Gold Wing in 17 years.

In 2017, the HondaJet recorded the highest number of deliveries in its class. In March, it was announced that a memorandum of understanding had been signed with ANA to form a strategic partnership with the aim of further expanding the compact business jet market.

In power product business operations, a new handy portable generator named EU18i was launched.

Financial highlights for the fiscal year are as follows: Sales revenue was JPY 15,361,100,000,000. Operating profit was JPY 833.5 billion. Share of profit of investments accounted for using the equity method accounted for JPY 247.6 billion. Profit for the period attributable to the owners of the parent was JPY 1,059,300,000,000.

Our financial forecast for fiscal year 2019 is as follows: Sales revenue, JPY 15,600,000,000,000. Operating profit, JPY 700 billion. Share of profit of investments accounted for using the equity method, JPY 215 billion. Profit for the year attributable to owners of the parent, JPY 570 billion.

Due primarily to an increase in revenue associated with volume and model mix as well as an increase in share of profit of investments accounted for using the equity method, the annual dividend for fiscal year 2018 is JPY 100, JPY 8 higher per share of common stock compared to last fiscal year and an upward revision of JPY 2 per share from our previous announcement.

Further, acquisition of the company's own shares was approved at the Board of Directors Meeting held earlier today. Details of the share acquisition plan are as follows: To further enhance efficiency of its capital structure and ensure a flexible capital strategy, Honda will acquire a maximum of 18 million common shares at a maximum acquisition price of JPY 70 billion. The acquisition will be conducted in the market between May 7, 2018, and December 31, 2018.

The annual dividend for fiscal year 2019 is expected to be JPY 108 per share of common stock. This is JPY 8 higher than the previous fiscal year.

Next, we will explain details of the financial results as well as the company's guidance. First, I would like to discuss Honda's group unit sales for the fourth quarter. In motorcycle business operations, group unit sales totaled 4,747,000 units. In automobile business operations, group unit sales totaled 1,296,000 units. In power product business operations, group unit sales totaled 2,477,000 units.

Next, we would like to discuss details of sales revenue and operating profit. Regarding sales revenue, the negative impact of foreign currency translation effects and other factors was more than offset by increased sales revenue in all business operations, resulting in a total of 3,914,700,000,000, a 4% increase over the same period a year ago.

With respect to operating profit, the positive impact of cost down efforts and other factors was more than offset by higher SG&A expenses, negative ForEx effects as well as other factors, resulting in a total of JPY 126.8 billion, an 8.2% decrease compared to the same period a year ago.

The operating margin was 3.2%.

The share of profit of investments accounted for using the equity method was JPY 57.9 billion. Profit before income taxes totaled JPY 190.4 billion. Profit for the year attributable to owners of the parent was JPY 107.7 billion, a 12.3% increase compared to the same period a year ago.

Next, we would like to discuss Honda Group unit sales for the fourth quarter. In motorcycle business operations, Honda Group unit sales increased primarily in India, Pakistan and Thailand, resulting in a total of 4,747,000 units, an 11.7% increase compared to the same period a year ago.

In automobile business operations, a decline in HR-V sales in Indonesia, the primary negative sales impact, was more than offset by higher sales of the Pilot in North America, robust sales of the Avancier and UR-V in China as well as other increases, resulting in total Honda Group unit sales of 1,296,000 units, an increase of 0.9% compared to the same period a year ago.

In power product business operations, Honda Group unit sales totaled 2,477,000 units, an 11.7% increase compared to the same period a year earlier. This increase was primarily due to an increase in OEM application engines in the U.S., China and Thailand.

For your reference, Honda Group unit sales for the 12-month period of the fiscal year by business segment are as shown.

Next, with respect to sales revenue for the fiscal fourth quarter, an increase in sales revenue in all business operations more than offset the negative impact of ForEx translation effects, resulting in sales revenue of JPY 3,914,700,000,000.

Changes in cumulative sales revenue for the 12 months of the fiscal year are as shown.

Next, we would like to examine the positive and negative factors that impacted profit before income taxes for the quarter. Profit before income taxes for the fiscal fourth quarter was JPY 190.4 billion, an increase of JPY 3.4 billion compared to the same period a year ago. Operating profit amounted to JPY 126.8 billion, an JPY 11.2 billion decrease compared to the same period a year earlier.

With respect to increase and decrease factors, excluding ForEx effects and restitution income related to the airbag inflator issue, operating income was positively impacted by cost down efforts and other factors. However, this was more than offset by a rise in SG&A expenses as well as other negative factors, resulting in a decrease of JPY 8 billion.

At the operating profit level, ForEx effects had a negative impact of JPY 17.9 billion. Share of profit of investments accounted for using the equity method resulted in a positive impact of JPY 9.3 billion. Finance income and finance costs resulted in a positive impact of JPY 5.3 billion.

With respect to cumulative profit before income taxes for the fiscal 12-month period, the reverse effect of the pension accounting treatment last fiscal year as well as the negative impact of the multi-district class action litigation settlement earlier this fiscal year were incurred. However, these factors were more than offset by an increase in revenue related to the positive impact of volume and model mix as well as an increase in share of profit of investments accounted for using the equity method, resulting in a total of JPY 1,114,900,000,000, a JPY 107.9 billion increase compared to last fiscal year.

Next, we would like to discuss the results for each business area. In motorcycle business operations, revenue related to a positive increase in volume and model mix as well as other factors led to operating profit of JPY 54.8 billion, a 43.7% increase compared to the same period a year earlier.

In automobile business operations, the negative impact of a rise in SG&A expenses, including quality-related expenses and other factors, resulted in operating profit of JPY 26.7 billion, a decrease of 51.3% compared to the same period a year earlier.

With respect to operating loss for power products and other businesses, the negative impact of a decrease in revenue related to volume and model mix as well as other factors led to a total loss of JPY 3 billion, a deterioration of JPY 200 million compared to the same period a year earlier.

Operating loss for aircraft and aircraft engine business operations, which are included in the power products and other businesses segment, totaled JPY 11.5 billion, an improvement of JPY 500 million compared to the same period last year.

In Financial services business operations, operating profits totaled JPY 48.2 billion, an increase of 1.1% compared to the same period a year ago, primarily due to an increase in profits associated with higher operating lease revenues.

The accumulated sales results by business operations for the 12-month fiscal year are as shown.

Next, we would like to review Honda's business results for the quarter by geographical region. In Japan, a positive impact, primarily from an increase in unit sales as well as cost down efforts, resulted in an operating loss of JPY 32.2 billion, an improvement of JPY 9.6 billion compared to the same period a year ago.

In North America, the positive impact of an increase in revenue related to volume and model mix as well as other factors was more than offset by an increase in SG&A expenses, including quality-related expenses and other factors, resulting in operating profit of JPY 71.4 billion, a 32.3% decrease.

In Europe, the negative impact of a decrease in revenue related to revenue and model mix as well as other factors resulted in operating profit of JPY 4.0 billion, a decrease of 73.5% compared to the same period a year earlier.

In Asia, the positive impact of an increase in sales units, cost reduction efforts as well as other factors resulted in operating profit of JPY 83.3 billion, a 23% increase compared to the same period a year earlier.

In Other Regions, which includes South America, the Middle East, Africa, Oceania and other countries, the positive impact of increase in sales units in Brazil as well as other factors resulted in operating profit of JPY 9.3 billion, a JPY 7.3 billion increase from the same period a year ago.

For your reference, the cumulative 12-month fiscal year results by geographic region are as shown.

Share of profit of investments accounted for using the equity method for the fiscal fourth quarter amounted to JPY 57.9 billion, a 19.2% increase compared to the same period a year ago, primarily due to an increase in unit sales in China as well as other factors.

Consolidated capital expenditures for the fiscal 12 months amounted to JPY 433.8 billion, a decrease of JPY 107.1 billion compared to last fiscal year. This was primarily due to a decrease in expenses associated with new model introductions within automobile business operations.

We would now like to review the consolidated forecast for the fiscal year. The Honda Group unit sales forecast is as follows: motorcycle business operations, 20,545,000 units; automobile business operations, 5,375,000 units; power product business operations, 6,290,000 units.

The consolidated unit sales forecast is as shown.

The 2019 fiscal year consolidated financial forecast is as shown.

Please refer to Slide 45 for the increase and decrease factors impacting operating profit and profit before income taxes for the fiscal year 2018 versus the result from the previous fiscal year.

Operating profit, minus JPY 133.5 billion; share of profit of investments accounted for using the equity method, minus JPY 32.6 billion; finance income and finance costs, JPY minus 28.7 billion.

On this slide, the increase and decrease factors impacting operating profit for this fiscal year have been rearranged using the last fiscal year's result as a starting point and then excluding ForEx effects, the multi-district class action litigation settlement as well as the airbag inflator restitution income. Through this comparison, a real term increase of JPY 34.5 billion is projected.

Finally, our forecast for capital expenditures, depreciation and R&D expenditures for fiscal 2019 are as shown.

This concludes our Financial Results Presentation.

Thank you for your continued interest in Honda's activities.

We would now like to entertain questions. If you have question, please raise your hand. Microphone will be brought to you. Please give us your name and affiliation. Yes, person seated in the second row, please?

I am [Mukata] from Nikkei newspaper. Fiscal 2019, for this current fiscal year in China and the United States, for these 2 countries, what is the sales forecast? The U.S. market seems to be peeking out. Incentives are increasing. And what is your forecast for that market? And in China, sales itself, I believe, is strong, but there was a recall problem of CR-V. How will that be impacting? And a trade friction between China and the U.S., will that affect your sales? Could you comment on this? And should I wait for your response before I raise my second question?

Please go on.

In the past few years, you have tried to address the gap between production in sales, Japan, China, South America. You have reorganized the sales and production organizations and have improved efficiencies. When will the impact become visible? The third question about share buyback. You have made announcement for full year, although profit is down. Why did you announce share buyback? What is the message behind this?

Regarding sales in the U.S. and China, first, that question will be addressed.

Thank you for the question. I would like to start by discussing the situation in the United States. Fiscal 2018, in the U.S. market, the sales volume was JPY 17.23 million. It was slightly down from the previous year. And in fiscal 2018, the overall market prospect is that we expect a stable economic environment and increase in individual consumption as a result of tax reduction, but that replacement demand is more or less completed. And in comparison to last year, we believe that the market environment is slightly negative and it will be around 17 million units. That is our forecast. As far as market trend is concerned, as you know, light truck is increasing in share. In recent months, gas price is increasing slightly, but overall trend is that light truck is increasing its share. Now with regards to Honda, in fiscal 2018, 16.38 million units were sold, similar to the previous year. Industry incentives are increasing, competition is becoming stiffer and unit sales decreased slightly, but Civic maintains top position for 15 consecutive months. And in the end, we were able to sell the units more or less the same level as the previous year. Civic is very strong, and Accord lineup now includes 1.5 liter, 2 liters. And from March, Hybrid was also included in the lineup. In fiscal 2019, a new model, Insight, will be introduced. And in light truck market, CR-V -- correction, in addition to CR-V, Pilot, Acura RDX will undergo full model change and will be launched. This is an effort to strengthen light truck products. We aim to achieve record-high results in North America in fiscal 2019. As for China, 1.45 million units were sold in 2017. We were able to achieve substantial growth. And core model Accord is #1 in its segment and XR-V is #1 in small segment. And CR-V, Civic, Fit, that are subject to reduction in VAT, including these, Vezel -- including Vezel, 7 units -- 7 models achieved 100,000 unit sales. In 2018, as you know, there is a dilution, a temporary effect -- there will be a temporary quality effect. But as much as possible, we will implement technological countermeasures to increase customer satisfaction and would like to improve the sales. And a new model Accord will be introduced, and Inspire will also be newly introduced. So in 2018 -- we would like to achieve results that is better than fiscal 2018. Next, regarding the filling of the gap between manufacturing and sales and when will the production be introduced in the market. Last year, the production capacity is globally, 5.4 million units. Now the result for fiscal year '18 last year was 5.3 million unit production. So it's over 90%. I cannot specify the number, but the production efficiency is improving for sure.

Next, the reason for share buyback. The companies mentioned earlier were Guangqi Honda and Dongfeng Honda. Next is about share buyback. Mr. Takeuchi, please?

Yes, so let us talk about our thinking behind the share buyback. In other words, shareholder return. We think the return to our shareholders is one of our main initiative, main priority, and so we need to look at this in a long-term perspective and also look at the retained earnings. Taking those into account, we return to our shareholders. So the dividend and the share buyback are the 2 methods to do that. Last year, as Honda, we try to aim for the payout ratio of 30%. But this year, for share buyback, including the flexible capital policy, we thought we need to do a little share buyback. And so we have separated the aim, the 30% payout ratio, and share buyback. The cash at hand and the future improvement in the enterprise value will be taken into account. R&D investment and other investments that we need for our corporate growth in the future and share price. Taking all these into account, we are planning the share buyback this year. It's 18 million shares maximum, which will be around 1% of the shares. So this is our thinking.

Are there any other questions? Yes, next question, please.

I'm [Kimura] from Asahi newspaper. I have 2 questions. First, regarding North America market. Group sales unit sales forecast in North America, positive 113,000 -- plus 113,000 is forecasted. What is your outlook for the United States? Industry overall maybe peeking out as of the other questioner said. However, it seems that you have a bullish outlook for U.S. market. And how do you plan to achieve your plan? Second question is currency effect for fiscal '19. I believe it is because you assume a stronger yen and because of this stronger currency effect, operating profit is down and operating margin is lower than 5% as a result of this larger currency effect that you estimate. And low operating margin has been a long-standing issue. How do you plan to improve operating margin?

First, regarding North American sales volume.

Earlier, in terms of growth in sales volume you mentioned, and in relation to that, in North America, the growth will mostly be coming from the United States. Basically, light truck will be strengthened. As you know, last year, CR-V is now -- it is now possible to produce CR-V in ELP and in Marysville as well. CR-V production will be made possible. These are preparations to increase the percentage of light truck, and Insight will be newly added. And RDX will also be newly introduced. RDX is very popular amongst our distributor networks and we believe that this will add to our sales. First and foremost, we have to improve efficiency of light truck, and we will also be introducing new cars to achieve these sales volumes target.

The second question, currency effect. Mr. Takeuchi, please?

Last fiscal year ended in -- for this fiscal year, we estimate an about JPY 200 billion impact from currency effect. Last fiscal year, in the first half, the U.S. dollar was strong. And in terms of U.S. dollar, it was about JPY 111 to the dollar. And at this time, the assumed currency rate is JPY 105 to the dollar. And because of that translation effect, we are estimating some impact. Thai baht. In Thailand, Thailand is supplying components, and completed cars are also exported from Thai to other Asian countries. And Thai baht alone is strengthening, and that is also impacting. And that is also taken into account more -- probably more so than you would expect. Honda's policy on currency effect is that we are producing where demand is. As much as possible, we would like to produce where products are sold, but we also have to balance between the cost, and that is why we estimate this currency effect impact. But basically, we would like to produce where demand is. Except for currencies translation effect, we would like to minimize the impact from the currency. But because of the balance between the cost and demand and supply, the current situation is as you have seen.

Any other questions?

Wall Street Journal, my name is Tsuneoka. I have question to Mr. Kuraishi about this incident in February. Honda -- you said Honda is going to avoid the discount competition as much as possible. This is what you mentioned in February. The U.S. incentive on Accord is increasing. Is this a change in policy? Could you elaborate, please? My other question is in the U.S. sedan market, we want to know what you are doing to be more competitive in North America. Do you think the efforts made so far is sufficient or not?

So regarding Accord incentive. Incentive in the industry is -- our incentive level is lowest in the industry. The industry is around a little less than $4,000. We are around $1,500. So like I said earlier, we are trying to avoid being caught in the discount competition. So our basic policy has remained unchanged. For the previous Accord model, we are using some incentive to sell them out -- sell them off. But for the new model, we are trying to avoid using incentive as much as possible. As you know, the U.S. market, because of the low gasoline price, light truck market is strong. And for Accord dealers, dealers say that Accord is well accepted, and so we are trying to keep ourselves out of the discount competition. The inventory is piling up now, but Marysville, production is now being adjusted to deal with that so that we can appeal the attractiveness of this new model. So our policy remains unchanged. Overall, sedan market is shrinking and we cannot do much about that, but Civic, Accord, and new models are strong. They are well supported by the U.S. customers, so we would like to cherish and grow this brand going forward. This year, we are launching new Insight. Gasoline price is low, so this is a headwind for us. But the gasoline price is rising now. And the vehicle is a great vehicle, so this is one pillar of our strategy this year. So not just SUV for the passenger vehicle. We want to take up the challenge this year.

Thank you. So does this answer your 2 questions? Thank you. Any other questions? Yes, please.

I'm from [Furukawa] from Nikkei newspaper. I have 2 questions. First, I have a follow-up question on sedan. Today, Ford announced a policy to discontinue sales of sedan in North America. How do you view this? And looking at your lineup of new cars, the lineup includes Insight and Inspire that was announced in Beijing is also included. It seems you have many sedan in your lineup, which is somewhat contrary to increasingly -- increasing popularity of light truck globally. Could you comment on this?

Joy of driving is Honda's philosophy. So Accord, Civic, these are symbolic cars of Honda and we would like to continue to sell these models. SUV and sedan, as for the split between the 2, the ratio between the 2 is greatly affected by market environment, including gasoline price, and it's difficult to immediately respond to such changes. So the focus is to produce products that will be well accepted by our customers, be it SUV or sedan.

I have one more question, if I may, regarding U.K. Negotiations with EU is underway. With respect to investment in U.K., what are your -- what is your outlook?

Regarding Brexit, the details are yet to be revealed. As we have been saying from before, we would like to watch the situation closely and make necessary responses. As of now, we do not plan to take any particular measures because of Brexit. We would like to continue the operations as before.

Next question, please? The gentleman at the front, please.

Sankei newspaper. My name is [Takahashi]. I have 2 questions. First, you mentioned earlier the U.S. -- the import restriction and the retaliation in China. Will this have any impact on your business?

In our business, we don't anticipate any large impact.

And the other question is regarding the share of profit of investments accounted for using the equity method. It seems like this will decrease in fiscal year '19. What is the reason behind that?

Let me explain. In shared profit of investment accounted for using the equity method, the 50% equity holding joint venture, 2 joint ventures in China are the largest portion. The raw material cost impact of the joint ventures are starting to emerge. And because of the relations with dollar, there is some deterioration in ForEx. And that's why compared to last year, this year's number is slightly lower.

So the unit sales will increase, but profitability will decline?

Yes. The unit sales will be flat or plus alpha. But as Mr. Kuraishi mentioned earlier, we are building a new plant. So until this plant starts operating, our production capacity is full. So the production unit will not increase dramatically from last year.

Next question? Yes, gentleman -- lady wearing white, please?

I'm Shiraki from Reuters. I have 2 questions. Regarding China, I have additional question for clarification. The quality-related issues in China and CR-V sales has been stopped. What is the prospect of resuming the sales of CR-V? When will the sales be resumed? Locally, Mr. Mizuno made an announcement that the efforts are made to resume sales as soon as possible. What is the time line -- a rough time line towards the resumption of sales of CR-V in China? And what is the impact, a result of this stop of sales? Unit sales may be flat, as you've mentioned earlier, but locally, what is the impact of stopping of the sales of CR-V in China? That is the first question. Should I continue with my second question?

Yes, please.

Operating profit breakdown is given, and JPY 54 billion increase in SG&A -- JPY 51 billion increase in SG&A. What are the specific reasons that you expect increases in SG&A?

First, regarding CR-V in China, please.

About dilution issue in China, we have caused much inconvenience to Chinese customers, and we would like to extend our sincere apologies. But dilution can occur to any car manufacturer. And in China, in extremely cold climate, in 30 degrees below, when engine is stopped and started repeatedly, gasoline does not evaporate and this causes dilution. A similar dilution problem is occurring with other manufacturers. As a result, the countermeasures against this problem need to be tested before the authority grants approval. And tests are underway right now. As for basic countermeasure, we, more or less, are sure that we have the countermeasure. And after we have the results from the tests, we would like to seek to obtain approval for recall and then sales can resume. This is China specific. We have to stop sales before recall is made, but we believe we have the countermeasure. In the end, we have to obtain approval from the authorities. So we cannot give a clear indication of what month in terms of time frame, but we believe that it will not be too long. In any event, customers are waiting for resumption of the sales of CR-V. So as soon as possible, we would like to take measures to recall and to start -- restart the sales. As for the impact, basically, as you know, to begin with, we are at full production capacity, and we were stretching ourselves in terms of production. Last year, CR-V production, after the stopping of production of CR-V, Civic, which is doing very well and XR-V, sister car of Vezel, the production has switched to producing these 2 models, and production is continuing. So there will not be too much impact on our business. However, CR-V unit is behind the schedule. And if sales is resumed in this fiscal year, we would like to make up for that. Customers are waiting, so we would like to make up for the delay. So in terms of unit sales and in terms of our overall business, we do not anticipate a large impact.

About the breakdown of increase in SG&A, Mr. Takeuchi, please?

Yes, as Ms. Shiraki mentioned, SG&A is increasing JPY 51 billion. It is expected to increase JPY 51 billion. This fiscal year in North America and in Other Regions, we will be launching new models, and sales promotion expenses is included here. That is the major factor. And mainly in Asia, labor cost is also included in SG&A. And mainly in Asian countries, labor cost is slightly increasing, and that is -- those are reflected. They do not account for JPY 51 billion entirely, but these factors are included. The largest component is sales promotion.

So to clarify, you have mentioned North America as well. These are not incentives, advertisement, marketing expenses?

Yes, that is correct. Incentive may be included in marketing. The incentive is minus sales, and that is included in the change from volume and model mix change. In Southeast Asia and in Asian countries across the board, labor cost is increasing slightly. Not in any specific country, but across the board in Asia.

Shukan Economist. My name is [Inadome]. This has been mentioned in the past, but it is about U.S./China trade friction. So -- if the tariff of automobile goes up, then Honda, which produces in China, may enjoy the tailwind. What do you see the impact from this?

Could you say that again, please?

So the imported car. If the imported car tariff from U.S. to China -- if the tariff goes up, then the price will go up. So -- and Honda, you produce the cars you sell in China. And so from costs and sales price, you may benefit. This may be a tailwind for you. How do you think?

The import car and the locally produced cars, price are different, quite different. So they're different category. So we do not compete or conflict in the first place, so not much impact. Well, the price will go up even further, so there may be a possibility. But the quality -- nature of the cars is different. The imported cars are high, high-quality, high-end cars like the BMW. So Civic, Accord -- it's not the direct competition of Civic and Accord that we do in China. So it is not directly a tailwind for us.

What about cost? The steel price and the components, is there a demerit or advantage?

We are progressing with the local procurement, so I wouldn't say 0. Some components are imported from the U.S., and there are some parts that are exported from China to the U.S. The detail is not clear yet, so I cannot give you -- explain or quantify the scale, but at this point, we do not think the impact would be large. No, not big impact in sales or cost.

Would there be any other questions? Yes, the person seated in the back section of the room.

I'm from Kawaguchi from Yomiuri newspaper. I have a question for Mr. Kuraishi about capital restriction in China. It may not be in the immediate future, but over longer term, equity percentage or a new acquisition, are there possibilities in China? And the past fiscal year, profit is now above JPY 1 trillion, and U.S. tax reform impact is large, but how do you view this? And excluding that tax reform impact, still, you had very good results from last fiscal year. How do you review the past fiscal year?

Regarding Chinese capital restriction, I spent years in China doing business, and we have good relations with our partners in China. And there's no major change. As we announced today, businesses are underway, and we would like to continue to work with our partners in China. So we do not plan to make any changes as of now. About the business results from past fiscal year, despite difficult environment, with the increase of production of light truck and reduction or constraint of incentives, we were able to progress according to the original plan. In Asia, motorcycle business was very strong, and the way staff work in China was improved and at a very high operation rate of above 120%. Production was continued and, as a result, we were able to supply products to many customers. There was also positive impact from currency effect. But as a result of all of these factors, I believe we were able to achieve better results than we originally expected.

Could you comment on the fact that profit is now above JPY 1 trillion? You mentioned the number JPY 1 trillion, but...

This is due to the impact of tax reduction by President Trump. So JPY 1 trillion, there shouldn't be too much focus on JPY 1 trillion.

So next one will be the last question. Person at the front, please?

I'm Okamura from Automotive News. On Page 12, it says increase in share of profit of investments accounted for using the equity method as well as the JPY 346.1 billion positive impact resulting from realized DTA, DTL. So what is the impact from the tax rate reduction? And is this a one-off event or impact for last fiscal year?

Yes, this amount is just tax. So DTL, with the change in the tax rate, recalculation, the DTL amount decreased and profit increased. And that's what's behind JPY 346.1 billion. So there's no cash impact. This is the amount impacting PL, so this is a one-off event last year.

So with this, we would like to close the financial results briefing. Thank you very much.