本田技研 (HMC) 2019 Q2 法說會逐字稿

Now we'd like to start our Q&A session. When you have question, please raise your hand. A microphone will be brought to you, and please state your name and your affiliation before you ask a question. Please start.

I am from Nikkei Newspaper. I am [Okada]. I have the impression that you had a very good results. And factors related to the upward revision, I'd like to know about more details. And on -- in your PowerPoint material, Page 36, you talk about revenue, model mix, et cetera. Is it -- could you give us more details? And then also, next to that is a cost reduction and the change of the company standing, and I'd like to know more details and ForEx impact of the JPY 32 billion. So my -- negative impact could be there from the emergency country currencies. However now, it looks like a positive impact. And could you elaborate on how it happened? And one thing, if we say that there is one risk factor for Honda, that is the sales in China has not recovered yet that much. And any forecast for the future or any countermeasure you're going to take, please let us know.

So first, about the factors for the upward revision, Mr. Takeuchi?

Yes. So let me talk about overall picture, and then the details will be covered later. In the first half, motorcycles in Indonesia, India and Vietnam, sales volume went up. And thanks to that, the group sales went up by JPY 730,000 and in total, 11.6 million units. And in automobile in North America, depending on the demand, we changed the production allocations, and sales of light truck increased due to our effort. And group sales, as a result, even though there were some negative impact from the suspension of the products in New Mexico, but the total unit was JPY 2.551 million and operating profit of JPY 513.8 billion, which was close to last year and went up by JPY 90.7 billion ForEx, and then also the class action effect excluded and improved by the JPY 100.2 billion. And then also, expected motorcycle sales improvement and then also some improvement of the structure and then also ForEx impact were factored in, and then we revised up by JPY 80 billion in total in the details, so as Mr. Kuraishi said. And let me cover more details. The ForEx impact was about JPY 30 billion. That is mostly from the U.S. dollar. The emergency country currencies, as you know, Argentina currency has been weak a little bit, but it is possible for us to increase pricing in that country. And so -- but the most impact is from the U.S. dollar, JPY 30 billion. And model and mix -- revenue and model mix difference, and as was explained, due to the volume increase of motorcycle, that profit increased, too. And the Financial Services business was positive due to the -- some change in the residual value. The profitability improved the little bit. And then also, the long-term effort for the cost reduction, now we are getting some actual fruits from that.

About the China market situation in 2018, first quarter overall China market maintained higher number than last year. However, at the beginning of the year, 3% increase growth was expected but -- towards that. In total, the passenger car, 17 million units sale that was lower than the original expectation. However, including the GDP, the gross ratio is 6.8%, which is close to the originally planned GDP by the Chinese government. So recently, there are -- were some actions taken by the United States, and that affected a little bit in the second quarter, and the market has slowed down slightly. However, now we are going toward the Christmas high sales season. And still, overall market, compared with last year, the plus 3%, and the total volume would be around the 30 million units. For Honda 2018 actuals affected by dilution issue, first quarter, 965,000 units, which was 93% of same period last year, but that is almost in line with our plan. And at the beginning of the year, there was a temporary impact from the dilution for CR-V, but the new Crider and new Inspire new models to be launched in the near future. Crider, we already started selling, and they were very well received. And CR-V dilution impact, it took more time than we thought, however, September, October, and we got the order over 15,000 units. And April, new Accord. And September, new Crider. And October, new Inspire announced. And by enhancing the new model launching as Honda, we'd like to achieve the same level of sales as last year, and we believe that -- firmly believe that it will be possible to achieve.

Next question, please.

[Morika] from Toyo Keizai. I have 2 questions. One, this is my usual question. You have revised your expectations now that based on the results on the first half, it feels like you have a modest expectations for the second half. You're aiming the same level in China too, and you are seeing the results of the cost reduction now. You might have to revise expectations again after the second half, I believe. I know that expenditures might be concentrated in the second half. But JPY 790 billion expectations, what is the rationale behind it?

So let's talk about the gaps between the first and second half. As full-year expectations, JPY 790 billion and JPY 513.8 billion in the first half and the second, JPY 376.2 billion. The gaps between the 2 is JPY 240 billion. As you said, R&D and SUA expenditures are usually generated differently in the second and first half because we have more events in the second half, and development may focus on the next summer. We have more development in the second half, and we have to get as much as JPY 150 billion. Usually, this is not that big. However, this time, we have plans that is concentrating in the second half. Other than that, we have more units out in the second half. We have some unclarities as yet. We said we had a plus effect of the residual values in the finance areas. We stay conservative, trying to estimate the second car values that is also impacting on the second half numbers and incentives planned for the second half as well. CR-Vs, well, are taken up in the second half whereas we need to address RAV4. Altogether, we have a debt of JPY 240 billion at the moment.

And this is another question. The other day, you talked about our alliances with our -- GM Cruise. And I have additional question to you about alliances and to invest in the GM Cruise with quite a lot of money, and I think it is rather rare to see the alliances build that much of an investment to be done over 12 years. And what is the meaning of the investment in this scheme? And there was a Softbank and Toyota Motors announcement the other day. And apart from that, your company has a deep relationship with Softbank as well. You have collaboration as well. Do you have other collaboration opportunities with Softbank? How do you take the alliance by others?

Speaking of the alliance with the GM, we have a basic purpose. One is Honda has a vision to achieve early about 0 accident and 0 emission of CO2, and this is one of the steps for that. And also, in the North American market, the unmanned rideshare business is expected, and we can enter in that business. And in North America, we can expect the benefit for the ZEV credit. We have 3 expectations in the alliances, and we've discussed within ourselves, and we decided that it is quite possible to have those large investments paid back. So we made a decision. In terms of the Softbank, for the businesses around the unmanned rideshare, we decided to work with GM Cruise. So as Honda, we would like to collaborate with others, and we also concentrate our business infos in the areas where we are good at differentially. And whenever we find a very good vision for the customers and where we offer our new values for the customer or to achieve the new visions, we are willing to collaborate together, but we have exclusive contract with GM Cruise. And apart from that, we have alliance programs with Softbank already.

I am from Asahi Shimbun newspaper. I am [Takahashi]. Regarding the financial announcement on Page 22, SG&A and some decreased profit and factor and you say that the quality-related costs. And can you elaborate on that? And then also, the next question is not directly related to your financial results, but the new NAFTA. So with the part procurement ratio within the region to be changed, new NAFTA or the -- I mean the U.S. MCA, the part procurement ratio change, how do you perceive that change?

The first, about page 22, the 3 months period year-on-year, right? And under the SG&A, that includes the quality-related cost. One type is the standard type of claim, where we sell cars to customers, that there is the expected claim cost. And there's another type, which is special type of claims for recall campaign or like product updates, a little bit different from the standard type of claims, but it's a special type of claim. These 2, both of them, are included under the quality-related costs. Compared with the last year's number, this year, we are seeing, as announced, that we are seeing the higher quality-related costs. And there were special meaning, special types of claims, but there were one large scale this time that was posted.

About NAFTA, in North America, there are 3 countries, and the scheme of framework was maintained. And hearing that, we -- honestly speaking, we were relieved to hear that. But compared with the original regulations in NAFTA, in particular for the automobile, the rules of origin, so the new rules are much more stricter than the conventional NAFTA regulations. But in any case, so we are not required to achieve these immediately right after the start, but we are given 4-, 5-year period. Now we are going to review the details. But as Honda, in the future, we are not planning to change the current scheme. But based on the requirement we are given, we'd like to look for the way to how we can exercise our strength.

[Kawaguchi] from Yomiuri Shimbun newspaper. Question about trade, about the U.K. So we don't know how the Brexit would end up in March. But in terms of the plant in the U.K., well, some companies say that they will have to stop the production there. But what is your prospect?

So speaking of the Brexit, at the moment, post-Brexit tax system and trade conditions are not clear at the moment. So therefore, we need to keep watching out what's going to happen as of now. So at the moment, we do not have an idea to drastically change the current scheme.

[Igarashi] from Asahi Shimbun newspaper. Speaking of the NAFTA, the earlier question, in the future, production in Mexico might be transferred to Japan. But do you have any plans in relation to NAFTA? Speaking of the U.S.-China trade frictions, how do you see the situation today? What is your prospect in the mid- and long-term perspective?

Speaking of the NAFTA, as I said earlier, as of now, we are not going to change the current scheme or would not change the supply at the moment due to the change of the NAFTA now. We will keep thinking for the best allocations globally. However, we would not change the allocation programs due to NAFTA. Speaking of the U.S.-China situations, so at the moment, in China, our basic stance is to produce the product in the market where the consumption exists. That has been our operations style for long. Therefore, in China, we sell the product, which are almost 100% manufactured in China. We have some unit of Acura. However, the volume is small, therefore, it would not have an impact on overall situation. And from China to the U.S., there was no big impact for the mobile businesses but for motorcycles and power generators. Actually, those products are sent over to the U.S. However, we do not see the impact on that business. We will consider its impact in detail going forward. But basically, we have a concept which is to produce the product in the area or market where the demand exists. Therefore, this would not cause a big impact of businesses. However, for each areas, we might see the impact, therefore, we would look for the best solution for each of that.

I'm [Okana] from Automotive News. About the North America, a little bit off the platform of the financial announcement. There are -- like China, the CR-V issues are surfacing in America. To resolve these CR-V issues, what kind of amount are you estimating to resolve this issue in total? And there's some article saying that Honda's countermeasures are kind of behind the schedule. And how long would it take? And is there -- you have any time frame to finish everything?

Well, as of today, as China, so this issue happens -- occur in the cold region, in -- mainly in northern region that are seeing the engine oil level increasing in CR-V. But unlike China, the customers basically just seeing the caution indicated, and this does not stop the engine itself. So therefore, we take actions or measures based on the request from customers so far. And from now on, also, depending on the situation, we would like to deal with this issue. But so far, we have not seen big volume of cars which had that problem. But in any case, we'd like to take a very quick -- quickly take action in order not to negatively affect our customers. Then about the cost and expense-related quality, we are not -- we can't disclose the details of each.

This is going to be the last question.

Nihon Keizai Shimbun newspaper. My name is [Furukawa]. I have 2 questions. You have received the operations in Mexico. And earlier, you said that you were going to delay the production in the month of November. Have you accelerated the restart of time? The other question is that in North America, as sedan market is disrupting as compared to the total market, and I bet your prices are going up. And have you been making the tremendous efforts to sell Accord and Insight, Hybrid? However, are you getting the momentum of those?

Speaking of the Mexico, as I said earlier, we are aiming to restart a full-scale production in the middle of November, and we have actually -- we started our production in -- on the 23rd of October. And the reasons behind are as follows. When we first looked at the damage at the line, we thought it would take longer time to recover. However, cleaning technology have advanced as compared to the situation in Thailand. Therefore, for many of the parts or facilities, we didn't have to replace. We simply cleaned and washed and repaired for the resumption of the operations. And then we, in results, spent JPY 10 billion less for the repair and resumption of the production. And then as planned, we will be able to start the full-scale operations in the middle of November. Speaking of Hybrid, we have launched 2 model: Hybrid, Accord. Customers appreciate the model very much, and we are making good sales of the product as planned. However, well, although we achieved the volume as expected, however, it would be difficult to go more than that, not because of the Hybrid support that, because of the gasoline prices, light truck market total price, 70% of the total market industries today. However, many customers or increasing number of the customers wish to have the Hybrid models, specifically in the state of California. There are benefit of owning Hybrid models, and we have launched Insight, and we are waiting the sales as planned.

Thank you very much. This is the end of the Q&A session.