本田技研 (HMC) 2019 Q3 法說會逐字稿

We would like to begin our fiscal year 2019 third quarter results presentation. We would like to first review the financial summary for the third quarter of fiscal year 2019.

Operating profit was JPY 684 billion. This represents a decline by JPY 22.7 billion compared to the same period last year, but if real-term currency effects, onetime issues and increased raw material prices are excluded, a real-term increase of JPY 87.4 billion was achieved mainly due to the positive impact of cost reduction initiatives, volume and model mix and other factors.

I would now like to review Honda's business results in some major markets around the world.

First, for Automobile business operations, N-BOX series claimed the best-selling model in Japan in calendar year 2018 for the second year in a row. In December, the new Insight hybrid model was launched. For the car of the year awards in Japan, Clarity PHEV won the Best Innovation Award and N-VAN won the Steering Committee Special Achievement Award.

In the U.S. market, the best-ever annual light truck sales record for any calendar year was achieved, and CR-V, Pilot and Acura RDX rewrote calendar year unit sales records. In November, Passport, a brand-new light truck model, was unveiled with the start of sales planned for February. Honda Insight won the Green Car of the Year award.

In the Chinese market, record wholesale unit sales for any calendar year was achieved. Sales of Civic surpassed 200,000 units while 6 models, including Accord, XR-V and CR-V exceeded 100,000 units in sales, respectively. In November, Honda announced Everest VE-1, its first mass production EV jointly developed by Honda Motor China Technology and GAC Honda Automobile. Delivery of the new model is planned to gradually start in 2019.

In Asian countries, which comprise a major market for motorcycles overall, motorcycle sales increased 11.36 billion units, a rise by 6.6% compared to the same period last year, helped mainly by increases in sales of Scoopy in Indonesia, Activa in India and Vision in Vietnam. In October, Honda's cumulative motorcycle production in Vietnam reached 25 million units. In India, Honda accomplished 40 million cumulative 2-wheeler sales in December.

Regarding current conditions, the marketplace has been affected by a revision of the mandatory vehicle liability insurance system, increased insurance premiums and tightening loan screening criteria since September, and we are carefully monitoring the situation at present.

I would now like to touch on some of our most recent news topics. In November, PCX Electric, an electric scooter model, was launched in Japan. This is the first electric scooter in the 50cc to 125cc category launched by Honda and is powered by a newly developed compact electric power unit.

In Bangladesh, Honda inaugurated a new motorcycle factory. With an initial annual production capacity of 100,000 units, the factory plans to gradually increase its production capacity, which is expected to reach 200,000 units by 2021. In December, HondaJet Elite received type certification in Japan and marked its first customer delivery in Japan. Also, Honda Walking Assist device received clearance in the U.S. as a medical device.

Regarding the profit and loss situation, on a cumulative basis for the fiscal 9-month period, sales revenue came to JPY 11,839.5 billion. Operating profit was JPY 684 billion. The share of profit of investments accounted for using the equity method amounted to JPY 169.6 billion. Profit for the period attributable to owners of the parent was JPY 623.3 billion.

We will now take a look at our financial forecast for fiscal year 2019 on a consolidated basis. By incorporating the effects of ForEx fluctuations and other factors, we have revised our consolidated results forecast from our previous announcement as follows: we now expect sales revenue of JPY 15,850,000,000,000; we plan on an operating profit of JPY 790 billion, unchanged from the previous forecast; we expect the share of profit of investments accounted for using the equity method to be JPY 215 billion. Regarding profit for the year attributable to owners of the parent, our target is JPY 695 billion. The exchange rate set for calculating these projections was JPY 110 to USD 1 for the fourth quarter, and the average full year exchange rate was set at JPY 111 to USD 1.

As for dividends, the expected annual dividend for fiscal year 2019 will be unchanged from our previous announcement at JPY 111 per share of common stock. The dividend for the third quarter would be JPY 28 per share of common stock.

We will now provide more detailed explanations on the financial results and outlook. First of all, I will review the Honda Group's unit sales for the third quarter.

In Motorcycle business operations, group unit sales totaled 5,013,000 units. In Automobile business operations, group unit sales totaled 1,408,000 units. In Power Product Business operations, group unit sales totaled 1,351,000 units.

Regarding the profit and loss situation, despite the negative impact of currency translation effects and other factors, sales revenue was JPY 3,973.6 billion, roughly equivalent to the level on the same period last year due mainly to increases in the motorcycle business operations and Financial Services business operations.

Operating profit came to JPY 170.1 billion, a decline by 40.2% compared to the same period last year. Despite positive effects of the cost reduction initiatives, a decrease in revenue associated with volume and model mix, an increase in SG&A expenses, the impact of ForEx fluctuations and other factors have led to the decline. The operating margin was 4.3%.

The share of profit of investments accounted for using the equity method was JPY 51.4 billion. Profit before income taxes totaled JPY 226.9 billion. Quarterly profit for the period attributable to owners of the parent totaled JPY 168.2 billion, a decrease by 70.5% compared to the same period last year, mainly because of effects of the tax reform in the U.S. in the same period last year, among other factors.

Regarding Honda Group unit sales for each segment, Motorcycle sales totaled 5,013,000 units, a 2.9% increase compared to the same period last year mainly due to the rise in sales in Vietnam, Indonesia and Brazil, among other countries. For Automobile operations, increases in sales of the Crider in China as well as the launch of N-VAN in Japan were among the primary drivers of unit growth to 1,408,000 units, a 4.8% increase compared to the same period last year.

For Power Product Business operations, an increase in sales of OEM engines used in construction equipment and lawnmowers in North America and the OEM engines used in pumps in Japan, among other factors, led to a total of 1,351,000 units, an increase by 13% compared to the same period last year.

Shown here are Honda Group's unit sales for the fiscal 9-month period.

Now regarding sales revenue for the fiscal third quarter, despite the negative impact of currency translation effects, the increases in motorcycle business operations and Financial Services business operations contributed to the total sales revenue of JPY 3,973.6 billion. Shown here is the sales revenue on a cumulative basis for the fiscal 9-month period.

Next, I would like to provide explanations on the increase and decrease factors that impacted the profit before income taxes for the quarter. Profit before income taxes for the third quarter totaled JPY 226.9 billion, a decrease by JPY 119.9 billion compared to the same period last year. Operating profit came to JPY 170.1 billion, a decline by JPY 114.4 billion compared to the same period last year.

A look at the increase and decrease factors shows that for the operating profit with ForEx effects excluded, the positive effects of cost reduction initiatives and other factors were more than offset by a decrease in revenue associated with volume and model mix as well as a rise in warranty expenses, among other factors, resulting in a negative impact of JPY 72.4 billion.

At the operating profit level, the negative impact from ForEx effects was JPY 42 billion. A decrease in the share of profit of investments accounted for using the equity method resulted in a negative impact of JPY 3.1 billion. Finance income and finance costs resulted in a negative impact of JPY 2.4 billion.

As for cumulative profit before income taxes for the fiscal 9-month period, despite the positive effects of cost reduction initiatives and an increase in revenue associated with volume and model mix, the negative impact of ForEx effect, an increase in SG&A expenses and other factors led to the cumulative profit before income taxes of JPY 868.2 billion, a decline by JPY 56.2 billion.

I would now like to discuss the results for each business area. In Motorcycle business operations, revenue associated with an increase in volume and model mix, as well as other factors, led to the operating profit of JPY 69.5 billion, a 7.3% increase compared to the same period last year. In Automobile business operations, a decrease in revenue associated with volume and model mix, among other factors, led to the operating profit of JPY 41.2 billion, a decline by 75.4% compared to the same period last year.

Regarding the operating loss for Power Product and other businesses, a rise in expenses involving the other businesses led to a total loss of JPY 0.9 billion, a deterioration of JPY 2.5 billion compared to the same period last year. The operating loss for aircraft and aircraft engine business operations, which are included in the Power Products and Other Businesses segment, totaled JPY 9.8 billion, a deterioration of JPY 1.7 billion compared to the same period last year.

In Financial Services business operations, the operating profits totaled JPY 60.3 billion, an increase by 19.1% compared to the same period last year due to an increase in profits associated with higher operating lease revenues, among other factors.

Shown here are the results for each business area on a cumulative basis for the fiscal 9-month period.

We would now like to review Honda's business results for the third quarter by geographical region. In Japan, despite a rise in revenue associated with volume and model mix among other factors, the negative impact of ForEx effects, an increase in SG&A expenses and other factors resulted in an operating profit of JPY 43.3 billion, a decrease by 31.4% compared to the same period last year.

In North America, despite positive effects of cost reduction initiatives and other factors, a decline in revenue related to volume and model mix and other factors resulted in an operating profit of JPY 49.9 billion, a decrease by 52.9% compared to the same period last year.

For Europe, the effects of cost reduction initiatives and other factors were more than offset by the negative impact of ForEx effects and other factors, which resulted in an operating profit of JPY 1.3 billion, a decrease by 49.1% compared to the same period last year.

In Asia, despite the effects of cost reduction initiatives and other positive factors, the impact of ForEx effects, a decline in revenue related to volume and model mix and other factors led to an operating profit of JPY 93.1 billion, a 16.2% decrease compared to the same period last year.

In other regions, which includes South America, the Middle East, Africa, Oceania and other areas, the effects of cost reduction initiatives were more than offset by the impact of ForEx effects and other negative factors leading to an operating profit of JPY 2.1 billion, a decline by 72.6% compared to the same period last year.

Shown here are Honda's business results by geographical region on a cumulative basis for the fiscal 9-month period.

Regarding the share of profit of investments accounted for using the equity method, this amounted to JPY 51.4 billion, a 5.7% decline compared to the same period last year. Consolidated capital expenditures for the fiscal 9-month period amounted to JPY 282.3 billion, a decrease by JPY 2.6 billion compared to the same period last year.

We would now like to discuss Honda's consolidated results forecast for fiscal year 2019 beginning with group unit sales for each of the business areas. In Motorcycle business operations, a decline in sales in Asia has been incorporated for an expected decrease of 450,000 units compared to the previous forecast, bringing projected unit sales to 20,400,000 units. In Automobile business operations, there is no change in projected unit sales compared with the previous forecast at 5,285,000 units. In Power Product business operations, Honda's group sales forecast is now 6,240,000 units for an expected decrease of 105,000 units.

The consolidated unit sales forecast for each business segment is as shown here.

The consolidated full year earnings forecast, which we explained earlier, is as shown here.

The increase and decrease factors for this consolidated fiscal year forecast compared to the results of the previous fiscal year are as follows: operating profit, minus JPY 43.5 billion; share of profit of investments accounted for using the equity method, minus JPY 32.6 billion; finance income and finance cost, minus JPY 28.7 billion.

Regarding the actual company performance derived by rearranging the order of the increase and decrease factors that impacted the operating profit, if real-term currency effects, onetime issues and increased raw material prices are excluded, a real-term increase of JPY 158.5 billion is projected. Compared to our previous financial forecast for the current fiscal year, the impact of ForEx effects and the differences in revenue associated with volume and model mix have been incorporated, but an operating profit of JPY 790 billion is still expected. This is unchanged from before.

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

This concludes our financial results presentation. Thank you very much for your continued interest in Honda's activities.