本田技研 (HMC) 2019 Q4 法說會逐字稿

Thank you very much for your attendance today for -- our Honda's press conference announcing business directions and financial year results. Thank you very much indeed for you coming.

Let's start with part 1, the business directions announcement. Our president, Mr. Takahiro Hachigo, is going to speak.

Good afternoon, ladies and gentlemen. My name is Hachigo. Thank you for your participation in this press conference today despite your busy schedule.

As you all know, the business environment around the automotive industry is changing very quickly on a global basis. In such circumstances, Honda has been working on the top priority management challenges. One is to strengthen the structure of our automobile business and to accelerate business transformation for next generations.

Today, prior to the announcement of our fiscal financial results, I would like to talk about our current initiatives for our Automobile businesses and where we are today. Specifically, I will discuss how we strengthen the structure of our Automobile business and direction of the electrification.

Firstly, regarding the initiatives to strengthen our Automobile business structure, since I became the President, I have been communicating the message that we will make Honda strong by creating strong products and by reinforcing interregional coordination and collaboration. We put special emphasis on strengthening of the global models, Honda's core competence, and the regional models. In result, we now offer 5 global models, as you see here, which account for 60% of our global automobile sales today. Our original models such as the N series for Japan, Pilot for North America and Crider for China are playing an important role as a source of growth in their respective regions.

However, accommodating local needs more than sufficiently for each region. We recognize that the number of models and the variations at the trim and the option level have increased, causing efficiency decline. So now we will aim to achieve both attractiveness and efficiency of global and regional models in 2 directions.

One, to strengthen interregional coordination and collaboration; and the other, by advancing our art of making automobiles.

As for the former, with the new operational structure for Automobile business that we started from April, we will review the product lineups so we can share them in 6 regions outside Japan. We can consolidate them based on similarities in terms of market needs and environmental regulations. By 2025, the number of variations at the trim and option level for the global models will be reduced to 1/3 of today. Regional models will be consolidated or rationalized to create more competent models for better efficiency.

Next, with regard to the advancement of our automobile development. Since I became the President, we have improved efficiency and speed of our models [to create] the art of making products, S-E-D-B: functions collaborate beyond the boundaries of organizations, leading to the innovation of planning, development all the way to the production.

Moreover, we have already introduced the Honda Architecture in our development process. This company-wide initiative, Honda Architecture, increases the efficiency of development and expands parts-sharing of the products. The first one developed by this new method will be the one global model to be launched next year. We will expand the use of this new architecture for more models going forward. Reinforcing global and regional models through interregional coordination and collaboration as well as introducing the Honda Architecture, we will reduce the development processes for mass production vehicles by 30% by 2025. Man hours generated there will be utilized for R&D activities in advanced technologies for the future in order to create innovations to support the future of Honda. With those initiatives, Honda will satisfy customer needs of the respective regions, we will continue to create new values and we will establish high-quality business structures.

In addition, in manufacturing business domain, we will further strengthen our operational structure in order to efficiently create competent product. As you see, we are making steady progress in terms of the challenges facing us, optimizing production capacity in the restrictive regions. Thanks to those efforts, the global capacity utilization rate, excluding China, will improve from 90% in 2018 to the full utilization by 2022.

In China, the third plant of Dongfeng Honda became newly operational, which made us be -- surely ready to accommodate the market demands. With such progress, we believe we paved the way to the optimization of global production capacity.

From here onwards, we believe that it's important to improve the efficiency of the production system in North America to enhance competitiveness. For North American business, we expanded sales with more models' lineups and produced a variety of variations of models at their respective plant sites, thus the flexible production system was established to respond to changing demands. However, as a result of the pursuit of high flexibility, an increase in the investment amount and a decline in production efficiency has become an issue, therefore in North America as well, we will reduce the number of variations and, at the same time, we will simplify the production model allocation at each plant. Through this initiative, we will reestablish a highly efficient production system and realize the growth of North American business through the pursuit of quality. By implementing these initiatives to increase efficiency in each region, we are expecting to reduce global cost in the area of production by 10% by 2025 compared to that in 2018. Through all these initiatives, we will steadily strengthen the structure of our Automobile business and solidify our existing Automobile business by 2025 and we will accelerate our preparation for the future as well.

Next, I would like to talk about the specific direction we are taking for the electrification of our automobile for the future. Striving to realize a carbon-free society, Honda set a goal to electrify 2/3 of our global automobile unit sales by 2030. When we talk about the introduction of EVs, there are 2 perspectives: one is improvement of fuel economy and the other is zero emissions. CAFE standards are becoming increasingly stringent in every country, and complying with that is one of the most important challenges for the industry. At Honda, in light of the required infrastructure and how people use automobiles, we believe that hybrid technology is, at this moment, the most effective way for us to comply with CAFE standards. Therefore, we will electrify our products mainly with hybrid models by increasing sales of our hybrid models. Honda will contribute to the global environment.

To this end, we will expand the application of our i-MMD 2-motor hybrid system to the entire lineup of Honda. In addition to the i-MMD hybrid system compatible with mid- to large size, we developed a new more compact i-MMD for smaller sizes. This small-sized i-MMD hybrid system will be adopted first by the all-new Fit, which will be exhibited at the world premiere at the Tokyo Motor Show this fall. In addition to the expansion of the lineup of products equipped with i-MMD, we also will expand the application of i-MMD on a global basis. With that, by 2022, we are expecting to reduce the cost of the i-MMD system by 25% compared to 2018. As for zero-emission vehicles, we will address the local needs of each region with our battery EVs. We recently introduced our battery EVs to the market by selecting the most appropriate partners and the resources for that.

In North America, we will jointly develop battery component with General Motors and introduce highly competitive battery EVs in the market. In China, in order to keep up with the fast speed of electrification, we have already begun introducing battery EV models developed together with the local JV.

While envisioning the introduction of battery EV models from the Honda brand, we will continue utilizing local resources in China and introduce more battery EV models in a timely manner to fulfill local needs. Moreover, in Europe and Japan, we will introduce the Honda E, which was introduced as a prototype at the Geneva Motor Show. To summarize, Honda will popularize and improve the business feasibility of the EV by focusing on hybrid vehicles and battery EVs.

In order to ensure the solid implementation of these initiatives, we renewed our operational structure as of this April. The aim of this are -- aims of these are to establish an organization, which brings all regional operations together; to strongly facilitate interregional cooperation and collaboration; and to increase the speed of our business operations by enabling prompt decisions. Today, I introduced our initiative to strengthen our Automobile business structure and the direction of electrification. Under the new structure, we will realize our goals in a speedy manner. As we stated in our 2030 Vision, Honda is striving to grow through the pursuit of quality so that we can fulfill our vision to serve people worldwide with the joy of expanding our life's potential. Honda will continue taking on new challenges while being driven by strong passion so that we can continue to be a company that society wants to exist even in 2050 after Honda's 100th anniversary.

Thank you in advance for your continuous understanding and support for the Honda challenges. Thank you very much for your attention today.

Thank you very much, Mr. Hachigo. This concludes the first part of our conference. Mr. Hachigo will excuse himself for a while.

So for the second part, financial announcement presentation, will be started from 4:25. At 4:20, the speech content handouts and then also the presentation text for the presentation of financial announcement will be distributed.

(Break)

Thank you for waiting. I'd like to start with part 2, the financial results presentations. Let me introduce our speakers today: the Executive Vice President, Representative Director, Mr. Seiji Kuraishi; Senior Managing Director and Chief Financial Officer in charge of Accounting, Finance, Human Resources, Corporate Governance and IT, Mr. Kohei Takeuchi.

So let us start with the financial results presentation. Mr. Kuraishi, the floor is yours.

Let me start my presentation about financial results of the FY 2019.

Let's start with the group unit sales for FY '19. In Motorcycle businesses, we had an increase of the business in Indonesia and businesses -- in Indonesia and Vietnam. We made 20.238 million units. The first time going over 20 million. And the Automobile businesses, thanks to the new launch effect in China, Japan and the United States and additional sales of the Fits and the CR-Vs, we made the highest record in history, 5.323 million units. In Power Product business, we achieved 6.301 million units. That is better than last year.

Let me talk about our main market situations. In Japan, the Japanese market as a whole was better than last year because of the well-performing [kei] cars mainly. And Honda, we added N-BOX Series products. That is the top unit sales of the past new launches, in the 2 consecutive years since we launched N-VAN and CR-V. Thanks to those, unit sales went higher than last year. And total market FY 2020, due to the impact by the consumption tax hikes, we're expecting the level to be slightly below the year before. Honda is expecting these performance slightly below a year before. However, in addition to the well-performing N-BOX and the launches of attractive new models, we will try to restrict the impact by the tax hikes.

United States total market was slightly below the year before due to the shrinking sedan market. However, Honda has maintained the segment top position for the main product, Civic. We added Insight and Acura RDX, and we launched Passport -- that was the fourth SUV model in the United States, in North America. However, due to the Celaya flood in June, we had restricted the supply due to which unit sales ended up below the year before. The total market FY 2020 is expected to be slightly below 17 million units. However, Honda will increase the sales of the light truck such as CR-Vs and Passport, and we'll have more sales of the HR-Vs and Fit after recovery of Celaya. And we are expecting our performance to be better than the year before. Group unit sales will be slightly below the year before due to the inventory optimization. However, Honda will try to maintain the sales structure with a limited incentive to the strength today and we'll endeavor improving the brand values and the business constitution.

Marysville plant in Ohio will discontinue the second shift operation starting August in order for the production adjustment. However, we will take this opportunity to strengthen the upcoming production structures.

China. Chinese market in total dropped in almost all the segments, whereas Honda have achieved more than 200,000 unit sales of the Civic for the first time. We launched Crider and Inspire, leading to the highest in the history unit sales record. And FY 2020 total market, we still see the uncertainty. We're expecting the level to be same as the year before. However, Honda will add Crider and Inspire, and we will launch Envix, the sister model of the Crider, so that we can aim highest unit sales in the history.

In December last year, we launched Everus VE-1 with Guangqi Honda Automobile Co., Ltd. And in April this year, in Shanghai Motor Show, Dongfeng Honda Automobile unveiled the X-NV Concept. That way, we accelerate electrification in China.

Speaking of the motorcycle businesses, Vietnam and Indonesia, there are -- total market is growing due to the solid macroeconomy. However, in India, due to the change of the mandatory vehicle liability insurance system and the strict credit assessment for financial loans, they had a market slowing down. Honda had a decline in India. However, we had increased sales of our main product scooter, Vision, in Vietnam and we had a good well-performing scooter market in the Indonesia. And we launched the PCX, too. Therefore, unit sales in 4 countries in Asia surpassed that of last year. Total market in 2020 -- FY 2020 is expected to have one-time deceleration because of the stricter environmental regulations in India, and elections in Thailand, Indonesia and India. Honda, like the whole market, we're expecting the transient reduction of the unit sales. However, in the mid- and long-term perspective, we will try to address the regulation for the environment as well as the new product launches for the better growth again.

And for FY 2019, in summary, the sales revenue had made record highs in all of the business categories. Operating profit was at JPY 726.3 billion. The decline of the profit due to the onetime impact such as the change of the production system for automobiles in Europe and currency exchanges. However, excluding them, we have made a cost reduction efforts that is higher than the raw material hikes or the motorcycle increase -- motorcycle sales increase in South America and Asia, and we have operating profit increased by JPY 82.2 billion in real terms.

Unit sales [appeals] as follows. Speaking of the expectation of the FY 2020, operating profit was JPY 770 billion and is planned. As I said before, excluding the onetime impact such as the production system changes or currency impact, Automobile business, we would expect the sales to decrease due to the slowing down market in the U.S. as well as consumption tax hikes in Japan. However, we will carry out the cost reduction further to achieve the business structure as good as last year. The sales -- unit sales are noted here. Annual dividend for FY '19 will be around JPY 111 per share. And dividend per share for the fourth quarter was JPY 28. And annual dividend for FY 2020 is expected to be JPY 112, JPY 1 higher than FY 2019.

Let me then ask Mr. Takeuchi, CFO, Senior Managing Director, to give details of our financial results.

So let me share with you some more details. First, during the fourth quarter, the -- as for the Honda Group unit sales. Motorcycle units increased in Brazil and Nigeria but mainly due to automobile liability insurance scheme change and stricter loan screening in India. Volume decreased overall. Unit sale of Automobile business increased in U.S., China and Japan.

As for the profit and losses, sales revenue increased thanks to growth in automobiles and the Financial Services business. While enjoying some cost reduction effects, the operating profit decreased due to impacts from the production, structure change in Europe and the foreign exchange impacts.

Now let me show you the changes in profit before taxes. The profit before taxes in the fourth quarter was JPY 111.1 billion, down by JPY 79.3 billion year-on-year. Operating profit was JPY 42.3 billion, decreased by JPY 84.4 billion year-on-year. Meanwhile, excluding foreign exchange and one-off impacts, despite the increase in R&D expenditures, thanks to our cost reduction effort and others, operating profit increased JPY 54.3 billion. Please note that the impact of the automobile production scheme change in Europe of JPY 68 billion includes losses from fixed asset impairment and compensation for employees and so on.

Let's move on to the business performance of each segment. Motorcycle business operating profit. Due to worsened foreign exchange rate in emerging countries and the Vietnamese new year -- Tet season-related timing differences of wholesale, in this fourth quarter, decreased year-on-year. However, looking at the real changes, excluding foreign exchange impact, sales volume decreased due to India's slowdown, and the raw material price hike were offset by our cost reduction efforts that resulted in growth of profit in real terms.

Let's move on to Automobile business. Automobile business saw operating losses even though we enjoyed cost reduction effects. As I said before, affected by production scheme changes and ForEx, losses were JPY 53 billion, down by JPY 79.8 billion.

Power Product and Other businesses made operating losses due to volume and the mix exchanges led to decreased profit. Losses were JPY 8.7 billion, worsened by JPY 5.6 billion year-on-year. Please note that the Power Product and Other business includes aircraft and aircraft engines. Their operating losses were JPY 10.9 billion, improved by JPY 600 billion year-on-year.

Next is about the Financial Services. Thanks to operating lease revenue increase, operating profit was JPY 59.1 billion, went up by 22.7% year-on-year.

The 12 month total P&L are as you see in this slide. Let me explain the cause of these changes. This fiscal year's profit before taxes was JPY 979.3 billion, down by JPY 135.5 billion year-on-year. Operating profit was JPY 726.3 billion, down by JPY 107.1 billion year-on-year. Meanwhile, excluding foreign exchange impacts and one-off factors, despite increases of SG&A, thanks to effect of cost reduction and others, operating profit went up by JPY 82.2 billion. Other factors impacting changes are shown in this graph.

Here I'd like to explain about the consolidated performance forecast for the FY 2020. The first, Honda Group unit sales. Motorcycles, 20.250 million units; Automobiles, 5.16 million units; Life Creation business expects 6.39 million units.

Please note that we aim to go over the unit sale of last year in retail volume. However, considering inventory optimization in the U.S. and the impact of the consumption tax hike in Japan, we set our target volume at 5.16 million units.

The FY 2020 consolidated financial forecasts are as in this slide. The reasons for changes. The impact from the production scheme change of raw material costs. Excluding these, revenue decreased due to worsening product mix, to be offset by a further cost reduction efforts and SG&A efficiently -- efficiency enhancement. The company is targeting to achieve same level of financial standing as FY 2019.

Lastly, let me show you our plan for the FY 2020's capital expenditure, depreciation and amortization, R&D expenditures in this slide. Thank you very much for your attention.

That concludes the -- our second part, the financial announcement. Later, we will have a Q&A session. Please wait until we are ready for the Q&A session.

(Break)

Thank you for waiting now. We would now like to entertain questions from the floor. Since we had a 2-part presentation today, so we'd like to take questions regarding the business directions -- the part 1 -- and then we will entertain questions for the second part, financial results.

If you have questions, please show your hands. And we will take questions in English as well. And a staff member will bring you the microphone, so please state your company name and your name to ask a question. The gentleman in the back, please?

Nihon Keizai Shimbun. Thank you very much for your presentation. I'd like to have -- I have 2 questions to Mr. Hachigo. The production capacity [would like to present] will be full in 2022 from FY '19. And then do you have to reconsider your production system in order to achieve that?

So reviewing the production systems, we have already made announcement. Japan, Brazil and Thailand, Europe, up to this -- the structure changes up to here -- it will give us the full utilization of the capacity. And at the moment, we have no further idea about production structure reorganization further than that.

So the other one is you talked about the long-term targets and so forth, and those are the targets set forth for the 2022 and 2025 with regard to Automobile business structural changes. That means in the meantime, in the next 3 years, you're going to have to be tolerant with what you have today? Or what -- where are you today at, up to that goal you have?

In terms of the financial announcement this time, we look into the exchange fluctuation and also the cost differences associated with the production structure changes in Europe and so forth. But I think overall, the structure we have is improving. And then as far as 2025, we'd like to change our production structure one step ahead. And then I feel we are at the 70% level of actually our goal.

I'm from Asahi Shimbun newspaper. My name is [Kim Rai]. I have 2 questions to Mr. Hachigo. So this, the automobile structure enhancement, thanks to that, 2025. As of 2025, your vision for the operating profit margin is -- do we have any specific idea about that? As of today looking at the financial results -- and Automobile business is suffering the operating profit margin, and that's why you are trying to enhance the structure. And is there any plan or concrete idea? And another -- second question. Well, this time -- for the strengthening structure, the sales units -- sales volume, you are going to increase, is that your assumption for the plan? The -- could you share with us your thoughts about the sales units?

Yes. Your first question about the profit -- the concept for profit. Our -- we tried to -- we are not disclosing the specific number regarding profit level that we are targeting, so I can't really answer to your question directly today. It's really hard to say that is achievable in 2025, but we hope to go back to the level before the global financial crisis period. That's what we are targeting.

And your -- another question, the assumption for the -- you're talking of the sales volume. The production capacity utilization as of today, we -- the direction is to keep the current production or the sales volume level. The capacity of production toward the target volume, but there are things that we can add by changing the work style and so on. With the demand increases, I think we can deal with that by being creative. But as the business, the current volume number, the company is trying to maintain the current level. That's the assumption.

Hans from Automotive News. Let me ask a question in English.

We have a translator.

I wanted to ask about the North American scenario and your new Honda Architecture. When you talk about reducing the number of model variants and consolidating or simplifying production, what do you mean by that? Could you give us an idea of how many numbers of variants will decrease? What kind of variants you're phasing out? Or how you will restructure production? Also regarding the Honda Architecture, what are the merits of those new architectures in terms of cost and performance?

(foreign language) The question is being translated now.

For the question 1, in terms of the variants' numbers. That actually is to include various equipments for our model. In one model of the car, there are many variants available, and for that matter, we are going to make it 1/3 of today's global model, so that is the target.

And in terms of the Honda Architecture, there will be 2 areas to apply: one is the parts sharing; and the other is the specific exclusive parts area for each of the models. And first of all the platform, the engine room, cockpit and rear areas, those will be handled as a part-sharing sort of approach. On the top, we have exterior, interior parts related to the design, type parts or those parts which will make the model characteristic. Those things on the top, those will be developed in that approach, therefore, the number of the models for production and also the processes in the development will be streamlined. And then the developments processes for the production -- mass production vehicles will be reduced by 30%, therefore, we can get our resources for the future production -- future technology developments.

[Heido Otosai of Kansii], I have 2 questions. Some overlap with the other question regarding the variants -- reduction of variants. How do you select which one to discontinue? So the more profitable variants will remain, or there are more [annual AVs,] so mechanism will be very costly and that will harm your margin? And then also regarding the regulations. There are differences in different regions. And how are you going to select the variants that you keep and discontinue?

Regarding the number of the variants to become the 1/3 of the current level. For example, Civic model, how many different types and variations are made compared to other OEM companies? We tend -- Honda tends to have a higher number of variants than this status quo. So the things that are really needed by customers, we'd like to focus on these variations. And in region -- in different regions, if it's not really necessary to have the local-specific functions, we don't -- we try not to focus too much on that. And we might need to reduce that to 1/3 of the current level, otherwise, we cannot really exercise our strengths of our current global model. That is what we are working on and going toward that direction.

So if -- that said, so you are not going to reduce the number of models?

No, not reducing the number of models. In particular global models have many, many variants or variations, therefore the one instrument or panels -- there were many colors offered or as options. There are many things offered, and that makes the different variations. That's what we are going to reduce.

And my -- another question. The part commonization, I think you talked about that. And the development man-hours to be reduced to 30% of now, like commonization level. And how much cost reduction you are expecting -- because you did not mention that. Do you have any specific target for that?

Well, the -- it's not about the parts commonization itself. However, the architecture, the common areas of the Honda architecture, so we'd like to -- so that's the fundamental part to beat. 70% of that. That's our target. That cost-wise, we -- it's premature to talk about that costing here today. When we have some results, we would like to show it -- share it with you.

[Kawaguchi] from [Ummen Ensta]. Earlier, you talked about your development processes to be down to 30% by 2025 so that we can use the rest of the resources for advanced technology areas. And why do you have to do that? What are your thoughts about that, Mr. Hachigo? And in terms of the investment on R&D, this fiscal year, that is actually going to increase. And then do we expect that investment to go up going forward?

So in terms of the use of those resources for the advanced technologies, of course, you may understand what it is about. CASE or MaaS areas, those are still answers in a way, however, we need to have R&D expenditures to be utilized in there. So the processes for the R&D is -- we'll have to put into those technology areas. In terms of the cost for R&D, I'm not saying that we are going to continue to increase on and off with that part. We would set forth a certain amount -- a defined amount, and then we will use them for the development of the future technologies and also our technologies which are for the current production models. And then in those 2 categories, we will try to make a more efficient utilization of the resources for the existing model type development. That way, we want to have an efficient use of that and because of that we reorganized our R&D in past April with that target in mind.

Kevin Buckland, Reuters. My question is about this. To Mr. Hachigo. Hydrogen fuel cell. So you've been the leader of this technology. Only a few players are very serious about that up until now and -- but I really feel that you're moving much towards EV. And I would like to know your current position for the hydrogen fuel cell. Are you going to push it, or you're actually channeling these resources to EV?

(foreign language) The question is being translated to Japanese now.

But as of today, zero-emission vehicle including the laws and ordinances, regulations and the performance improvement and cost reduction and each country's regulations and current infrastructure situation for a while, so what we can sell to our customers would be the battery EVs. So therefore, we'd like to work on the battery EVs as our main products for the zero-emission vehicles. But if [CV] for the future, there is a technology of the zero-emission vehicle, that is still great technology, therefore, we continue developing that technology. However, so we have to refine our mass production technique and others, we still have challenges. So we'd like to overcome those challenges. We work hard. However, the main product would be the battery EVs for a few years from now. That's what we are thinking.

Well, we passed the half of the period given to the Q&A, now we'd like to take questions for the financial results.

Sankei Shimbun. My name is [Atakahashi]. Earlier, you talked about the CASE and MaaS. And in past March, you had a contract at investing -- to invest Monet Technologies. And also, you announced your participation with a capital in GM Cruise. And then what is the business model in the future you have in mind, Mr. Hachigo, in terms of the MaaS and CASE?

So those areas, in fact, are still not yet in the stage where we can definitively say what sort of businesses we want to have. And in terms of the collaboration with GM Cruise, this mobility services -- [amounts to] mobility services to be developed together. That is the type of the thing we're going to do. And it is going to be the investment for that type of the business. And with regard to the collaboration with Monet Technologies, that is for the mobility technologies in Japan, and we have to see how it is going on and then define the business over there. And also promote those areas. And we need to promote those kind of the businesses as all Japan efforts, we are part of that now. And in each of the regions, the stages are different. And then in each of the areas, we will make the partnership in different companies or people in the different regions.

I'm from Nikkei Shimbun. I have question to Mr. Hachigo. For the 1/5 of the -- the size of the motorcycle is 20% of the automobile size, however, the profit is higher by -- made by the motorcycle. How do you think about that?

Our Motorcycle business is very profitable and high margin. We are very proud of very high margin as the #1 manufacturer of that. However, looking at the world, in particular, the Chinese and India manufacturers are catching up with us very quickly. Chasing somebody from later is easy to catch up rather than being the pioneer. The Motorcycle business, unlike the Automobile, we are not seeing such significant changes here because internal combustion still remains in the motorcycle still. We tried to -- there is a very intense competition in order for us to be the #1 position in the Motorcycle business. But in order for us to survive as a winner, so from this April, the research center of the Motorcycle and Automobiles are integrated together for manufacturing, we will manufacture 20 million units of motorcycles all over the world. We'd like to improve our manufacturing and then also the product attractiveness. For sure, the #1 manufacturer position to be kept -- we have the very decisive -- we are working on that very decisive manner to keep that.

[Nakajima Minami office]. With regard to the question now, you were asked, you are the #1 manufacturer of the motorcycle. And you didn't really talk about your prospect in the future in this context. When are you going to make a decision about Motorcycle businesses, Mr. Hachigo?

So with regard to the directions of the Motorcycle businesses, I'm not saying that we are not -- not saying anything. As of now, in the market of today, we have a commuters and fun categories. And for the commuter part, we have very good business mainly in the emerging markets and we do sell in a number as well. In terms of the fun category, that is mainly in advanced countries. That actually was a little bit weak. However, in the last few years, we launched new models. We pushed that part again, we revived, and then I believe that our brand is getting the strength once again. However, in the mid- and small-sized motorcycles, just between the commuter and the big sized fun type motorcycles, we are seeing the emerging manufacturers from India and China and we want to demonstrate our strength in those areas, too. Japan, India, of course, all of us are trying to direct for electrification. And in Japan, of course, we have to involve other manufacturers, coming up with a consortium, standardize electrification of the motorcycles. And of course, we have to keep our number one position and we get to be prepared in a leading fashion for the next-generation electrification of the motorcycles.

From Nomura Securities, my name is Kunugimoto. I have 2 questions. My first question for the Automobile, the structure strengthening, that is what you talked about and the production cost to be reduced by 10% by 2025, and the subject amount is that JPY 8 trillion to JPY 9 trillion is the base for that 10% and reducing by 10%. How many billions are you talking about? And then from now on, the 7 years, so what is your pace for the reductions? So 1/7 each year to achieve the 10% reduction, or you do that higher reduction in close to the target?

And the second question is the electrification will be the core of your business, and that is similar to the strategy by Toyota. And from now on, the production costs you're going to reduce. And background on why you couldn't do that so far? And 25% of the cost reduction achieved for hybrid, and that will make the margin better. And by reducing 25% of costs and compared with the gas-powered cars, how do you see the profitability of those vehicles?

So to your first question regarding the 10% reduction first. So from Mr. Hachigo, he mentioned about the concept of the production and development work. And in the end, reducing the variations and introducing the architecture to make the business more efficient as of today, including the suppliers. And we have not really studied thoroughly regarding the processing costs, including suppliers. So first we have to reduce that by 10%, what we can control. And it takes some years to do that. And because of the production and the fixed cost reductions and production optimizations are the path of those efforts. And we will tackle that step-by-step.

About the hybrid cost. Hybrid cost, we would like to do that business globally in i-MMD system. It will be expanded to the whole lineup of Honda and so that we can enjoy the economy of scale. So we would like to achieve the same level as the gas-powered cars in the cost structure and the profitability. That is what we are aiming to achieve, and that's why we set the 25% target.

For Mr. Hachigo, suppliers may be very thrilled or feel excited about it because the hybrid EV is modeled like that -- and also, how do you restructure the supply chain? And what is the impact of that?

What we're going to do now is at the Civics, for instance, as an example. We'd like to reduce the types of Civics -- number of types. And doing that, from the supplier's perspective, they would have -- they don't have to have tool and dies fewer. Or don't have to change the tool and dies as often. And then we really ask them to have to create many types -- that was a type of a waste in a way. And therefore, for the suppliers, it is beneficial perhaps. They may be excited we're -- or because of the reduction. And I'm not saying about reduction of the number of the product to produce, but we are trying to improve the efficiency and we are not going to cause troubles for the suppliers.

From Wall Street Journal, my name is Tsuneoka. For that next fiscal year's forecast, I have some questions. This fiscal year, revenue, the record -- you had a record high revenue but the next years since revenue, you forecast -- excuse me, this fiscal year that you expect a 1.2% reduction decrease. And regarding the profits, profit will increase. That's -- you expect. So this is because the -- due to your new strategy or the policy that profit margin to be increased is my understanding, correct?

Let me answer. The last fiscal year, not this fiscal year, and the relationship between sales revenue and the profit, right? Forecast is about this fiscal year. The sales revenue compared with last fiscal year will go down. The biggest cause is that the sales volume of the Automobile, that's about the wholesale. The retail will be flat. The decreased sales volume of the wholesale will harm the sales revenue, and there is also some impact from foreign exchange rate. Then how do we achieve the profit flat or even higher? The last fiscal year, the change of the production scheme, the Europe -- in Europe, the impact will be smaller this fiscal year. And that will be a positive factor for us. And the negative factor, with the sales units decreased, that is a negative impact. However, we are going to recover that by our further cost reduction effort. And in the end, we will have the positive profits. Any other questions?

[Shinjou]. Well to be honest, I do not understand too well because it's been 4 years after Mr. Hachigo was in place of the President. And you reflected on the 6 million schemes of the previous president, decreased the number of variations -- variants. However, the unit sales for the type didn't increase. And then now you have -- you are going for the more common shared platforms and so forth. And for instance, the number of the platforms can be streamlined or parts could be shared in order to reduce the variants. But when you work on the number of the platform, actually, that is something against the efforts trying to increase the sales. Of course, it is not nice to have variants to grow and increase in number without control. But in the States and China, of course, you would like to have a solid business. But you increase the type of the models or cars or the variants because of the needs. And if you start doing something on that, the current business may be at risk. Rather than commonizing the platforms or parts, maybe you could use them and then you could present them in a fashion that they may look different and in a way they may look different in relation to another.

Then Mr. Kuraishi may be the expert in that in the States and in the U.S. -- the States and China, the number of the sales is going flat. That means you should keep the number of variants there. You shouldn't decrease the number of the types. And while doing that, you could reduce the number of the parts or the number the platforms. And then why do you have this scheme of reducing the number of the variants down to 30%? It is a very large move. And then that may be -- affecting on the sale structure or I suspect that you have some discrepancy or disagreement between the production and the department?

Such is not true. I talked about the models -- number of the models to reduce. Excuse me, I didn't say we reduce the number of the models. We didn't say it. For instance, out of our Civic model, we have many variants. In the States, for instance Accord, there are 3 models of Accord in the States. And then we need to adapt them to meet with the customer needs. And then we increased the variants we need for the customer [wants]. And then that way we sort of increased the variants on and on. And then we now believe that the regions responded to the request of the local customer -- that was good. However, some of the variants didn't sell so well even in -- amongst the same model. And then I'm not going to say we are going to restrict the number of the models. And the variants of the global model can be streamlined with the cooperation by the regions. And then the regional models will be, of course, designed with electrification, so forth. And then we want to consolidate such regional models in a way so that they are competent. Utilizing the architecture, we can nicely come up with the good variants for the region. Maybe the regional model for the United States, may be slightly different from that of -- for China. And this way we can commonize that part, based on that technology. And then I'm not saying that our sales department are complaining about a possible reduction of the sales unit because of that. We don't have such disagreements.

Mr. [Surashi] is saying that the number of variants may be reduced for the global model mainly, and there is a need by the sales, by the developments. Because of that we ended up with many variants by now. And some of them were not selling too well. And in some cases, we only had the variants, although it wasn't sold too well. So I think in terms of the number of the variants, we could be doing really enough with the 1/3 of the variants. That is enough for the sales for the global cars.

And then in the States and China, we have so many variants as I said earlier because of the number of the models increased in China. For instance, we had a China-exclusive model, which increased and in a sense, that effort is slightly overlapped with the architecture but we have GHAC and WHAC (sic) [WDHAC]. We have 2 sites in China. Therefore, we needed to have 2 models for 2 sites. And we should have utilized a Japanese model to come up with the 2 different needs, and that part will be handled as we -- just as we did so far. I'm not going to -- we are not going to reduce the number of the models.

We have models for China and Asian countries. Some are similar, which can be consolidated, and some of the special equipments or the features could be redundant, and this will give more efficient sales activity as well. So anyway, for the salespeople, it will be easier for selling. Like in Japan, you're given the catalog of the cars and you see so many variants available. And then sometimes when you go to the shop or dealer, you want to have a certain feature but some are not available. And including all those redundant areas we want to streamline -- and doing that effort will not necessarily mean the unit sales -- the volume of the sales to reduce. We will work together between the sales and developments, and it is not a strategy to reduce the number of our units.

So if I may add something. What Kuraishi-san is saying, I understand half of what you are saying. However, that -- you are patient. From the sales frontline, the models which are not selling well, these are still your models. And from the efficiency standpoint, not enough amount of power and your total volume will be less than 5 million now. And I think it's a very tough decision -- tough selection. So Honda is thinking about discontinuing the Kei car or the platform for Kei cannot be used for other purposes and you are struggling to sell 1 million units. And the total number in global market is limited and you have to have some attractive model, the cars for each region. And sales division should have a very clear request to the development, otherwise there would be a big gap between what the development people make and sales want.

I think the part of what you're saying is true, but so far, we -- the accepted development-driven products, and that resulted in the more number of variations. And in a different standpoint, we'd like to be more sales-driven. That's what I am discussing with Mr. Hachigo. Now, Mr. Hachigo, do you have something?

In any case, I tried to go to the sales frontline. The number of models, as you said, it's necessary to some extent, but within the one model there are so many different variants available. The -- from suppliers' viewpoint, there are many needs for the dye changes -- and the sales side, there are too many options or variants. And the development side need to develop something new. Though we are not blaming somebody specifically, however. But in the end, everybody agreed that we have too many variants as a whole company. That's what we all feel, so that's why. We have to see our business from the customer's viewpoint, and we have to be more selective from the customer viewpoint. So we kept adding something new. So even keeping the old-fashioned, obsolete models even though there are so many rapid changes going on, but we'd like to be -- to offer more suitable products for the current period.

Shimizu of Nikkei Automotive. Well, now we're -- you are able to negotiate with the full hybrid with [Toyota] without Fit. And then DCD motors which had a problem, are you going to discontinue that altogether? Or what is the problem of the DCD in retrospect -- DCD challenges, what was the issue about it?

Well, i-MMD for compact sizes or small sizes have been developed, and we're going to apply that. And in terms of that, when we have a model change, i-MMD will be applied. And in terms of the i-DCD, rather than individual issues, in order to pile up the volume, we need to commonize the systems meaning the system for a broader range of the models had to be considered. And we discussed a lot. And finally we decided i-MMD could be the hybrid technology that can be applied for many more models going forward.

So that concludes our presentation on the business directions and then also financial result announcement conference. Thank you very much for your attendance.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]