本田技研 (HMC) 2020 Q2 法說會逐字稿

[Interpreted] Thank you very much for waiting, and thank you very much for your coming today for our financial results announcement meeting.

And I'll like to first introduce our attendants.

Mr. Kuraishi, Executive Vice President; and Mr. Takeuchi, Senior Managing Director in charge of our Strategy, Business Operations and Regional Operations -- excuse me, Accounting, Finance, HR, Corporate Governance and IT; and Mr. Morisawa, the Corporate Chief Operating Officer, Business Management Operations.

[Interpreted] To start this, I'd like to extend my deepest sympathy for those people who have been affected by the Typhoon Hagibis the other day.

I wish the quick recovery as soon as possible.

Now I'd like to start our announcement of the second quarter results of our FY 2020.

And in terms of the Honda Group unit sales of the second quarter cumulative, our Motorcycle, 10,019,000 units.

Automobiles, 2.562 million cars.

Life Creation businesses, 2.435 units.

Let me talk about our main markets.

First of all, in Japan, in terms of the total market.

Due to the new car [loan given] by the various OEMs as well as the last minute demands before consumption tax hikes, we had made the better results than the year before.

And Honda enjoyed group sales of the N-BOX and N-VAN, and we have recorded the better-than-the-market unit sales.

The total market for FY 2020, our forecast did not change.

And we expect this size will be a little bit below the last year.

And our forecast, based on the effect by these part supply limitations of our new N-WGNs, we have now revised our forecast.

And the other day, we made an announcement -- excuse me, we made a world premiere of the new Fit in the Tokyo Motor Show.

In the United States, the total market has been a little bit down year-on-year despite our fleet sales increase and sedan market shrink.

In the shrinking sedan market, Honda had reduced unit sales of the Accord.

However, we firmly maintained our leading position in the segment with Civic several months in a row, and we're expanding our shares in the sedan market.

We had increased sales of -- we had effect of the launch of our CR-V and Passport, and we maintained the sales -- unit sales, same as last year.

And in the last 3 months, we have recorded the record highest unit sales of the CR-V in August.

And we have upgraded the monthly sales record in the United States alone in October.

And FY 2020 total market, we're expecting the size a little bit below 17 million.

However, Honda will strengthen their competitiveness by a minor model change of the CR-V, main SUV as well as the new launch of a CR-V Hybrid, plus we'll have the launch effect of the Passport.

Therefore, we aim to hit better than last year as unit sales despite a shrinking car market overall.

And in China, total market has declined in all segments.

However, Honda increased unit sales of our CR-V, Accord and Crider.

And thanks to the effect of the Envix launch, our new model, we have made better than the last year unit sales.

And the total market FY 2020, we're expecting the size a little bit below the last year.

However, thanks to the launch effects of the Breeze, our new model and a new EV X-NV, we will aim to hit the record highest unit sales.

Motorcycle businesses.

The total market remain 4 countries.

Due to the tightening loans screening criteria in India and also economic downturn, personal individual consumption declines.

The motorcycle total margin in 4 countries was below the level last year.

Therefore, in India, we had a market slowdown, and we had results below last year.

And the total market in FY 2020, because of the continued decline of the individual consumption in the Indian market, it is difficult to see a quick recovery.

Therefore, we expect the level -- the results will be below the last year.

And we have down revised our forecast because of the deceleration of the markets.

And we launched the Activa125 in India, meeting new requirements and that is popular.

As a result, cumulative second quarter, excluding the currency effects and onetime issues, though we had a decline of the unit sales.

However, thanks to the cost [retire was up,] we had increased profit by JPY 50 billion, our operating profit year-on-year.

And unit sales and finance share results in this slide.

And the focus of April 2020, despite a currency effect and economic downtown in India, we have less unit sales due to the Japan parts supply limitations.

We will make the steady efforts to improve the profit to achieve the business capabilities as before, the profits and losses and unit sales on the slide.

And FY 2020, the annual dividend expected to be JPY 120 per share as we announced before.

And the second quarter, JPY 28 per share.

In the Board of Directors' meeting today will result for the share buybacks.

And -- with the purpose of the capital efficiency improvements and to implement a flexible capital policy, we will buy the shares back from the market for as much as common stocks [survive with] JPY 33 million or up to a total sum of JPY 100 billion.

The acquisition cost between November levels at 2019 through the March 31, 2020, and shareholders returns are in this graph.

And Mr. Takeuchi is going to give us the details of the forecast and results.

[Interpreted] Thank you.

Starting with the financial results for the second quarter.

In terms of sales revenue, we saw an increase in financial services business operations.

But due to decreased sales revenue in automobile business and motorcycle business as well as negative foreign currency translation effects, we are at JPY 3,729.1 billion.

In terms of operating profit, there was a decrease in profit attributable to decreased sales revenue and model mix.

However, due to decreased sales, general and administrative, aka SG&A expenses as well as our cost reduction efforts, it increased to JPY 220.1 billion.

Next, I'd like to explain the causes of the change in profit before income taxes.

The profit before income taxes for Q2 is at JPY 289.6 billion, which is a profit increase of JPY 6.5 billion from the same period last year.

The operating profit is at JPY 220.1 billion, which is a JPY 5.6 billion increase compared to last year.

With the operating profit, excluding foreign exchange effects, there was some impact of decreased sales units about the reductions in quality-related expenses and others led to a JPY 38.5 billion increase.

Next, I will explain the performance by business.

The operating profit for the motorcycle business was due to a decline in sales units caused by the slowdown in the Indian market, came to JPY 77.7 billion.

Next, the operating profit for the automobile business was due to the decrease in the SG&A expenses as well as our cost reduction efforts.

It came at JPY 74.9 billion.

Next, the operating profit for the financial services businesses was that -- due to factors, including an increase in operating lease revenues came at JPY 66.3 billion.

Also, the operating profit for Life Creation and other businesses was due to decrease in the SG&A expenses, came at JPY 1 billion.

The operating loss from aircraft and aircraft engines included in this life creation and other businesses section came to JPY 9.2 billion.

The combined operating profit related to automobile product sales included in the automotive business and the financial services business is JPY 138.4 billion, according to our calculations.

The consolidated results for the second quarter is just as shown here.

To explain what led to the change, the profit before income taxes was at JPY 579.4 billion, which is a JPY 61.8 billion decrease from last year.

The operating profit was at JPY 472.6 billion, a JPY 41.2 billion decrease from last year.

In terms of the operating profit, excluding foreign currency effect, although there was an influence of sales unit decrease, we ended with a JPY 9.3 billion increase due to factors, including cost reductions.

Next, I would like to go over the Honda Group unit sales forecast for FY 2020.

First, the Honda Group unit sales forecast for the motorcycle businesses is a 45,000 unit decrease from our previous forecast.

That mainly comes from India, at 1.99 million units.

In the automobile business, due to the impact of part supply restrictions in Japan and the worsening of Indian economy in Asia, it comes to 4.975 million units, a 135,000 unit decrease.

In life creation business, our forecast is a 120,000 decrease at 6.27 million units.

The combined sales forecast for FY 2020 is as shown here.

Next is on the factors of the change from last year's performance.

There was a decrease in profit attributable to decreased sales revenue and model mix as well as foreign currency effects.

There was also an increase due to cost reduction effects and decrease in the SG&A expenses, which gave us the forecast of JPY 690 billion in operating profit.

Next, after reflecting factors including foreign currency effects, we have revised our fiscal year 2020 forecast on operating profit at minus JPY 80 billion.

Lastly, the forecast for the capital expenditure, depreciation and R&D expenses are as shown here.

That concludes the presentation.

Thank you.

[Interpreted] So now we would like to take questions.

Please show your hands if you have questions, and we will accept questions in English as well.

A microphone will be brought to you, and please tell us your company name and your whole name please.

Thank you.

The gentleman, second from the back.

[Interpreted] I'm Okada from Nikkei.

The U.S. and China, in terms of -- what is your understanding on the -- in terms of the environment in these 2 nations?

Also, Toyota is saying that they have gotten the highest level of profit at midterm, and you're saying that you're losing profit.

So perhaps this is partially due to part issues, part failures, or maybe there are some other cost reduction efforts that you're still lacking in?

So I would like to hear more on that point.

[Interpreted] Yes, the first question was about the business environments in the U.S. and China.

Is that correct?

Let's start with that.

First, with the U.S. I would like to share with you my understanding.

The overall market in the U.S. is that from July to September, it was 4.318 million, which is 101%.

This year, we think that this -- we're at the phase of making adjustments.

And also because of the trade friction between the U.S. and China, we think that the -- and there's also the -- we're missing the advantage that we can get from the tax benefit.

So that is why that we will probably go slightly under 117 million.

In terms of light truck, we expect the sales to be at high levels.

On the other hand, we at Honda in that period, we posted 102% growth.

Light duty was 50% -- 56%-plus.

So 90% compared to the same period last year.

So overall, it was 103%.

So we're being very successful in the U.S. market.

Civic is at 110% compared to last year.

And so the segment, 85%.

That segment is going very strong.

CR-V is 106%.

As the market shrinks, the CR-V, the new Passport, light truck models are going very strong.

And we will continue to grow our business to post even better results than last year.

That is our situation in North America.

Next, on the question about China.

The overall market in China is that in Q2, 1.03 million units.

[Genet] has said that.

They reduced their expectations for overall sales volume 26.88 million total unit sales.

So overall, the market is expected to be shrinking.

So given that environment, Honda in this QT, we posted 106% compared to last year at 378,000 units.

We think that we're at a turning point in China.

The market situation is looking quite difficult, but we think that we continue to be a brand that people choose.

With the other -- the electrification, the various technologies that we are implementing in China, we will leverage our brand strength to further enhance our lineup, to have at least the same level of success in China, if not better.

The other sales in China in most recent month in October, we are being quite successful, especially the hybrid models.

We sold over 15,000 units of our hybrid models via the consolidated sales in October was 15.2%-plus compared to the same period last year.

So we think that if we continue this, that we'll be able to comfortably reach a level higher than what we had seen last year.

Overall, looking at the first half of this year.

Our main markets of U.S. and Japan and China, all these 3, we're going quite well in all 3 of these key markets.

However, unfortunately, because of the supplier situation that we have in Japan, we cannot hope to increase the supply amount, the supply volume.

And that is fine for N-WGN, and ultimately, for Fit too.

The sales of these 2 models had to be delayed.

So we'll start seeing impact of that in the second half.

On the other hand though, and I think this goes for all the other competitors too, especially in the Asian region, especially India, yes, the market is quickly contracting.

It's very stagnating at a very rapid pace.

In terms of motorcycle in the southwestern part, there was flooding in India.

So that is one factor.

So we are struggling in India, I must say.

On the other hand, we have 6 models.

We just launched Activa, as mentioned earlier, but more than we expected, the sales are going quite well.

So either way, these environmental restrictions are still going to be our strength, and we can hope to grow our sales further.

Anything on top of that?

Thank you.

I hope we were able to answer your 2 questions.

Let's take another question.

[Interpreted] Yes.

The gentleman at the front with the eyeglasses, please.

[Interpreted] [Min Lee L.] Taguchi.

I have a question to Mr. Kuraishi about spending of R&D -- R&D expenditures.

According to your forecast, there was no change to that.

However, CapEx is a less amount.

And then, what is the difference about?

And still, you keep the higher level of the spending though, of course, the many models are quite well doing.

However, the situation is difficult in the second half.

And then, I'd like to know if the same level of the spending can continue going forward.

[Interpreted] This year, in terms of the model development cycles, especially in the second half this year, we have quite a few of those projects overlapping with each other.

And we are getting more coming in the second half, including a case.

We need to do the investment for the future.

That's important.

And then as we said before, we aim to achieve the 5% level of our R&D spending going forward.

[Interpreted] Other questions?

Yes?

[Interpreted] [Morita] from Asahi Shimbun.

So new and welcome question.

You say that the production will resume in early 2020 calendar year.

And if you have a more specific scheduled plans, please tell us about it.

In WGN, you said that in the beginning, you said that production will resume sometime within October.

However, the problem prolongs as I see.

And then in terms of the suppliers, perhaps the issuers or the suppliers have a -- be more than expected, however.

How do you analyze the reasons why the air problem still stands?

[Interpreted] Question about -- well, problem of the air and WGN because the troubles to customers, and we do apologize for that.

And in terms of how we see that situation, so rather than the quality issue, it was the first place was the production line variabilities.

It was rather big in terms of the variabilities.

And then, it was difficult to forecast the long-term delivery plans.

And then because of the trouble causing for the customer, and then we needed to be sure we would not have the same problem again, and then we decided to resume the production until we are very sure of the supplies be back without a problem.

And then in the first place, when we were developing that model, the production line, let's say, the confirmation of the production line was supposed to be done perfectly.

However, it wasn't the case apparently, and I need to reflect on what happened and then we need to review closely what happened for the future.

Other questions, please.

[Interpreted] I'm Kishimoto from Toyo Kasei Paper.

So about the other part failure for N-WGN and Fit.

Fit is going to be delayed and also N-WGN, the production's being halted.

So I was wondering about this loss of opportunity.

Perhaps that is going to have some impact on your overall financial forecast.

I would like to have an understanding on if you have any figures in your mind.

Another part of this question is that the other day, you have announced about that merger of the suppliers.

I imagine for the future, you will want to especially enhance the competitiveness of your suppliers.

So what about the other suppliers that are not in the merger?

What about your other related companies?

Will you continue doing this restructuring, reorganizing?

If you are going to continue with that, what is at the core of this whole concept, Mr. Takeuchi?

[Interpreted] Yes, I will start with the N-WGN and Fit.

My apologies once again to our customers.

So the financial impact.

That, of course, has an impact on the other profits.

So I cannot really give you details, but the image is that in Japan, compared to the last forecast, we have decreased the volume, as we've shown here.

So of course, there's an impact on our sales as well.

And of course, we have the limit profit.

So you can probably make a guess based on that.

I hope that serves as answer.

[Interpreted] Okay, about the other suppliers?

[Interpreted] Yes, about the 4 suppliers merger.

I would like to talk a little bit about that.

The electrification technologies and advanced safety technologies, it's about these next-generation technologies.

These are becoming more complex, diverse and advancing very quickly.

So it is difficult to do development of these technologies and products by one company alone.

That is the reality.

And the supplier, the world of suppliers, this is not just limited to Honda.

But supplier -- many suppliers are becoming more system suppliers and mega suppliers as a result.

And for Honda too, the existing suppliers already have their existing strength.

So we want to take -- leverage them to create a new formation of team, if you will.

So we've been looking into how we can take it to the next step.

The motor joint venture and the ECU joint development through these projects, we have worked with Hitachi AMS, and we were expanding the collaboration with Hitachi AMS in that -- the system related to the safety of advanced technologies.

We realized that we could take a leverage -- we could leverage the strength that we, Honda have, and what Hitachi have.

And we took also -- took the other 3 suppliers and to have a multiplier effect to create a new winning strategy in the market.

So that is what led to this decision.

So to answer your question, could this -- could more of this happen?

Yes, it could.

But we cannot share with you anything more beyond that.

I hope that's okay.

Any other questions?

[Interpreted] So the gentleman at front, please.

[Interpreted] [Nagoya] from NHK.

I have a question to Mr. Kuraishi about Indian market.

The economic situation downturn continuing, although the Honda has launched a new product and market itself there.

It may be difficult for the market to recover quickly.

However, do you think that there's expectation of a recovery?

And when would that be?

[Interpreted] So let me explain about Indian markets now.

So for automobile, the July to September is 785,000.

That was 68 average end of last year.

And un-transparent outlook of the economy, of course, that is in place.

And of course, the financial funding difficulties and also the -- excluding criteria is also getting some strength there.

And then, August GDP was at 5%.

That's still low.

It is difficult for the economy to have a quick recovery.

And in motorcycles as well, same story.

In fact, furthermore to that for motorcycle, CVS ABS brakes regulation was in place in our January 2019 and also Brake 6 model, April 2020.

Those will be out for the annual regulation and that means more costs are required to respond and satisfy the regulations.

And then, that means the tough situation in India market will continue going forward.

And then Honda, actually, it's very strong for the motorcycles, environmental regulation areas.

And then, it is the time for us to take advantage of the situations to launch other models and then try to get the wholesales unit like before.

[Interpreted] I'm [Furukawa] from Nikkei.

The automotive sales forecast was beyond 5 million units.

So I would like to hear more about what led to that.

[Interpreted] Well, of course, we want to say we want to go beyond 5 million.

It would sound good.

But sales, of course, we're at the very important timing right now.

It just happens to be that we had the part quality issues.

So that is why that we have to recover swiftly and go back to our original production plans.

[Interpreted] One more question.

I asked this question at the time of the previous period.

So the other child -- the sales in China, you're aiming to achieve the highest ever.

But what is the profitability -- the profit situation in China?

[Interpreted] Yes, profit in China.

In terms of the sales units, we're pretty much on track.

Honda plan is going well.

We're probably one of the only ones in line with our schedule.

The negative that we see is the foreign currency, the foreign exchange effect.

And that is really the main reason why we're in the negative.

So in terms of business, we are on target.

In terms of sales volume as well.

Thank you.

Any other questions?

[Interpreted] The gentlemen at the front, please.

[Interpreted] [Takashi] from [Sun Kader Spate.] I have 2 questions.

One, this may [this morning, well] -- the air impact may be little small.

However, the sales in Korea is a decline because of the [protocol of our] relations today.

And how do you see the situation today?

And what is the conservation for that?

And the other question is about the Japan market.

There's a kind of a retrofit device to prevent the wrong pressing of the pedals for the L3 drivers, for instance.

And what do you think about it?

And then, development plans in response to the government request.

What is going on with that?

Will you share with me the status today?

[Interpreted] So Korea, that actually is significantly affecting our sales.

But in the first place, the volume or unit sales over there is not that much.

Therefore, it does not effect on our business plans overall.

However, the motorcycle business is -- there is no stronger motorcycle manufacturers in Korea.

And in fact, there's almost no impact by that on our businesses.

And Korea Honda representative in Korea, I actually spoke to him the other day.

But apparently, the inter-governmental relationship is getting improved little by little.

And then in terms of our sales activities, our colleagues had a campaign over there, and they actually had sold all of the air stocks out of the inventory, apparently.

And if we offer those good deals with other products in the market that sell quite well, so that shows the improvements that we made.

And then also the device to prevent the pedal mistakes, Honda Sensing has modeled, and we would like people to use the -- it comes with Honda Sensing technology more and more.

And of course, at the same time, we are developing the retrofit device for the existing cars.

And for the retrofit system -- actually, that retrofit device is still -- is very different from the Honda Sensing technology level.

So the technology level is quite different, in fact.

So I would urge the customers to drive a newer Honda Sensing technology cars, and I'm working with the dealers to promote that.

[Interpreted] Other questions, please.

The gentlemen, second from the back.

My apologies for asking in English.

As you see that there are merger talks going on between Fiat Chrysler and the French PSA group, what would that mean for Honda?

Do you see an urgent need to look for further partners for Honda to get more sale size?

(foreign language) [Interpreted] Well, in terms of other companies, there's really -- I will refrain from commenting on other companies' matters.

But either way, partnering with other corporations, there are really no talks of that.

However, as we've been sharing with you, there may be some other technical alliances because we have our own technical strength.

And we'll be -- if there are any potential for partnering up with others who have their own strength that would benefit both us, we may look into that.

Thank you.

Any other questions?

[Interpreted] [Nicolajerus, Shabuth].

Two questions.

You have down revised unit sales in Japan by 5,000 due to the brakes issues and so on and then, Fit and the N-WGN.

What is the impact levels for those 2 models when you down revised your forecast?

What is the number of units factored in there?

And also, you spoke about the production.

You had production difficulties.

And what was the reason why you had difficulty in producing them?

Perhaps you could answer with us the status there.

And yesterday, Toyota announced, their operating profit margin was 9%.

That was quite good.

And also, of course, your margin is going up by the second quarter, but there's still a gap to them.

And how do you evaluate that situation?

And do you have specific measures or actions in order to improve the situation?

[Interpreted] Not quite that, 50,000 was factored in for our [today] forecast.

And then, that is the number of units for overall models.

In order to, of course, to catch up with the situation, we have sort of adjust or coordinate their locations.

And then, I can't really tell which models or how many.

However, the delays are -- our freight is one of the reasons here as well.

And we didn't notice the production issues as we were supposed to do.

And that was because of the supplier's supply issues.

It was later than, of course, we were together when we made a decision to set a production together with the supplier.

At that time, however, we were not good enough to have a definitive -- rather, decisions about them.

In retrospect, the same parts were also supplied to other companies, in a way, and then we trusted the situation.

And then, we decided that to give a go for the production too.

And the N-WGN, sales was quite good at that time.

And then, the number of the units out of that model was also good.

Therefore, we didn't want to stop the production too.

That's including the production line situation of the suppliers.

We need to reflect on what happened and then we should have been more prudent in that regards.

Compared to Toyota -- and we really should not be commenting on others.

But Toyota had good financial results reported.

And looking at our automotive profit, that was 4%.

And Toyota's figures include financial matters as well.

But if we do that, well, our results will go up.

So there's -- but the difference there is that -- it probably goes up to about 5%.

But with electrification and such, we are using about 5% compared to the -- from our overall sales.

But as Kuraishi explained -- but that always varies by launch timings of these new models.

So are we going to pursue share volume?

So it's just -- I think that is one way of looking at it as different.

Of course, we are continuing to work on cost reductions and optimizing for better business characteristics.

So I hope you understand our efforts.

Thank you.

We can take one or 2 questions.

[Interpreted] One or 2 last questions.

The gentleman at the second row, please.

[Interpreted] [Mihokay] (foreign language) About Indian market, a lot of cyclones.

Earlier, you talked about a flood and its impact.

And as compared to other manufacturers, your level of the decline was not that good, and could you elaborate on that and how do you assess the situation?

Please tell us about it.

The other thing is how you address the environmental regulations going forward?

And what is the issues for the Indian market going forward?

[Interpreted] So as for the high level overall situation, this may sound funny, but we had a lack of the draft, meaning agricultural situation to that.

And then, there was a sales drop because of that.

And then, Honda share was high, especially mainly around scooter.

And we had a high share market in the state in India, where the water problem happened.

And then, the scooter customers were hit, impacted by the flood situations.

But -- and that was why the decline of the business there was worse than the other companies.

However, we had grown 1 million units of sales from last year.

That means that we had a very good sales in the first place.

And then, of course, percentage-wise, the drop -- the decline of the sales -- the unit was that.

Though, we had a higher sales before.

And also, we have expanded our customer base.

Now we are advertising the scooter businesses for urban and sophisticated customers.

And also, at the same time, we try to expand the sales to the scooter market other than those areas.

And we have the [filler link] events.

That's the Indian particular type events.

And there are weeks we tend to have a good sales, and it was successful [this year too.] And BS6 model, a new one, that was good.

The model that [is in this family, the] BS6, that was pretty good as well.

And then, I think we should take this opportunity so that we can launch the better product that satisfy the regulations better so we can improve the shares.

[Interpreted] I am [Nori,] a freelance writer.

So it relates to a previous question, Honda's Automotive business profitability.

In your case, you have motorcycle.

So the situation's quite different.

We can't do apples-to-apples comparison with Toyota.

But in terms of R&D investment, Toyota is doing JPY 1.1 trillion, and you're about JPY 886 million.

So there seems to be a very different percentage of R&D investment.

So I think that perhaps you need to optimize that, and you have to streamline how you use your R&D expenses perhaps.

What is your understanding on that point?

And the other question is that this spring, you have said that you have done many organizational restructuring at the R&D side.

Once you have transferred the Kei car development team to Suzuki and such to make sure that the R&D teams and the manufacturing side work side by side.

You have done that in the past.

So is there such a plan in the future?

[Interpreted] Profitability first.

Yes.

Yes, the R&D expenses are high.

I believe I can agree on that.

However as I said earlier, especially for this quarter, this period, because of the model cycle.

We do have many model development projects.

But compared to what Toyota is doing, our level does seem to be high.

I will have to agree.

We have very wide portfolio of business areas.

But on the other hand, we have been doing as much as possible by ourselves.

That is our policy.

And we are trying to -- we are trying to change things there.

But either way, the R&D costs will have to be normalized.

And also, as for -- I will not be able to share details about -- specific details on what reformations will take place internally.

But the profitability, yes, may be suffering because continuing the way we've been doing will not work in the future.

That is why we are doing many things internally.

And as we have already announced, we are doing some restructuring, reorganizing on the production side.

We'll continue these efforts.

So when the right time comes, I believe I should be able to share more with you.

So I will end at that.

Thank you.

[Interpreted] Thank you for your attention.

It is time.

Thank you for your attendance.

[Portions of this transcript that are marked Interpreted were spoken by an interpreter present on the live call.]