本田技研 (HMC) 2006 Q3 法說會逐字稿

Good morning gentlemen. My name of Shay and I will be your conference facilitator. At this time I would like to welcome everyone to the Honda North America Third Quarter Earnings Announcement conference call. [OPERATOR INSTRUCTIONS]

This telephone conference contains forward-looking statements as defined in Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. Such statements are based on Management assumptions and management beliefs taking into account information currently available to it. Therefore please be advised that Honda's actual results could materially differ from those described in these forward looking statements as a result of numerous factors including general economic conditions and Honda's principal market and foreign exchange rates between the Japanese yen and the US dollar, the euro and other major currencies as well as other factors detailed from time to time, each item of the various factors for increase and decrease in profit as classified in accordance with the method that Honda considers reasonable. At this time it is now my pleasure to introduce your host Mr. Oshima. Sir you may begin your conference.

Thank you. This is Oshima of Honda North America. Thank you for joining the Honda Investor Relations call. Honda in Japan just announced its third quarter results ending December 31st. Again we'd like to have the -- like to discuss about the result. This time we have many speakers. Again as usual. Mr. Hyogo from Japan. Hyogo-san.

Hi good morning.

Hi, Hyogo-San. Thank you for joining. And also [Tetschemara]-San.

Hi good morning.

Thank you Tetschemara-San. Thank you for joining. And as usual we have a guest analyst Mr. [Daiwafring].

Good morning Oshima-San.

Hi Daiwafring-San. Thank you for joining. And we're supposed to have a gentleman from the UK, Mr. [Sunita] but there's some trouble on the telephone line. He might join later on. And [Daiwafring] Mr. [Daiwafring] is an analyst of [Daiwafring] and Associates and we'd like to start it with these members. Later Mr. Sunita will join.

And this conference we'd like to use some of the material which has already put in on Honda's website and we would like to use that slide, some specific slides to proceed this conference.

First I'd like to elaborate and recap briefly the third quarter's financial results. Slide 3 if you are looking at. Net sales top line has been increased 15.8%, JPY2,472b which is a record high for all the quarters. And operating profit, OP line, has been improved 23.7% became JPY194.9b, which is also a record high for the third quarter. While the pre-tax line is down 11.6%, JPY166b, we'd like to elaborate later on why this pre-tax line has been down.

Equity income line has been improved 1%, JPY29.6b and net income down 11.7% became JPY133.1b and EPS is also down 10.5%, became JPY144.81. And the currency environment during this quarter is the yen to US dollar rate, the average rate, exchange rate, was 117, which is JPY11 weaker than last year. And for the Euro it is JPY140. That is JPY3 weaker than last year.

That's the financial summary of this third quarter, so I'd like to ask Mr. Hyogo and Mr. [Kitamuta] regarding the driver of -- this key driver of this quarter. [Hyogo]-San, [Kitamuta]-San?

Yes.

Honda just announced its financial results, so could you talk about the top line sales plus 15.8% increase? What is the major driver of this top line increase?

[Translated] Yes I would like to go over the fiscal third quarter net sales by business segment and you will see that across all our business segments, including Motorcycle, Automobile, Power Products and Financial Services, we have posted an increase in our net sales. Even if we were to eliminate the entire [indiscernible] exchange rate, namely the weaker yen, we still have an increase of 7.3%.

[Atsuyoshi Hyogo] do you have any specific slide to show the increase over there?

Slide 12.

Okay, Slide 12 right. Okay, please continue.

[Translated] I'd now like to explain by business segment, beginning with our Motorcycle business. Could everyone change to Slide 15? As you will see that this shows our unit sales of motorcycles, but actually mainly thanks to the increase in our knock-down kit exports to our affiliates in Asia we see that the number stands at 2,788m units, an increase of 305,000 units.

I always say this as a reminder, but this 305,000 units does not include the unit sales of Honda brand Motorcycle products of our 100% locally procured manufactured and sold by overseas affiliates in India and China. And this portion accounts for some 600,000 units should they be included.

And then so I'd like everyone to refer to the pages from 16 and after where we give you the unit sales of Motorcycles by region and also we post the photographs of our best selling models for each of the regions.

And as for the main drivers which have boosted our net sales in Motorcycles you will see by region they are Asia on page 19 as well as South America and Others in the Other Regions.

Now I would like everyone to refer to Slide number 21, where I'll talk about our Motorcycle business profits.

I'm talking about our net sales to begin with. It is JPY283.4b, which is an increase of 17.2% compared to the same quarter last year.

Meanwhile if you look at our operating income there is the exchange rate effect, namely the weakening of the yes and also there is the increase in profits thanks to our increase in revenue. Therefore, despite the fact that there was an increase in our unrealized profit in inventories as well as an increase in our R&D expenditure, we were able to post an operating income of JPY13.4b, up 161.3%. Meanwhile our operating margin is 4.7%.

Next I'd like to proceed to explain to you about our Automobile business. Please refer to pages from 22 to 28. As you can see on Slide number 22 where we give you the total unit sales of our Automobiles, thanks mainly to the increase in sales in North America, despite the fact that we did have a slight decrease in net sales here in Japan and the number stands at 816,000 units, which is almost the same as the last year, same quarter.

And also for your reference we have the breakdown by regions from Slides 23 to 27 where we give you once as in the case of the Motorcycle slides, the change in our unit sales and also the photographs of our best serving models.

And again what was the main driver which boosted our Automobile business? As is shown on Slide 24, we will see that North America, as I've already said, was the main driver. We have an increase of 31,000 units.

I'd like everyone now to turn to Slide number 28 where we give you our profit of Automobile business. Firstly, I'm starting with Automobile net sales. In total we have posted JPY2,015.8b which is up 15.5%.

And meanwhile I'm turning to the operating income and there was the weakening of the yen and also the increase in profits thanks to an increase in revenue. And despite the fact that there were these model mix changes as well as increase in unrealized profits in our inventories, also the freight, amongst others, have gone up due to the increase, the sky rocketing of the oil prices. Also there was the increase SG&A, R&D expenditure and yet we were able to post an operating income of JPY151b, up 19.9%. Meanwhile operating margin is 7.5%.

Next I'd like to talk about our Power Products business. Please refer to Slides 29 to 31. Now I'm starting with Slide number 29 where we give you the unit sales of our products -- Power Products. Here you will see that the number stands at 1,154m units, up 90,000 units. And as you will see the main drivers -- as you see on page 30 and others, is the European sales of our general purpose engines as well as push type, our grass mowers were the main attributors to this increase in sales. Also added to that is the domestic sales, Japanese sales of general purpose engines and snowblowers.

And now I'd like to move on to explaining about the profit and loss of our Power Products business. Beginning with our net sales of our Power Products and others, JPY95b up 15.8%. Operating income, thanks to the weakening of the yen and also an increase in our profits resulting from our increase in revenue, and despite the fact that we did have an increase in SG&A and the number says at JPY8.4b, or an increase of 238%. Operating margin is 8.9%.

And lastly I'd like to proceed with Slide number 32 where we talk about our Financial Services business. Here the net sales, thanks to the increase in our Automobile business in North America, the number is JPY81b, up 18.5%. Meanwhile, the operating income, there was the increased profit earned. Excuse me, the -- due to the increase in the interest rate and the funding it was more expensive and also due to the increased profits, higher revenue due to increased returnables from our growth of business SG&A has been declining. And you will see that as a result, we were able to see some margin decrease to 8.2% in the JPY22b. And the operating margin is 27.2%. That's all.

Okay, thank you Atsuyoshi Hyogo. So [Daiwafring]-San?

Yes.

Yes, Honda has explained and elaborated that each business in this quarter and its main drivers, so is there any concern or questions regarding this third quarter’s businesses?

Thank you Oshima-San. I have two questions. The first pertains to the Automotive operations and I know you don't disclose net price. But GM went to value pricing in their fourth quarter or your third quarter. I wonder if you could discuss the impact on Honda in the market place of GM's price move, if you're seeing any impact?

[Translated] Yes, well talking about Honda's North American sales performance, despite the fact, as you rightly mentioned, about GM's introduction of this new value pricing incentive, we think that everything is proceeding quite well for Honda.

And talking about incentives, also in our third quarter, thanks to the so-called big minor change of Accord, that has had an impact. We'd say that incentives are going down compared to the same quarter last fiscal year.

And also talking about inventories, as of the end of December, 2005, we had in total for [Acara] 37 days growth, which we think is a very healthy level.

Meanwhile, the model mix and it’s slightly aggravating because the demand is shifting slightly towards the lower grade models.

Meanwhile talking about SG&A, as I earlier explained, there is the increase in the oil prices which has had an impact on our logistics costs. And also there has been an increase in our advertising expenses. And yes we think that compared to last fiscal year in the same quarter everything is more or less proceeding as planned. That's all.

Thank you [Hyogo-San]. [Daiwafring-San] any other questions?

Yes, thank you. Thank you Hyogo-San. My second question is -- pertains to the Financial Services unit and the increase in traffic excluding the impact of swaps from 19.9b to 23.7b. And I wonder if you could elaborate on the drivers behind that and maybe talk about what's happening with Honda's Financial Services net margin -- net interest margin? Thank you.

[Translated] Well as you rightly -- you are probably aware, when we talk about our Financial Services business it is mainly in North America. And I think that when we talk about our Financial Services business penetration is when the benchmarks that we would always use. And talking about this third quarter, the new Civic sales has increased and the penetration rate -- the penetration has slightly gone down. Last fiscal year, the same quarter, was slightly above 50% and meanwhile for the '06 third quarter it was slightly less than 50%.

And so talking about mainly our Automobile business because this is the main area, our assets have increased after doing the ABS and presently it stands at -- but we have added on another 100b. Also for the margin, in principle, there is no change. That's all.

Okay, [Toma-San] thank you for explaining our Financial businesses. So I'd like to switch the gear to the Honda's geographical segment. The Slide -- starting from Slide 34 and 35 is the main markets in Japan and this is one of the main markets Japan and North America. If you look at the Japan segment, including the profit in export businesses it is increasing a lot. So [Toma]-San could you comment on the Japan segment?

[Translated] Yes. In principle as I always explain when we talk about Japan, this includes both our domestic business here in Japan as well as the exports to overseas from Japan. Of course we see that our sales are increasing for Motorcycle, Automobile and Power Products. But the main driver continues to be our exports. And so we have witnessed a slight decline in our net sales in Automobiles in Japan and so the number stands at JPY1,119b, which is +4.9%.

Meanwhile operating income thanks to the weakening of the yen as well as the increase in exports as I've just explained, despite the fact that we have witnessed an increase in our logistics expenses due to the rise in oil prices and also a rise in R&D expenditure and we still see that our operating income is JPY75.9b, up 59.9%. Operating margin is 6.8%. So that's all for Japan.

Thank you. What about the North American segment?

[Translated] Please refer to Slide number 35 for North America. Talking about North America and its sales, due to the exchange rate impact and also the increase in the unit sales of Motorcycles and Automobiles, our net sales stand at JPY1,478.9b, up 24.5%.

Meanwhile our operating income has also increased due to the weakening of the yen and also as in the case of Motorcycles, we have seen our profits go up thanks to our increase in revenue. And also there was the decrease in incentives for North America. Therefore, despite the fact that we have witnessed an increase in our funding and interest rates and also the slight deterioration of our model mix and also an increase in SG&A, we see that the operating income is JPY106.7b, up 30.6%. Operating margin is 7.2%. That's all.

Okay. Thank you [Toma-San]. So the next slide is the European segment, European market, Slide 36. I think the car sales is also flat and the motorcycle sales is down and while the profitability has been down 48.5% compared to last year. So could you talk about what is the major reason of decline in the profitability?

[Translated] As for this decline in profits, as was earlier explained for our second quarter, this was due mainly to the launch of the 206 Civic. So as a result of the increase in expenditure for this launch, we see that the profits going down. And another reason, as was in the case of our previous quarter, was the fact that diesel models are selling more and more and also Jazz and Contact cars, small sized cars are selling, meaning that this is a negative for our model mix. So these factors have had an impact on our profits. And so despite the fact that we have this positive of the weakening of the yen, the operating income is JPY2.8b and as Oshima-San has mentioned, this is a decline of 48.5%. That's all.

Thank you. [Sunita]-San?

Yes.

Yes. You're joining us. The third quarter particularly in Europe -- that's where the period or the saving is very end of the motorcycle. So you might in certain markets report and also some of initial costs of the new model production and new Civic. But in January you're starting the new Civic sales right?

It's not a very strong start. Dealers are getting a lot of orders in. So I think we can split the lot in the fourth quarter for the recovery at least with the Civic. And we aren't doing too badly in the market place with existing models either. Of course model mix, in a way, has turned down in our own favor. But the diesel ratio has gone up and that has enabled us, although not really good for profitability perhaps per unit wise, that has enabled us to capture some of the markets that we would have lost out if we didn't have Jazz -- I mean sorry, diesel models. And if you look at some of our performance in the past sort of 12 months, for example, in the UK where the sales -- the market has gone down 5%, our sales went up by 7.8%. Or Italy, for example, the market's relatively flat with -1.3%. I think we went up by more than 20% in that market. And just looking at the past quarter, the third quarter, we have increased our sales in many of the major markets including the UK, Germany, France, Italy and Spain and Russia to that. So overall, we're not doing that badly as far as car sales are concerned. But unfortunately we still have to sell up more diesels to get the overall cost down and become more profitable. But certainly the Civic, which is coming on full stream, the 5-door, in the fourth quarter and will certainly help to make a -- rebound the profitability in Europe.

Okay, thank you Sunita-San. So the next Slide is 37 is the Asia. The profitability has been improved compared to last year at 5.6%. So [Toma-San] could you comment on the Asian businesses?

[Translated] Yes. Yes and talking operating income again, thanks -- well there are two positives, the weakening of the Yen and mainly our increase in profit due to the increase in revenue coming from our Motorcycle business. Meanwhile there are the negatives, that is the increase in our advertising expenses and SG&A and yet we have posted an operating income of JPY17.2b, namely an increase of 5.9%. That's all for Asia.

Okay, what about the next slide is the Other Regions. It's Slide 40. The different quarters the profitability has been improved to a lot - JPY16.6b. And what are the major drivers of these Other Regions?

[Translated] Yes, again the major driver would be the weakening of the Yen and also the increase in our revenue and profits mainly attributable to the exchange rate. And also business has improved, especially in Brazil in South America. And this means that at the same time our SG&A goes up due to our increase in business, but as a result our operating income comes to JPY16.6b, up 79.4%.

Thank you very much. So [Daiwafring-San]?

Yes.

[Toma-San] just elaborated each region of the businesses. Is there any question or concerns regarding the division of operations in certain regions?

Yes. Toma-San, we're seeing divergent results coming out of some of your peers in China. Some are reporting good growth and lower margins and others are -- more the new entrants are showing volume driven growth. Can you talk about Honda's experience in China right now?

[Translated] Yes, this is Mr. [Kitamuta] responding. But as for the 2005 calendar year that's just ended, it was expected -- estimated that in 2005 that the passenger car market be somewhere around 3m units but it turned out to be 3.2m units in total.

And the forecast for 2006 again, the Chinese market is expected to grow and so people are forecasting 3.5m units for this year.

Now talking about margin, you are anticipating that there might be some downward pressure on our margins here. But talking specifically to you about Honda and our Accord for example, in 2005 March, due to the fact that we have increased our local production and also increased our local content we are able to reduce our costs and this was reflected in our downward revision of our price by 10%, but since then we have not cut down our prices in China whatsoever. And meanwhile, the demand is up and in some regions we hear that Hondas are sold at a premium price. So that's the situation in China.

Thank you.

Thank you. So after touches on the increase and decrease factors of the products and the operating profit too. So looking at Slide 42, [Toma-San] or either [inaudible-San] could you talk about, or comment about the increase or decrease factor in the products line?

[Translated] Yes, I think that you are mostly interested in this revenue model mixed assessment here, the number being JPY7b, which is quite low. Now as we already explained in the Motorcycle and Automobile business segments, there is this effect of the unrealized profit in inventories.

Please allow me to take this opportunity to explain to you why we have such an unrealized profit in inventories. I’ll explain the mechanism here. Now, at the end of each fiscal year, if there is inventory remaining within our overseas Honda Group, then Honda Motor has to deduct this portion of the internal profit that it had posted originally when it exported, or sold these products to our overseas affiliates. This is because actually these products have not been sold to our customers, meaning that this is unrealized profit. And therefore this has to be deducted. And this takes place after each project, you see. And the amount for this third quarter it so happens that the U.S. dollar exchange rate that was to be applied at the end of this quarter to evaluate inventory, I’ve showed here that the yen was depreciating to a large extent, meaning that we had to deduct this unrealized profit to a large degree.

And talking specifically about this third quarter, this accounts for some JPY15b. But this amount into the fourth quarter will be returned once the inventory is sold to the end customer. And as for the rest, it is all self-explanatory I think, on slide number 42. So that was the explanation in our change of interest before income tax.

So what about the other profit income net, particularly the derivative related? Probably this is one of the reasons why the net products line has been declining. So could you comment on the other income as net?

[Translated]. Yes for that part so please refer to slides 43 to 45 where we show you the other incomes and expenses. And as for the gain and loss on derivative instruments shown on slide 43, it is a minus JPY39.7b. And I do believe that the major factor is the XM Satellite Radio, where we see that the market valuation is very much fluctuated, and this is shown on page 45.

Now, talking about the share price of XM Satellite Radio, in the last third quarter of the previous fiscal year it was up $7. Meaning that you will see on slide 43 that it shows a plus JPY20.3b. Meanwhile this last third quarter, it was down $9, meaning that we have posted a major appraisal loss. So talking exclusively about the ’06 third quarter, the major loss can be attributed to this share price decline.

Thank you very much [Toma-San]. So looking at their increase and decrease factor and [OPI] line order production line, any question in this slide.

Yes, I’d like to look a little more deeply at the cost reduction figure. I notice that there is a JPY5.1b cost-down effect that is offsetting material cost increases, and I wonder if you could elaborate on what those efforts are?

[Translated]. As you can see on page 42 where we show you the cost reduction factor which only accounts for some JPY700m, which is quite low. But as we have been explaining, this is mainly due to the fact that the oil prices, and also the steel prices, have gone up. And we have been able to absorb this increase in materials costs, and yes in the third quarter realized this cost reduction of some JPY5.1b. But when it comes to the oil prices, and steel prices, we don’t think that there is much room for optimism vis-à-vis the increase in these prices. And we are planning to try to realize cost reduction which over and supersedes such an increase in our material costs.

Thank you [Toma-San]. So I would like to switch the gear to the Honda’s new guidance for fiscal ’06, page 68. If we look at the top line, the net sales will be increased JPY140b compared to the October’s guidance. And also the operating profit will be increased. Operating income will increase JPY155b gain vis-à-vis the October’s announcement. And EPS will be increased to JPY659.52b, which is also a record high for the five years, consecutive years. This is a new guidance that Honda made today. So could you comment on this new guidance?

[Translate]. Sir, please refer to slide number 69 to show you what changes we have made since our last announcement in October. Now as you will see from here the revenues and model mix and also SG&A and R&D are almost the same as what we’ve announced back in October. And meanwhile the major factors for this change is, as you will see here, you can see effect which shows a plus JPY57b. And also there is a so called ‘Daiko-Henjyo’, which is the gain resulting from returns of the benefit obligation of substitutional portion of our Employees Pension Fund to the Japanese government, which accounts for some JPY128b. So these are the major factors which led to this change.

Okay [Toma-San]. Thank you very much. Daiwafring?

Yes.

Honda has a new guidance. Again the top line has increased JPY140b. So if you look at this one, did you have any question?

Yes, can you tell us what you factored on in terms of the change, directionally with respect to the North American market? And also the Japanese market. I notice that the economic industries are improving in Japan, and the stock market is improving, and yet auto sales really aren’t yet.

[Translated]. Let me talk about, first of all, the North American market. And so the ’05 total demand on sales for that year was slightly less than 17m units. So we cannot deny the fact that this number is attributable partly to the fact that the big three have introduced its employees price incentive which has led some people to buy, certainly preemptively. So this has then boosted the demand in North America.

Meanwhile, talking about oil prices, at one time in November the gasoline was being sold at $3 per gallon, and after that we started to see a decline. And yet recently, and we see that the price is again picking up. So we think there is still uncertainty ahead. And taking all these factors into account, Honda has estimated for the 2006 demand in North America or the United States, we think that it will be somewhere around 16.5m units. And meanwhile for Honda, specifically for the current year, 2006 we are targeting towards 1.51m. That’s all for the United States.

Allow me now to explain about the Japanese domestic market. In 2005, the total market in Japan was 5.85m units, almost at par from the previous year. Meanwhile for 2006 we are estimating a marginal increase to 5.93m units.

Now, talking about the Japanese economy where we do see that the profit performance is recovering. And also we do see a moderate recovery in our income in employment. And so there are these positives, and yet when it comes to the outlook for our car sales we don’t think that there is evidence to prove that we will have a drastic improvement in our sales.

Now, talking specifically about Honda, we have this policy to not go after the sales units, so unit sales or share, but instead place emphasis on our profitability. And we have changed our operation for this purpose. And therefore, for the coming years, we anticipate that we will see a drastic improvement in our profitability. And just as we announced last December, in order to make it easier for our customers to purchase Honda models, our starting from March of this year we will integrate our three sales channels into one. And as we must expand our high end model line-up, and thereby improve our profitability.

Thank you [Toma-San]. Maybe this will be the last part of the topics to the returns to the shareholders. Any plans for buy-back, or the retired or treasury stock?

[Translated]. Please refer to slide number nine. And I would like to talk here about the acquisition of our Company shares. As it states on this slide, from November 2, 2005 to January 16, 2006, we have acquired our Company shares, approximately 3.89m shares of common stock. As a result our outstanding balance, as of January 16, is approximately 11.93m shares. And at today’s Board Meeting there was the decision on the retirement of Treasury stock amounting to 11m shares. And our planned acquisition of Company shares, as it states here, from February 6, 2006 to April 14, 2006 we plan to acquire 5.8m shares. And that is all [inaudible] the shareholders.

Okay [Toma-San]. Thank you very much. So Shay.

Yes, at this time I would like to remind everyone, if you would like to ask a question [OPERATOR INSTRUCTION]. Our first question comes from Michael Bruynesteyn from Prudential:

Hello folks. Could you explain, looking at the year, why SG&A, and R&D are growing faster than sales? And explain how that should or should not change going forward please?

[Translated]. Well the automation R&D expenses, but when it comes to the increase in R&D it is almost in line with the increase in our sales. And, also SG&A, I’m talking specifically about the selling expense there. Again, it is almost in line with our increase in sales.

Meanwhile an adverse effect is coming from the oil price increases, we’ve already explained, and this has had an impact on our freight costs. But in talking specifically about this third quarter, what is unique about this third quarter is that we are planning to launch City and Civic in different markets around the world, and this has led to an increase in our advertising expenditure.

Okay thank you. And then could you quantify by region, the launch impact for Civic in the quarter, and the FX impacts by region?

[Translated]. Talking about the advertisement expenses, this increase in advertisement expenses, more than half is attributable to North America. And also Asia with the exclusion of China, we are trying to launch the Civic in the respective countries, and this has led to the advertising expenses in Asia.

And another factor, this is not directly advertisement, but instead related to Civic, we have to launch the ramp-up of the factory in the U.K. for the production of this new Civic, meaning that this will have an impact on the production volume of this factory. And this has led to the negative on our European sales. And so this is another cost that has incurred as a result of the launch of the Civic.

Can you quantify those at all?

[Translated]. Yes, I'm talking about the SG&A increase. This is JPY22.4b internal, which JPY5b or so accounts for these advertising expense.

Meanwhile on the increase in freight and storage, this is larger than the advertisement, it is approximately JPY7b. And the balance of this JPY22.4b would account for the few billions coming from different expenses. That’s all

Okay, thank you very much. So Shay could you take the next question?

Our next question is coming from Peter Jacobs from Wells Fargo

Good morning gentlemen. First, could you please tell us what the after-tax impact is on the pension accounting gain that you will be recording in the fourth quarter?

[Translated]. So after-tax will be JPY76.8b. Meanwhile pre-tax is JPY128b

Okay. Was that JPY76.8b, did you say?

[Translated]. Yes, JPY76.8b.

Peter Jacobs. Okay. Thank you. Secondly, could you please update us on the outlook for the Chinese auto sales market?

[Translated]. Well, first of all I must say that we have very good sales in China right now. Meanwhile on the Accord, big minor change took place in January, meaning that the production volume in December went down slightly. So just looking at our sales in China for December, you see that there is a slight decline. And calendar year 2005, our Chinese sales was 250,000 units, which is full capacity for Honda. And this calendar year 2006, we are planning for 350,000 units by expanding our capacity.

Now, just to prove that we are doing very well in China, as for the Accord and Odyssey, we literally have no inventory or little inventory. And that is the reason why, back in December when we reduced our production volume, sales went down because we had no inventory at hand. Meanwhile for the Accord and Odyssey we even hear that in some places they are being sold at a premium price.

Now as for this big minor model change Accord, the Chinese [switched] the car so we are not giving any discount or cuts in price for this new Accord. That’s all.

Yes. Thank you.

Thank you [Hyogo-san], so Shay could you --.

[OPERATOR INSTRUCTIONS]. Our next question is a follow up from Michael Bruynesteyn.

Yes. I wonder if I could just ask again if you could quantify the FX for JPY61b. Which regions? Could you split that up by region please?

[Translated]. Yes, about 70% of it can be attributed to Japan, and the next one would be North America.

Great, and then could you talk about the tax rate a little bit? It was lower than your 39% guidance. Should we see it staying down, or would we expect it to be made up for in the fourth quarter? How should we think about that please?

I think 39% will be a [inaudible] rate. So the fourth quarter, that’s where it will be at 39%.

Thank you very much.

[OPERATOR INSTRUCTIONS]. Our next question is coming from Margaret [Moore] from American Century.

Good morning and good evening [Hyogo-san]. I was wondering if you could comment on your expectations for some of the unit volumes of the products that you will be selling this year, this calendar year. And provide some guidance as to what the mix impact is likely to be? So that would include things like the new Acura RDX, the Fit in North America, and the impact in Japan of any of your new models that you indicate would be higher end, more luxury oriented. Thanks.

[Translated]. Talking about North America, to begin with, and this year we are going for 1.51m units. Of course we do expect some increase in our passenger car sales, but we think that’s a large contributor with the light trucks. The RDX, and we are anticipating annual sales of some 30,000 units plus. And also the model change to CRV of MDX will also be attributed to boosting our light truck sales.

So we have a great expectation, especially for the crossover utility vehicles at Honda.

Now, turning to in Japan, we think that the market will continue to be very tough. And, talking about the near future, we are planning to launch a new mini vehicle in February. And also next fiscal year we are planning to carry out some [full] model changes, but we don’t expect this to lead to major increase in sales. That’s all

Okay [Hyogo-san]. Thank you very much. It’s almost time to close the conference. Hello Shay?

Yes, at this time we have no further questions. And if we could have any closing comments? Okay. This does conclude today’s teleconference. You may disconnect your lines at this time, and have a wonderful day.

Thank you all for joining Honda’s conference. So this time we had [Hyogo-San] from Tokyo. [Hyogo-San] Thank you very much.

Thank you very much.

And Mr. [Sunita] from London.

Thank you very much.

And [Daiwafring] from Ohio.

Thank you [inaudible].

Thank you for joining. And also we have participants from Seattle, Los Angeles and many other places. Thank you for joining. So if you have other questions please dial to 2123559191 in the Europe office. And also the Tokyo [area] will be open tomorrow. And you may also contact us on [London area] too.

Thank you very much for joining our telephone IR Investor Relation call. Thank you very much. Bye bye.