本田技研 (HMC) 2006 Q4 法說會逐字稿

Good morning, ladies and gentlemen. My name is Janelle and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Honda Motors IR - investor relations call for the fourth quarter results.

[OPERATOR INSTRUCTIONS]

This IR 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's assumptions and 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 in Honda's principal markets and foreign exchange rates between the Japanese yen and the U.S. 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 is classified in accordance with the method that Honda considers reasonable.

It is now my pleasure to turn the floor over to your host, Mr. [Oshima]. Sir, you may begin your conference.

Hi. This is Oshima. Thank you for the Hondas - thank you for the joining Honda's investor relation call. Today, the Honda just announced in the fourth quarter fiscal '06 results, the [same time term] month result. And [inaudible] that we'd like to elaborate or talk about Honda's fourth quarter result for the overseas investors. And as usual, we have a couple of speakers joining this conference. And I'd like to introduce each of them from Tokyo, London and also Cleveland, Ohio. First, we have two, not new face, but you might recall his name - [Ike]. Ike-san?

Good morning, everyone, on the line. My name is Ike and I was newly assigned as the CFO for the company as of April 1, taking Mr. Aoki's position. Actually, Mr. Aoki is not retiring, but he just gave me that position. So, I would like to say hello to everyone on the line.

Okay, Ike-san, thank you joining this IR call. And we have another new person, Mr. [Endo]. Endo-san?

Hi. Good morning. My name is Endo. I am general manager in the finance division in Honda. Thank you.

Yes. Mr. Endo is head of the finance division in Honda. And as usual, Mr. [Kitamura] is in the line. Kitamura-san?

Hi. Good morning, everybody.

Hi. Good morning. Thank you for joining. And Noriko-san from UK. Noriko-san?

Hi. Hello, everyone. Good morning.

Hi. Thank you for joining. And Mr. [Sunita] is still in London, but he's back to the Tokyo PR. So, now, Noriko-san in London is taking care of the European investors. And as usual, we have the guest analyst, [Daibu-san].

Hi. Good morning, Oshima.

Hi, Daibu-san. Thank you for joining.

Thank you.

Mr. Daibu, actually, is the analyst, the financial analyst in research. He is learning the research from and [inaudible] and Associates. Thank you for joining. So, yes, we'd like to start with the fourth quarter result and we have the bunch of the slide presentation that Honda Japan prepared. So, by using that, we'd like to discuss the fourth quarter, mainly for the fourth quarter result and also the new guidance - earning guidance for the fiscal '07. So, flipping to slide three, number three, showing the Honda fourth quarter financial result, I'd like to elaborate. I'd like to briefly read the figures for each profit line.

So, the net sales and other operating revenue has become 2,833.7 billion yen, which is plus 20.6% up compared to last year. And this is record high net sales result. And operating income - you might see the two lines. One is 340.8 billion yen, which including Daiko-Henjyo impact. As you might have heard, the Daiko-Henjyo is getting more popular term for the U.S. or foreign investor. It's a gain on the return of the substitutional portion of the employee pension fund through the government. So, because of that, we do have the one-time gain in this fourth quarter.

So, figures showing is including impact. But excluding the impact, let's say net is [real] [fundamental] operating income, [is] stated, underlying, 202 - 202.8 billion yen, which is 44.5% increase compared to last year. And third line, 334.8 billion yen, including the Daiko-Henjyo impact. Excluding Daiko-Henjyo impact - 196.8 billion yen, which is plus 52.4% year-on-year.

Equity in income - equity line is 22.7 billion yen, which is record high for fourth quarter, and plus 16.3% year-on-year. And net income, again, including Daiko-Henjyo impact, 219.5 billion yen. And excluding that, 136.7 billion yen, which is 45.3% increase compared to last year. Earning per share became 339.78 yen. That's including Daiko-Henjyo impact. And excluding that, 149.32 yen, which is 47.2% increase last year. That's EPS line. And the currency environment during the fourth quarter is 117 yen for U.S. [inaudible], which is 13 yen weaker than last year. And the euro is 141 yen, which is four yen weaker than last year.

As you might - as you can - as I may have said - sorry - as I mentioned earlier, all these profit lines - operating profit and [tax] and net income is including Daiko-Henjyo impact, that amount is 138 billion yen. That's including these fourth quarter results. Yes, Kitamura-san?

Hi. Yes?

Looking at the sales line, top-line and also the OP line as well, even excluding Daiko-Henjyo impact, we - Honda gained 44.5% increase in the OP line. So, could you talk about the major key driver for this fourth quarter?

Okay. I will start with the net sales by business segment, which is shown in slide number 15. So, let's turn to slide 15. And as Mr. Oshima explained, this fourth quarter's sales - net sales is 2,833.7 billion yen, which is increase of 484.1 billion yen against corresponding quarter. But as you can see on this chart, this increase includes 237.1 billion yen currency effect. So, if we exclude this currency effect, actual increase is about 247 billion yen, which is 10.5% increase.

And the - out of this 247 billion yen, also you can see the main driver for this sales increase is the automobile business and also, of course, the - out of this automotive business, 198.8 billion yen increase. The North American automobile sales is the key contributing factor. And I will explain the business by each region starting with the motorcycle business. So, let's turn to slide number 17.

And the motorcycle business unit sales for this fourth quarter is 2,413,000 units, which is a decrease of about 300,000 units. But this decrease is mostly coming from Asian operations. And as we always explained, the local content - 100% local content motorcycles is increasing every year. And for this fourth quarter, approximately 1,070,000 units is 100% local content motorcycle. So, if we include this units - the number of units for motorcycle is still increasing.

And the sales unit I will explain by each region, starting with Japan market. And Japanese market, as you can see on this slide number 18, the - basically, the total unit sales is 93,000 units, which is almost same level [as it was in quarter]. And the picture is shown on this slide is the increased models. But the other models are decreased. So, basically saying sales units.

And on the slide number 19, North American market and the total number of units 211,000 units, which is a decrease of 19,000 units. And the basically off road models, such as CRF50F and the ATV model - FourTrax Rancher, decreased. So, these decreased model - now it really cannot offset the increase of these CBR1000RR and FourTrax Rincon. Slide number 20 - the European market is - total sales units is 98,000 units, which is 7,000 units increase.

And increased models - sales units models are shown on this slide. And Asian model - Asia market for slide number 21. As I mentioned, the North [inaudible] units to these markets are decreased and the - for the total number of units actually decreased about 315,000 units compared to previous fourth quarter. And other region is showing very good results. And the total number of units is 261,000 units and the increase of 24,000 units.

And the slide number 23 - motorcycle business sales and net sales in operating income and operating margins is shown on the slide. And the - basically, the currency effects positively impact the increase of the sales and the operating income. And of course, the increased profit from higher revenue also contributed to [inaudible] operating profit. And the - there are levering factors, such as SG&A increase, but those positive factors offset this SG&A increase. So the actually results for operating income is 60.5 billion yen, which is 124.5% increase over the previous fourth quarter. So, operating margin is 15.5%.

So, Kitamura-san, I think that this result including a certain amount of the impasses from Daiko-Henjyo, right?

Yes.

So, excluding Daiko-Henjyo, how is the motorcycle business?

Yes, also, you can see on slide number 23. Besides the fourth quarter's operating amount, which is 60.5 billion yen - next to - left-hand side, you can see the great [inaudible], which is 45.2 billion yen. That is the figure, which excludes the Daiko-Henjyo [inaudible].

So, excluding Daiko-Henjyo, still the motorcycle business is growing compared to the last quarter, right?

That's right.

Okay. Thank you. So, what about the auto businesses?

Please turn to slide number 24 through slide 30. The unit sales of automobiles also increased by 42,000 units. The total number of sales units is 901,000 units. Mainly, North American market shows its increase. And the - by each region, the Japanese market [inaudible] 25, which is 5,000 units decrease from - compared to previous fourth quarter. But those models shown in this slide sold very well. And turn to slide number 26 - North American. As you know very well, fully remodeled Fit sales is very good. And the - also the Pilot and Odyssey and Ridgeline sales is increased. So, the total number of units 434,000 units, which is 19,000 units increase from previous fourth quarter.

And Europe sales units, slide number 27, also increased by 8,000 units and the total number of units sold is 87,000 units. And of course, the - on the European markets, we just introduced '06 model Civic starting with quarter. For both Civic and the Civic Diesel also sold very well. And slide number 28 explains the Asian market. The total number of sales is 137,000 units, which is 17,000 units increase against fourth quarter - previous fourth quarter.

And slide number 29 is other region sales, which is 53,000 units - a 3,000 units increase over the previous fourth quarter. And the net sales and operating income is shown in slide number 30 for automobile business. And the total number - total sales - net sales is the 2,250.1 billion yen, which is 20.3% increase against fourth quarter - previous fourth quarter. And the - of course, the - for automobile business, partly the currency impact for - due to the depreciation of the yen, positively impacted that operating income. And of course, the increased profit from higher revenues is positive figure - a positive impact factor. And also, the price changes in mainly North America, positively impacted this increase of operating profit. And these positive factors also offset SG&A and R&D expenses increase.

Shall we turn to financial service business?

Yes, sure.

Yes. Turn to slide number 34. As the - mainly the North American automobile business grows, the financial business net sales increased by 28.0% and the operating margins [inaudible] - operating profit also increased by 32.3% to 23.9 billion yen. And our goal with the figures is a swap cost, which is [existed] by the American accounting standard is transferred to non-operating costs. But if we reflect such a reclassification to operating profit, the total operating profit will be 25.8 billion yen.

Did you talk about the power product?

Oh, sorry. Turn to slide number 31 to 33. Of course, the number of units for power products also increased to 2,119,000 units, which is 335,000 units increase against the previous fourth quarter. And the general - actually, generally, the general purpose engines in North America and Europe sales is increased. And on the Japanese market, as you can see on the picture on the right-hand side, the co-generation unit is increased in that market. And the - turn to number - slide number 33. The net sales and operating income for power products also increased. net sales have increased by 20.8% to 111.5 billion yen, and operating profit is 30 to 13.2 billion yen, which is 132 point increase over the previous 4th quarter. [That's it]

Thank you very much for the [inaudible] businesses [inaudible]. But, excluding that, all the business is still growing and profitability is just improving. So, [inaudible]

[Inaudible]

Unidentified Company Representative Yes. The [inaudible] has explained that the [inaudible] of their homes [inaudible] businesses. Are there any concerns or other questions regarding how [inaudible] particular [inaudible] the business is?

Yes. Thank you. I have two questions for [inaudible]. The first one pertains to the auto business. And, I'm wondering with the sharp increase in fuel prices here in the U.S. and elsewhere, whether there's been any change in the vehicle mix, either with respect to between segments or models within a given model line?

Okay Who is taking care of this question?

Okay [Inaudible] question, I will take care of it. My name [inaudible]. Regarding the current situation in the U.S. market, of course the price hike in fuel is impacting them. [Inaudible] because it includes the outlook of the current fiscal year. [inaudible] fiscal period we are planning to increase the [inaudible] in the United States. But, the model mix between the passenger car and light trucks will be almost [inaudible]. I mean we are planning to increase both passenger cars and light trucks.

And, of course, your U.S. customers are very sensitive to the price hiking of fuel and also the [inaudible] [strike]. And, of course, if the total demand will shrink; it is going to be an impact, total [inaudible], but we assume that the total market will--may be almost flat, maybe [inaudible] assuming 16.5million of total yen in sales this current year.

Assuming that, the current price hike is maybe favorable trend for us because we see a lot of [dealer] traffic towards the [inaudible] cars, once we started to sell Civic; and, Civic captured a very good attraction to the customer because it has a very high [inaudible]. And, also even though our [inaudible] or the lineups including the Ridgeline and Pilot--even the Pilot--the volume is increasing because maybe the customer's perception is changing the bigger V8 light trucks to V6 light truck segment.

So in that sense we see there's a very good turnover of those light trucks models. So, of course--I mean, the high price hike will be impact maybe the customer's sentiments; but on the contrary, maybe since we are offering much high fuel [efficient/effective] cars compared to our domestic and orient suppliers, so its going to be a [fizzle] trend, I think.

Okay [inaudible], thank you very much. [Inaudible] you have two questions, right?

Right. Right. Thank you [Ike San]. And very quickly, my second question is the big three, at least so far, are GM and Ford have reported that benefits in their financial services units from lower provisions for credit losses apparently due to improving credit quality, I wonder if Honda is benefiting from the same type of trend?

Well, I'll address [inaudible] San to answer that question.

Okay Actually though, [inaudible] America [inaudible] the finest. [Inaudible] or recently. [Inaudible] of the vehicles are a lot lower at the end of this fiscal year due to the [inaudible] of our Civic in [inaudible] markets. Which customers [are going] to try to[inaudible] vehicle because of [the oil prices]. According to this [inaudible]. We cannot provide to the [inaudible] between the 05' year to the 06' year.

So, [inaudible] because of the secondary market, used car market [inaudible] is very popular, though our sales of the Civic and the [inaudible] come to the secondary market is really popular. That helps to reduce [inaudible]. That's what you meant. Right?

Yes.

Okay, thank you very much.

Was that enough--or?

Yes. Okay Thank you. That's very helpful.

Okay, thank you [Omatsu].

[Inaudible] the segment information starting on page 36. Our [inaudible] 36 is the Japan segment. I think the Daiko-Henjyo impact is included in the Japan segment and its become 184.8 billion yen, which is [inaudible] increase. But excluding that as can be seen the gray chart is down slightly, so [inaudible] could you comment on Japan's segment?

Yes. I just wanted to mention, the positive impact, if you exclude the positive impact of the Daiko [engine] the total operating income is only 46.7 billion yen and the basically the factors that affecting this decrease is the [old price surge]. The transportation cost are increasing, and do due to [those factors] the SG&A increased. And also the R& D cost which is [inaudible] basically almost every amount is charged to Japan segment; for those R&D increases affect the increase in operating profit.

[Inaudible] what about the other region North America, and Europe, and Asia and some other regions? Could you just very briefly [inaudible].

For North America, on slide 37 as you can see, the due to the favorable currency effect, the total operating income increased by 43.8%. And of course, as I mentioned before, the change in sales price was positively affected in this North American segment.

And, Europe has the new Civic [added to] sales. The total operating income is 9.8 billion yen. [Still], those startup costs and the initial costs, including SG&A have negatively affected the operating income. So, Europe is still trying to recover from the [inaudible] increase.

And for Asia, the total operating income is 12.7 billion yen, and operating margin is 4.5%. And the operating margin for Asian segment--basically the changing model mix and these currencies positively affected the operating income. [Inaudible], so the [sales have] increased, but the total operating income is only--

For other regions [inaudible]. For other regions--slide number42?

Yes. Slide 42.

Oh. The operating income is 11.6 billion yen, which is 153.8% increase. The [inaudible] currency effects of the depreciation of the yen and there's increased profit from higher revenue; [of the decrease, there's SG&A expenses].

Okay [Inaudible]?

Yes, Sir.

[If you look at ] each segment, [inaudible]--any particular segment you for any market or region.

Yes. We need to provide some insight on this, we're seeing the Japanese market, stock market , appreciate pretty significantly here, and when I look at the Honda's margin performance in Japan, we're not seeing any kind of actual improvement, in cars, sales, or regional profitability in Japan. And, I wonder if you could just talk about when or if there will be a recovery or an expansion in demand in Japan?

Okay This is [inaudible], generally speaking Japanese markets is already saturated, I would say. So, every [OM] makers wouldn't foresee any big increase in the total market. So, it's going to be a very competitive market and more importantly the model mix is toward a more smaller, smaller car segment.

If you look at the top selling cars in Japan, including even the Toyota, or Nissan, the best selling cars are all compact or smaller car segments. And, many vehicles [presented] by Suzuki, Daihatsu, or even Honda, those cars are superceding GM's total number of top-selling cars. So, we [couldn't] be optimistic about the outlook of Japanese domestic car sales--I mean market.

Okay [inaudible], Thank you very much. Why don't we look at the slide 38, the European region. The sales are increasing about 24%, while the [profitability] has been down. So, [inaudible] can you comment on the European profitabilities.

Yes. As I mentioned before, the total of sales, they increased in the European market, but the [inaudible] Honda is introducing our own developed diesel engine starting with two years ago. And diesel engine portion or Honda sales is increasing every quarter.

And for the 4th Quarter, about--compared to previous forth quarters, about 10% of diesel engine model share is increased. So as you know very well, the diesel engine [current] capacity in Japan is only 70,000 units. [Inaudible] it's still not achieving the same level of profitability as [inaudible] the other engine. So, that's the main factor to affect this decrease in operating profits.

Well we have an [inaudible] in the UK, so there's [inaudible]--

Yes.

How's the sales, the actual sales in the marketplace in Honda's car businesses.

Well, let me focus on this [Sunday] and new Civic, because we, with this new Civic, plan to go for more [inaudible] segment. And, so far we planned because we had [inaudible] they will accept it and the new Civic is very much off to a very good start. A 2.2 [diesel engine] has been underlying [inaudible] the Civic, and 1.8 [inaudible] version featuring the 2.0 [inaudible and performance leaves a [inaudible] the economy and so on.

And in [inaudible] market, especially the continental market [inaudible]we have a very high [inaudible] customer order but [inaudible] two higher end of model. So, [inaudible] we are very much encouraged, and also on top of that in the [Civic lineup] we plan to introduce three new [hybrid] during the summer and [inaudible] in 2007, so our sales will have the continuous momentum.

And, as I mentioned, we have introduced the Honda diesel engine and so far we have four models in the market. Even though our capacity is still [inaudible] for diesels engines, we have to have these diesel engines to fight against the other manufacturers. And we [have been] increasing in the sales of diesel engines so that's a good sign.

Okay [inaudible], thank you very much. For the time being, how long does the [inaudible] investing to the [inaudible] the demand for the new Civic in Europe.

And, for the convenience of the U.S. or the Japanese, we put the picture of the new Civic in Europe in the front of the slides; so we never did have a chance to, just looking at the picture, how it looks different from the Europe or Asian Civic. But it seems like the demand looks okay, and we're expecting some growth for the coming quarters.

So, I'd like to switch the gears to the increasing and decreasing factors for the fourth quarter operating [inaudible]. So, using slide 44, there's a chart showing the increase and decrease factors. [Inaudible], so [inaudible] could you just briefly [inaudible] this chart?

Okay The-as you can see on the Slide 44, each factor is explained on the chart; and the first revenue and model mix [inaudible] only 11.6 billion yen, so the [inaudible] increase, so those are the positive factors; but the decreased factors--there are several decreased factors like the changing model mix, and the-of course, the increased sales incentives in North America and others.

And, this is the biggest cost for [inaudible] at the [stage] of the operating income, the increased funding cost in the financial services businesses. Basically, [inaudible] increase of funding cost is almost offset in no operating income and expenses [inaudible].

So, as for the income before tax [basis] this factor is not [affecting] the total growth [inaudible]. And the cost reduction [for the raw material], as you know very well, raw materials is increasing. So we still keep positive amounts for cost reduction. And SG&A and R&D are increasing like these figures; and positive currency effects is positive and the Daiko-Henjyo impact is 138.0 billion yen.

Okay What about the other income expense slide? And the-from the same slide. The difference between transaction rate and the average rate, there's a negative impact about 6.1 billion yen, and the-on this-the operating income [section] decreasing costs over interest-rate swap is [reflected for a] positive impact of 11.1 billion yen. And also the sales [fair value of derivative] instruments is 0.1 billion yen. So the overall other income and expenses, 5.2 billion yen positive impact.

Okay. Thank you very much and again, [inaudible] asking [inaudible] to if he has some questions in this segment. [inaudible].

Thank you, [Oshima-san]. Yes, I have two questions about suppliers. First, when I look at the -- Honda keeps reporting these material class statings which is somewhat striking and I'm wondering in the period how did you -- how did Honda achieve material cost savings -- how does that keep happening? And can it continue into the future?

As far as for the material -- raw materials price, we are not so optimistic about the situation. Especially for if we look at the current aluminum and precious grade metal price. That is the very negative factor for the current fiscal year. And of course, the steel prices -- the last fiscal year we have a huge amount of new price increase and the -- for steelmakers, the steel -- [stamp] is still aggressive. So we are therefore still price [inaudible], we are not so optimistic about the situation. But as you can see on the next fiscal year's [inaudible] and increase factors, we still keep 3.3 billion yens positive factor impact for cost reduction effort.

Okay, thank you [inaudible]. Now is there are any other questions, or --

Yes, just a follow up on that -- we've seen a lot, I think about 11 relatively substantial suppliers declare Chapter 11 in this year and I'm just wondering, 1 if Honda's had any kind of supply disruption that's affected production at all and how the company protects itself from a potential disruption going forward? Thank you.

Yeah, basically in order to protect such situation, our basic policy is multiple sourcing. And the -- as you mentioned, the -- as far as for the Delphi situation, those kind of situations? We basically build up inventory for those critical parts to prepare for such a situation. Those two policies is the main strategy for Honda.

Okay, [inaudible], thank you very much. Is it enough [inaudible]?

Yes, thank you.

Okay. Thank you. And Okay, I'd like to switch the gears to the earnings guidance Honda made for the FY07. First thing to the slide 75? No, no, that's 78. Honda -- the new -- not new, but for fiscal year '07 guidance, they announced at the same time the Hondas announced common stocks to make it [half]. The total that the EPS [inaudible] looks small but they also [inaudible] before the stock spread and after stock spread [inaudible]. And the same slide, 78. So I'd like to ask [inaudible] to put some comment on the new guidance. [Inaudible]?

Okay. Before [inaudible] outlook guidance, I just explain why we split the common shares. Actually at board meeting this morning we decided to split common shares 1 to 2 effective July 1st. The reason behind this split is basically Japanese stock exchanges has guideline for the issuers to try to lower the -- especially for the individual investors to -- for them to easier to participate in the market. Their guidance is issuer should lower the unit -- investment unit price below 500,000 yen.

At this moment, our stock performance is exceeding 75,000 yen so that means total investment amount is exceeding 750,000 yen. So actually our stock performance exceeding that guideline for the past one year. More than one year. And last year, stock exchange warned us, we should lower the investment unit so finally we decided to split the common shares this morning. So that's why our common shares outstanding would be doubled as of -- I think July 1st. That's why EPS going to be half of [inaudible].

Okay, then outlook for the fiscal year '07, maybe look at 78. 78. 78, Okay. Total sales will be -- will increase up to 10 trillion 600 billion yen due to the every products line including automobiles, car -- I mean motorcycle and [inaudible] will be increased. Operating profit 750 billion yen. Before tax profits 735. [Inaudible] income 103 billion and the net income 550 billion. And exchange rate assumption is first half U.S. dollar, 113 yen. And 1 euro -- 135 yen. In the second half, we tend to be -- pessimistic on the exchange rate. I mean, $1, 110 -- 1 euro, 130. So average exchange rate through the year, U.S. dollar, 112 yen and 1 euro, 132.

And slide number 79, there is some key drivers up and down for the tax income. Excluding the Daiko-Henjyo gains of the previous year, 138 billion. Volume in for that mix will be positively moving up and 184.1 billion yen. And the cost down still positive but a relatively small number of 3.3 billion flat simply because as [inaudible] previously, we still feel the very tough situation in the market. I mean, the low [inaudible].

And SG&A, of course, the [inaudible] will be increased so the SG&A will be increased. So that's going to be 78.6 billion minus impact. And a [inaudible] impact, 55 billion minus. And an operating expenses 39.2 billion plus. That is our assumption.

[Inaudible]. Thank you very much for the convenience of the investors, Honda put [inaudible] and the year over year comparisons to -- on slide 78. Including and excluding Daiko-Henjyo impacts. So whenever you like to put in our Daiko-Henjyo impact, please utilize these slides 78 charts showing the year over year comparison including and excluding Daiko-Henjyo. It might help to understand how the Honda's earning outlook -- and [inaudible] any comment on the shareholders returns?

Okay. Again, today's board meeting we decided to increase our year-end dividends -- our year ends fiscal '06. We increased the past year dividend by 23 yen so 60 yen. So adding the midterm dividend of 40 yen, total dividend is going to be 100 yen per share. And also we decided to adjust our plan for the next -- I mean current fiscal year '07. Midterm dividends per share is going to be 30 yen. And year-end dividend by 30 yen so that is going to be a total 60 yen.

But as mentioned before, we decided to split our common shares so before the stocks [inaudible] if we may say midterm dividend is going to be 20 yen increase up to 60 yen, and our year-end dividend is going to be also 60 yen, so our total through the year dividend will be increased by 20 yen up to 200 -- 120 yen before the stock split common shares numbers.

Okay, [inaudible]. Thank you, very much. [Inaudible] so for the dividend information the investors please use the slide [inaudible] for the FY06 [focused] dividend and slide 11 slide for the FY07 slide dividend guidance. That helps to understand how Honda's to increase their dividend amount for the coming years. And what about buyback share plan?

Well, as we mentioned, our [inaudible] including cash dividend and stock buyback we're going to spend about 30% of return to the shareholders. So we are planning to buy back shares [inaudible] next two years and in the current year -- well, actually we still have some portion we have to buy back. So the actual buyback we did in the past was through -- from February 6th to through April 14th. We purchased approximately 4.5 million shares, spending 42 billion yen. And out of the treasury stock, we already disregard 110 million shares as of February 7th. So [inaudible] outstanding in the treasury stock is 53 million -- no, I'm sorry, 5.3 million. And we also [inaudible] to buyback shares for the current fiscal year.

So Honda will continue to buy back the share for the coming quarters?

Yes.

Okay, thank you very much. So, Okay, thank you very much. That about that for the Honda's fourth quarter earnings result and for the fiscal '07 guidance. And in guidance. So [inaudible] we'll have to take a question from the investor [inaudible] conference.

Thank you.

[OPERATOR INSTRUCTIONS]

Thank you. Our first question is coming from Michael Bruynesteyn of Prudential.

Oh, thanks for taking the call. This is [inaudible] calling for Mike. We have two questions here. First question is can you talk about any unusual items or adjustments that might have impacted gross margin in the fourth quarter? And second question is in regards to the Alabama production cuts that you announced a few months ago. Will that be adjusted because your truck sales are doing Okay? Thank you.

Okay, I'll -- the first question for unusual item for fourth quarter? The answer is there was accounting transaction changes on the fourth quarter which basically regarding the delivery cost transactions. Previously both paid amount for delivery cost and the received amounts from dealers offset in cost of sales portion -- in the same portion. But starting with fourth quarter, the -- our accounting firms directed us to change that transaction which means received amount for those delivery cost should be put on sales.

So the total profit itself will not be -- no change. But the sales will be insulated and such changes for entire fiscal year -- 12 month year -- 12 month amount -- is put in fourth quarter. So that's why fourth quarter is sales and cost of sales portion or ratio is looks unusual. So this is just the kind of a one-time effect. Okay, let me explain about the Alabama production reduction. As we announced previously we've reduced the production -- [inaudible] production from 650 units to 500 units per day at the number1 line at the Alabama factory.

And the number two line we are running 650 units per day. And in order to reduce the inventory level of light trucks we started this production reductions. And current [inaudible] I mean inventory level for the light trucks segment is very comfortable level of approximately 50 days of [life]. So, but we currently planning to continue this 500 per day production up until the market saturation will be improved. But we feel very comfortable at the current level of [inaudible]. So -- when the demand will be stronger of course we -- any time we can cut -- catch up the daily production level, but the -- for the outlook or the sales number, we are planning for the fiscal year, maybe we don't have to increase the daily production at the Alabama number1 plant.

Can I follow up there? In regards to the 500 unit per day, is this to be reflected in your sales outlook that you announced today?

Yes.

Okay. And this 500 is continuing through the end of 2006? Or is it --

Yeah, through the fiscal year '07.

Oh, fiscal year -- oh. And asking another question in regards to the accounting change. Which region did it impact?

That's mainly for -- Japanese market. No, no, no. North America. Yeah, North America. Sorry.

And would you be able to share that number -- the one-time charge?

One-time -- I don't have specific number on hand right now.

Okay. Okay. Thank you.

Okay, please take the next question here.

Our next question is coming from Peter Jacobs of Wells Fargo.

Good morning, gentlemen. My question relates to the market in China currently and I'm curious if you could give us some specific numbers about how your sales are progressing there in China and then also the outlook going forward. Thank you.

Okay. China market is still very, very strong. The last fiscal year we sold -- actually our partner [inaudible] sold 276,000 units. And we are planning to sell 350,000 units. This number is limited to -- due to the production capacity if we could produce more maybe we could sell more. I mean, the demand is so strong as you could see, and the first quarter of this calendar year -- I mean, up to March, demand is so strong -- one factor is the Chinese government will -- going to impose higher tax -- I mean, consumption tax. And especially for the larger displacement model, they will increase the tax.

So up until March the people rush into buy before the tax will be increased. So maybe -- there might be some rebound in the month of April but still first three months year to year comparison -- I mean in the Chinese market, first three months already the sold numbers exceeding 1 million. So if you simply times 4 it's going to [inaudible] 4 million. I mean, over past 4 million. But we don't see that strong. Maybe there might be some backlash after the tax increase but maybe total market will be increased somewhere around 3.5 or 3.75 million units after -- total numbers.

And then how would that compare with last year?

Last year? I'm sorry, last year was at 3.1 million.

And then the number that you gave for Honda for the current fiscal year that just ended of 276,000 unit sales, how would that compare with fiscal 2005, please?

2005. Which is a 238,000 units.

Okay. Thank you very much. I appreciate your answering the questions.

Thank you to Peter. Peter comes from Seattle so thank you for joining in morning time. So, [inaudible] please take the next question.

Thank you. Our next question is coming from [Margaret More] of American Century.

Hello. I have a couple questions. My first one is regarding the currency assumption that you're making for the second half. I was wondering if you could share with us why you were anticipating a major move in the currency? My second question is regarding the Japanese market, can you comment on the impact of the changes to your domestic sales network in terms of cost competitiveness or sales strength?

Okay. Hi, Margaret.

Hello, it's good to hear your voice again.

Thank you. Same here. Okay. We are always relatively conservative assumption for the [inaudible] but one concern is long term interest rate is globally increasing and maybe the U.S., maybe the long-term interest rate might be -- wouldn't be [hiding] again but Japanese, I don't know. But we -- our concern is if our Japanese government will raise the -- I mean, our Japanese bank will raise the interest rate that's going to rush into the Japanese yens [inaudible]. And what nobody knows. But as usual we just tend to be a conservative on assumptions.

Uh-huh. Okay.

And your second question was --

Consolidation impact to Japanese market.

Okay. Consolidation of our sales network -- it happened as of March 1st but the currently our dealers didn't change any cosmetics yet. I mean, they are -- cosmetics is still same. Only the difference is especially are every dealer network [inaudible] regardless of [inaudible] -- all those dealers now handle all models. So that will increase the -- especially in light or mini-vehicle because mini-vehicles was exclusively handled by [primo] dealers before.

So the total [inaudible] numbers are increasing for the mini-vehicles. It's going to be positive impact for the mini-vehicle increase. However, the total market itself has saturated so the next question is how that's going to impact the model mixing domestic market. So you know the answer.

Okay. Can I ask another question? Can you also comment on the diesel scale economies? You mentioned that currently you have a 70,000 per annum capacity for diesels. And you admit that that doesn't give you the kind of scale you enjoy in conventional gasoline engines. Can you comment on what your plans are for expanding diesel capacity or in any other ways eliminating or reducing the negative impact of that handicap?

We are planning to sell 100,000 -- over 100,000 units of diesel engine model by year 2007. And we have already transferred certain production portion profit to UK plant. So those Japanese diesel engine production capacities only 70,000 units per year, but we have already added the assembly process portion to UK plant. And gradually the die-casting and the machining process will be transferred to UK plant in the future.

And over what time period would you expect the die-casting to have an impact? This would be post-2007, I presume?

Die-casting process -- first the machining process will be transferred to UK for certain parts in -- during 2006. And die-casting is not yet decided. Not yet decided yet.

Okay, thank you very much. [Inaudible], please take a question comes from Kansas?

Thank you. Our next question is coming from Nathan Brown of Waddle and Reid.

Yeah, hi. Thanks for taking my question. My question is relative to the guidance you gave in the third quarter, it looks like there was a shortfall in the revenue model mix et cetera category with what you did for a -- on a total fiscal 2006. So I'm curious on what that shortfall was, 1, and 2, it looks like you're expecting a large benefit from that in fiscal 2007 and so I'm also curious on what gives you the confidence given the shortfall that seems that you had versus what you were expecting in -- in fiscal 2006. Thanks.

[Inaudible]. Basically the shortfall for third quarter guidance versus the actual result is -- has a various factors that as you know the sales volume for domestic market -- Japanese market -- and the North American [inaudible] market -- those numbers which we planned at the end of January, we couldn't achieve those figures. That is one factor. And the another factor is the incentive -- sales incentives in North America. We spent more than we planned for fourth quarter due to this market situation to use the inventory for -- to reasonable levels.

And the other factors are basically somewhat related to the -- our optimistic plan for the [inaudible] shipment so that should be the kind of carried over to next fiscal year. So that should be the positively effect [inaudible] current fiscal year. And the relatively huge amount both the revenue and model mix for this fiscal year, if you look at the sales volume increase -- sales unit increase for let's say automobiles, is over 320,000 units. So this is basically if you look at the Honda's history for past four or five years, this is the major increase for the automobile sales unit. That is the [inaudible] factor.

So -- and the -- there are another factors such as the -- if you remember the -- on third quarter we have a increase of unrealized profit in our inventories. That also -- that total amount was main impact -- is coming from the foreign exchange rate. So if -- since we are more appreciated yen assumption for next fiscal year, so then the -- that kind of an impact will be positively affect for next fiscal year. So those are various actual, real business [inaudible] those accounting effective impacting for huge numbers.

Okay. Thank you.

Thank you.

Okay, thank you very much [inaudible].

[OPERATOR INSTRUCTIONS]

Okay, [inaudible] it seems that almost the time is up, so we would like to close this investor relation conference. So thank you very much for the participants. At this time we have a lot of participants comes joining from Toronto, Montreal, Seattle, Los Angeles, too. So it's -- thank you for joining such early time on the conference. Some calling from Tokyo too, although they don't ask the question. But next time please say the questions [inaudible]. And [inaudible] and thank you for joining this conference so it might be a bit nervous for the first time to join a conference, and the [inaudible].

Thank you.

Thank you for all joining and [inaudible]?

[Inaudible].

So thank you very much for joining the conference and take care of [European investor] well.

I will do it. Thank you.

And [inaudible]?

Yes, sir.

[Inaudible], thank you very much for joining.

Thank you.

So again, thank you everybody for joining Honda's investor relation conference. And I'm in the New York office today, so whenever you have additional questions please dial to my office, 212-355-9191. Of course you can call the UK and talk there the office as well, whenever you have a question. So thank you very much for everyone. So have a wonderful day. Thank you very much.

Thank you. This does conclude today's Honda Motors conference call. You may disconnect your lines and have a wonderful day.