本田技研 (HMC) 2011 Q4 法說會逐字稿

Good morning, everyone. Welcome to Honda's Financial Result Audio Presentation. On April 28 Honda Motor announced its financial result for the fiscal fourth quarter ended March 2011. Through this audio presentation we'd like to review the financial results and discuss the major drivers of Honda's business during the period. And please note that Honda is currently unable to reasonably calculate a forecast for the consolidated financial results for the fiscal six months ending September 2011 or for the fiscal year ending March 2012 due to the impact of the Great East Japan earthquake that occurred on March 11, 2011.

Therefore, Honda will release the forecast as soon as they become available. The earnings press release for the fourth quarter and slide presentation material were posted on the website and for downloading presentation material, please click the link on the all new 2012 Civic Hybrid photo. Have you seen it? Okay let's get started.

Now, I'd like to start with the financial summary for the fourth quarter ended March 2011. Please have a look at slide eight. Reviewing global economic environment during the quarter in the U.S., although the economic uncertainty continues with rising energy prices, the housing market downturn and high unemployment, indication of gradual economic recovery, such as steady rise in consumer and capital spending could be seen.

In Asia, excluding Japan, consumer confidence in China has deteriorated due to the uncertainty about the economy and the rising prices. In India and Southeast Asia economy continued to expand, although the pressure on the inflation intensified. In Japan impact for the recent earthquake has been a great concern.

Now, I'd like to elaborate on the business environment surrounding us. In motorcycle business industry demand in Indonesia, India, Thailand, Brazil and Vietnam continued to expand while it shrunk in the U.S. Automobile industry demand in the U.S., Russia and India increased. However, in Europe and Japan demand decreased.

With regard to the Forex during the period, Japanese yen appreciated against U.S. dollar and the Euro. Yen was JPY82 per dollar, JPY9 higher than the same period last year. For euro JPY113 per EUR1, JPY12 higher from the same period last year.

Motorcycle unit sales posted 2,934,000 units, up 12.8% from the same period last year. Automobile unit sales totaled 860,000 units, decreased by 1.6% from the fourth quarter last year. Power Products unit sales were 1,746,000 units, up 7.1% from the same period last year.

Financial highlights for the fourth quarter are seen in the middle of the slide. Net income attributable to Honda totaled JPY44.5 billion, decreased by 38.3% from the same period last year. Earnings per share were JPY24.72, which was decreased over 37.9% from same period last year. Revenue totaled JPY2.213 trillion.

Operating income amounted to the JPY46.2 billion, a decrease of 51%, 51.9% from same period last year. Equity in income of affiliates totaled JPY25 billion, an increase of 4.7% from the same period last year.

Now, I'd like to discuss about analysis of sales and operating profit for the quarter. Please turn to the slide 10. Revenue decreased by JPY66.4 billion, down 2.9% from the first quarter last year to JPY2.213 trillion due mainly to the unfavorable currency translation effect. Change in revenue in respective business results and currency translation impact are seen on the slide.

Had the exchange rate remained unchanged, revenue would have been an increase of JPY75.1 billion that's equivalent to an increase of 3.3%. Revenue for the 12 months increased by JPY357.6 billion, up by 4.2% from the last fiscal year to JPY8.9368 trillion, primarily due to increased revenue in the automobile businesses and the motorcycle business. Had the exchange rate remained unchanged from the last fiscal year, revenue would have increased by 8.7%.

Now let me elaborate on the variance and factors that affected the operating profit and income before income tax. Please turn to slide 12. Operating income for the fourth quarter totaled JPY46.2 billion. As you could see at the bottom right hand side of the slide, which was decreased over JPY49.8 billion compared to the operating profit of JPY96 billion in the same period last year.

Income before income tax amounted to the JPY76.6 billion, as shown at the bar on the right side, which was decreased over JPY16.9 billion from the same period last year, as seen on top of the slide. If you could have a look at the second box from the left hand side, it shows how much gross profit was affected by changing the top line growth. Increased revenue related to the licensing agreement mainly provided a positive impact of JPY35.7 billion this quarter. The third box from the left hand side showed a cost reduction that also associated the change in gross profit. Cost reduction positively impacted this quarter by JPY24.1 billion due mainly to the continuing cost reduction effort despite an increase in raw material cost.

The fourth box from the left-hand side demonstrates SG&A impact. Increased SG&A expenses mainly due to the increased advertisement and the promotional expenses provided negative impact of JPY34.2 billion this quarter. Decreased [outlined] expenses provided positive impact of JPY14.1 billion. The sixth box from the left hand side showed the loss related to the Great East Japan Earthquake that brought a negative impact of JPY45.7 billion for this quarter.

The Forex had a negative impact of JPY44 billion as yen appreciated toward the major currencies. Pretax profit variance from the fourth quarter last fiscal year, there the variation loss and the gain from derivative instrument agreements that provided a negative impact of the JPY27.2 billion for the quarter. This mainly associated with Forex forward agreement for export transactions. Variance in other non-operating income and expenses net was a positive JPY60.2 billion. This related to fair valuation on interest rate swap agreements that Honda's financial subsidiary holds and others partially caused for the difference between hedge rate and the market rate to booked revenue.

This quarter, however, main driver was non-operating income related to the dissolution of the joint venture, which was positive JPY57.9 billion within this JPY60.2 billion. Detailed information on the currency impact and the reevaluation of the derivative installment is available on slide 34 and 35.

Regarding fiscal year results, operating profit and income before income tax and each factor of increase/decrease, please turn to slide 13. Operating income for this fiscal year totaled JPY569.7 billion, an increase of JPY206 billion. Income before income tax amounted to JPY630.5 billion, an increase of JPY294.3 billion due primarily to the increased sales volumes and the model mix. The reduction in the fixed cost, or decreasing fixed costs by unit as a result of the increase in production, and the continued cost reduction effort despite increase in SG&A expenses and R&D expenses increased raw material cost and unfavorable Forex.

Now I'd like to elaborate on Honda's business performance on each business segment. Let me start with Honda's motorcycle business operation for fourth quarter. Please have a look at slide 15. Unit sales for the quarter totaled 2,934,000 units, increased by 332,000 units, or 12.8% compared to last year. This was mainly due to increased sales in Asia and other regions including South America. Motorcycle demand in Asia outside Japan, such as Thailand, Indonesia, Vietnam and India, expanded for the quarter. Honda's unit sales were also favorable supported by the cub-type, Super Cub-type model, and scooters that are very well accepted throughout Asian countries.

In other regions demand in Brazil has been strong and Honda's unit sales were also increased by favorable sales of CG-1253s and also the CG-150 series. Unit sales in Japan, North America and Europe still remained weak for the quarter. However, in addition to the PCX model the second global model, the CBR250-R, which is produced and exported from Thailand, was newly launched in Japan. Honda also has planned to produce this model in India and expand export to 22 countries including Japan. By increasing these global models, Honda will cultivate new markets in developed countries.

As for the revenue and operating profit of the motorcycle business, please have a look at slide 16. Revenue for the quarter amounted to JPY353.1 billion, increased by 5.4% from the corresponding quarter last year due mainly to the higher unit sales centered in Asian countries. Operating income for the quarter totaled JPY48.1 billion, increased by 71.8%, primarily due to the increased unit sales and positive impact of revenue related to licensing agreements with Indian countries. Despite increased SG&A and unfavorable foreign currency effect, operating margin for the quarter was 13.6%.

Now let me elaborate on the automobile business result. Please have a look at slide 17 of the presentation material. Unit sales for the quarter amounted to 860,000 units, a decrease of 14,000 units, or 1.6% compared to the last fiscal year. This decreased unit sales was mainly due to weak sales in Japan. In Japan government incentive and subsidy for the fuel efficient vehicles ended in the middle of September and adverse affect of [pre-order] sales had still remained in this fourth quarter. Honda's sales in Japan also reported 142,000 units, which was decreased by 41,000 units or 22.4% down compared to the last fourth quarter period.

In North America unit sales for the quarter amounted to 356,000 units, increased 26,000 units compared to the last fiscal year. This increase was due to the favorable sales of light truck model, such as CRV, Pilot, Odyssey. Especially CRV was very well accepted in the market. In Europe the market began to show the recovery centered in Germany and Russia. However, Honda's sales in Europe remained weak. Sales units for the fourth quarter were 56,000 units, a decrease of 2,000 from last year.

In Asia we have enjoyed favorable sales growth due mainly to the increased sales of CITY and the JAZZ model in Thailand and India. Total unit sales in Asia were 238,000 units.

Please turn to slide 18. Revenue for the quarter amounted to JPY1.6484 trillion for the quarter, which was decrease of 4.2% compared to the fourth quarter last year. This decrease in revenue was mainly due to the decrease in unit sales in Japan and unfavorable currency translation effect. Operating loss for the quarter amounted to JPY39.1 billion, a decrease by JPY63.1 billion from last year, mainly due to the unfavorable impact of decreased unit sales, increased SG&A expenses, unfavorable Forex and the impact of the Great East Japan Earthquake that took place in March '11 despite ongoing cost reduction effort and decreased R&D expenses.

As for the Power Products business, please have a look at slide 19. Unit sales of power products totaled 1,000,746,000, decreased by 115,000 units or 7.1% from last year due to the increase in the unit sales in all regions. Sales of our power products in North America, European market have shown recovery. In particular, the sales of the generated -- sales of the general-purpose engine for OEM use have increased. Sales in Asia were also strong for the quarter by favorable sales of the GX series, our general purpose engine for OEM use in Thailand and Vietnam.

On slide 20 it shows the revenue and operating income of power products and other business for the quarters. Revenue for the quarter amounted to JPY85.5 billion, an increase of 1.2% from the corresponding period last year. This increase in revenue was mainly due to the volume increase of power product sales despite unfavorable currency translation effect. Honda experienced, however, operating loss of JPY2.3 billion for the quarter in power product and other businesses, which loss mainly comes from other businesses and the power product business itself was positive, improved from the same period last year primarily due to positive impact of increased sales volume and mix.

With regard to the financial service businesses, please see slide 21. Revenue for the financial services business decreased by 6.8% to JPY137.3 billion due to unfavorable currency translation effects. Operating profit decreased by 16.1% to JPY39.6 billion due mainly to the unfavorable impact of the currency effects together with increase in cost of funds despite decreased allowance for losses and credit losses and lease residual values.

Operating margin for the financial services business was 28.8%. Reviewing operations of our financial service businesses in North America, America Honda Finance has recorded a solid operating result for this quarter consistent with prior quarters. Business conditions for financial service business are very favorable. Used vehicle price continues to climb supported by the strong demand and gross and net credit loss continues to decline as a result. We could manage [SG&A] expenses at the healthier level. Honda's financial service business continues to get benefit as the U.S. auto market showed a moderate recovery. Honda expects its financial service business to continue to accelerate with consistent conservative operation.

Now let me elaborate on Honda's business result by each geographical segment for the quarter. Please turn to slide 23 starting from Japan. In Japan revenue for the quarter amounted to JPY893.8 billion, decreased by 0.1% from the corresponding quarter last fiscal year mainly due to the decreased revenue in the automobile business. Operating results became a loss for the quarter in Japan, which was negative JPY21.8 billion, deteriorated JPY13 billion from the corresponding period last year.

On top of decreased sales of the automobile and the motorcycles negative impact caused by the earthquake were major reasons for the operating loss, although there are positive factors, such as continuing cost reduction effort, a decrease in R&D expenses and revenue related to the technical licensing agreements. Automobile sales have been gradually increasing month-over-month after the expiry of the scrapping incentives scheme in September. Life, which was undergoing a minor model change in December 2010, has been selling very well, as well as the Fit Hybrid, which keeps its favorable sales since its introduction.

However, great concern remains as a result of the earthquake. Due to the earthquake production in Japan halted for more than two weeks in this fiscal fourth quarter as a result Honda lost more than 40,000 units of production by the end of March. Honda's R&D facilities were damaged as well. Financial impact of JPY45.7 billion in slide 12 that was previously mentioned includes clearance, restoration efforts at the site.

We still have the issue of the procuring components from our suppliers in the automobile business. Therefore, at this moment we are running our factory at 50% level utilization as of today. We are doing our utmost to ensure that the parts supply us at the earliest possible timing so that we could start production at the full utilization level again. For motorcycles we haven't got such issues and the motorcycle operation has not been affected.

Moving on slide 24, North America, revenue for the quarter amounted to JPY976.6 billion. Negative currency translation effect that more than offset increased automobile sales, operating income for the quarter decreased 65.3% to JPY24.5 billion from the fourth quarter last year due mainly to the increased SG&A expenses and the negative currency effect, which more than offset the positive revenue and model mix. Operating margin was 2.5%.

Now I'd like to discuss about U.S. automobile situation during the quarters. During January/March quarter we saw the industry sales increased 19% year-on-year and the seasonally adjusted annual rate now hovering around [70 million] -- [30 million] unit level, showing the constant improvement in automobile demand since the recession. We also saw that during this quarter gasoline price exceeding USD3 mark and the passenger car sales number started to surpass the light truck sales number on the seasonally adjusted basis.

Regarding American Honda sales during the quarter, we are able to show the year-on-year double-digit growth in line with industry pace. In March, for example, Honda Civic sales were 34% up over the last year despite it is last months before we launched the ninth generation all new Civic in New York Auto Show. Honda CRV continued to show its strengths, surpassing its own monthly sales record number for the fourth consecutive month in a row. On the production side, North American factories started slowing down run rate from the end of March due to the parts shortage.

Concerning Europe please have a look at slide 25. Revenue for the quarter amounted to JPY197.3 billion, a decrease of 5.2% from corresponding period last year. This decrease is mainly due to the negative currency effect. Operating results for the quarter was an operating loss of JPY1.7 billion, mainly due to the weak automobile sales, still an improvement of the JPY5.8 billion from the fourth quarter last year and JPY7.7 billion improvement from the third quarter this fiscal year. This improvement of the fourth quarter last year was achieved largely by the decreased SG&A expenses. Operating margin was minus 0.2%.

In Europe both automobile and the motorcycle sales have been severe. In Western European countries declining sales for the automobile is still a concern, although there in some countries such as in Germany sales of the JAZZ model has been favorable.

Now, please turn to slide 26 on Asia. Revenue for the quarter increased 10.1% to JPY472.4 billion, due mainly to the increased sales of automobiles and the motorcycles despite negative currency effect. Operating income decreased 6.8% to JPY32.1 billion for the quarter due the positive revenue and the mix and the decreased fixed cost per unit as a result of the increasing production, which was more than offset increased SG&A expenses and negative currency effect. Operating margin was 6.8%.

Motorcycle business in Southeast Asia has continued to grow steadily and though so far no sign of slowing down could be seen, sales of the Wave series in Thailand and Vietnam have kept increasing as well as the sales of CB Twister in India. Motorcycle sales in Indonesia also have been particularly favorable with various popular models such as BeAT, Vario and Scoopy, on top of the newly launched MegaPro.

In India we dissolved the joint venture in this quarter due to the difference in the management goals. However, India is a very rapidly growing market and we are doing our utmost to meet the demand with attractive models of our subsidiaries, Honda Motor and Scooter India. For automobile sales were quite favorable in Thailand, Malaysia and Vietnam. Brand new small model Brio was introduced in Thailand. Sales kept growing in China although the pace has been somehow slowing, slower than before. Competition has been tougher, however. Honda introduced Li Nian brand models, which is smaller and more affordable than the existing models on 17th of April. We aim to further capture incremental demand in Chinese market going forward with this new model and another small model that is to be introduced from Dongfeng Honda within 2012.

Moving on the other regions, that includes South America, Middle East and Africa and Oceania please have a look at slide 27. Revenue for the quarter was JPY264.3 billion, up 5.2% from the corresponding period last year. Although the currency affected negatively, revenue increased in motorcycle and automobile business contributed and the resulting increase in revenue. Operating income was JPY13.1 billion, decreased by 30.4% from the same period last year, mainly due to increased SG&A expenses and negative currency impact that more than offset the positive revenue and the model mix.

Operating margin was 5%. Honda's Brazilian operation, which is the biggest contributor to Honda's business performance in other regions, [adopted] fiscal year terms as January to December period so please note that we have consolidated the October to December period, a three-month lag for the result of the fourth quarter. Concerning October/December period automobile market expanded. Market growth in Brazil was approximately 30% in November and December 2010. And Honda's unit sales growth rate out paced the market growth.

Sales of the City and CRV model have been particularly strong. For motorcycles market also expanded by more than 10% and Honda's sales have also kept growing. Sales growth of CZ 150 model has been quite significant.

During January to March period automobile market momentum was weak compared with the last year when the demand growth was particularly strong caused by the rushing demand for the tax reduction for automobile purchase. Honda's sales for the period under performed the market. However, the sales of the CRV and the City remained strong. In motorcycle business sales growth was quite significant and the favorable sales trend continued, even though the government is implementing monetary policy that may result in the tightening of our ability of the credit. This is all that have relation of the business performance of each region for this fourth quarter.

Now I'd like to elaborate equity income of affiliates. With regard to the equity income of affiliate companies, please see slide 29. Equity income of affiliate companies was JPY25 billion, up by JPY1.1 billion from the same period last year. Increased profits in equity income were mainly driven by affiliated companies in Asia that contributed JPY19.5 billion for this quarter.

For your reference there are charts that show the operating income on net income of the Asian affiliated companies combined. Please see slide 30. During the quarter period operating profit and net profit of Asian affiliate companies was JPY75.8 billion and JPY66.5 billion respectively. Major contributing companies were mentioned in the bottom of the slide.

In the end of the presentation I would like to talk about the capital expenditures. With regard to the capital expenditures for the quarter please see slide 32. The total CapEx for the quarter was JPY311.3 billion, a decrease of JPY18.3 billion from the same period last year. Negative currency effect was a major reason for this decline.

This is about all for this result. This concludes Honda's financial fourth quarter earnings results audio presentation. Thank you again for listening to our web program. This is Honda Investor Relations. Have a wonderful day. Bye, bye.

The forward-looking statement; this audio presentation contained 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 those forward-looking statements as a result of the numerous factors, including general economic conditions in Honda's principle markets and foreign exchange rates between the Japanese yen and the U.S. dollar and the Euro and other major currencies, as well as other factors detailed from time to time.