豐田汽車 (TM) 2004 Q1 法說會逐字稿

Good day everyone. My name is Melinda Franco and I would like to welcome you to the Toyota Motor Corporation Financial Results for the twelve months ended March 31, 2004 Conference Call with your Chairperson Mr. Ryuji Araki. [OPERATOR INSTRUCTIONS]. I would now like to turn the call over to Mr. Ken Sue (ph) from Toyota Motor Corporation who will introduce the conference.

Hello everyone, thank you for joining us today. I am Ken Sue of (inaudible) division of Toyota Motor Corporation and I would like to welcome you to today's discussion of earnings results for the 12-month period ended March 31, 2004. I am joined by Mr. Ryuji Araki, Executive Vice President of Toyota Motor Corporation.

Today's conference call consists of two parts first Mr. Araki will review Toyota's earnings result for the 12 month ended March 31st 2004. As a reminder, the slides from this presentation are available on the financial results section of the Toyota Motor Corporation web site at www.toyota.co.jp/en/ir/presentations/index.html. But unfortunately we have a little bit of technical problem with our PDF file. If you might have any difficulty in opening the file, please enter the net meeting system. At the conclusion of Mr. Araki's presentation we will open for questions. We expect that the entire call will last approximately one hour.

Also please note that the following presentation contains forward-looking statements that reflect our plans and expectations and actual results may be materially different from those expressed by these forward-looking statements. A complete cautionary statement with respect to forward-looking statements is included on page 2 of today's presentation material. In addition, a complete cautionary statement with respect to insider trading is included on page 3 of today's presentation material, which again can be downloaded from our Internet home page www.toyota.co.jp/en/ir/presentation/index.html. Now I would like to turn the call over to Mr. Araki.

Hello everyone thank you for joining us for today's discussion of Toyota financial results for the 12 months period ended March 31, 2004. Before I begin, please note that our consolidated financial results are presented in accordance with US GAAP and consolidated financial results are stated in Japan GAAP.

Slide 6 summarizes the major differences between US and Japan, GAAP as applicable to the last year's results. For further details please refer to the supplementary information on financial results. Please note that the consolidated results, our profit reached record levels primarily due to (inaudible) sales discount expansion and cost of deduction despite a 9 yen appreciation of the yen against the US dollar. Net income exceeded 1 trillion yen.

Please turn to the next page. Let me discuss the details. As you can see, consolidated vehicle production (inaudible) country increased in all regions. Moving to the next slide, both consolidated and vehicle sales increased year-on-year in all regions' markets. Consolidated vehicle sales grew by over 600,000 units. That increase around 1% of the current global market for the second consecutive year. Total retail units sales exceeded 7 million units.

Slide 10 breaks down the operating income growth of 395.2 billion yen. Strong global sales and cost deduction efforts offset our negative foreign exchange impact and increased fixed costs. DAIKO HENJO was also a positive factor.

Please look at the chart on slide 11, as you can see we achieved both growth and efficiency. Operating income increased for the fourth consecutive year. Both the operating income ratio and ROE also grew significantly and exceeded midterm targets of 9% and 10% respectively.

Let me move onto our operations in major geographical segments. In Japan, the (inaudible) vehicles were received particularly well in the medium and the large segments. Consolidated sales increased by 3.8% to 2.3 million units. Strong domestic production and sales as well as efficiency and cost reduction achieved group-wide including Daihatsu and the Hino, despite negative impact from strong yen and about 150 billion yen. Operating income increased by 153.8 billion yen including a 107 billion yen profit from DAIKO HENJO.

Please turn to the next slide. By comparison to fiscal year 2000, operating income more than doubled in fiscal year 2004 while the Japanese yen-US dollar exchange rate remained at a similar level. We believe this proves that Toyota's group-wide strength in Japan has been steadily growing. Looking ahead following the integration of the Netz and the Vista channels, we plan to create new demand and to enhance portability in Japan by introducing the Lexus brand.

Next in North America, consolidates sales grew by 6.1% to 2.1 million units primarily due to the continuing strength of new models such as the Sienna and the RX 330. Also in the calendar year 2003 Toyota became the number one passenger vehicle brand in sales units in the US for the first time. Lexus was the number one luxury brand in sales units for the fourth consecutive year. Operating income increased by 111 billion yen to 391 billion yen. We kept these under control, production was optimized through the mode of de-allocation and financing business also grew steadily.

In slide 15, looking at the midterm changes. Consolidated sales exceeded 2 million units and our profitability level has further increased. We have also been building a well-balanced profit structure ranging among our sales manufacturing and the financing operations. For further growth, we will endeavor to continue to expand customer base with Scion's national rollout, SUV hybrid and the strengthening of our full sized pick up truck segment.

Next in Europe, sales increased by 15.8% to 0.9 million units. Sales of the Aventis doubled compared to fiscal year 2003. As a result, profits increased in both of manufacturing and sales operations. Operating income reached to 72.5 billion yen.

As shown in slide 17, in Europe we are entering a new stage. Profits been climbing up to a higher level. A series of locally produced models are being successful and we have expanded our diesel models. In manufacturing, profits leveraging increased due to full production and cost reduction. We plan to continue to allocate our diesel sales in Europe. We introduced the Corolla Verso, which is tailored to the European market, expand local R&D organization and increase production capacity.

Let me move on to slide 18. In other regions consolidated sales increased by 24.4% year-on-year to 1.4 million units. New vehicles including the U-IMV in Indonesia and the Wish in Thailand, has been launched to develop a new customer base. As a result of our sales grew throughout the regions. Operating income doubled to 96.9 billion yen compared to the fiscal year 2003.

Over the medium term horizon, profitability has jumped particularly in Asia, as local production and sales grew. With our IMV project, which is planned to start during 2004, we would like to strengthen profitability in other regions, whereby Asia is envisioned to become a hub for production and export.

Please go onto next slide. With regard to financial services, operating income increased by 115.7 billion yen achieving 100 billion yen profit target, one year ahead of the schedule. This is actually well the result of strong captive financial operations. We would like to maintain our present profit level.

Let me move to - move on to slide 21. Equity in earnings of affiliated companies posted a significant increase to 120.2 billion yen. The improvement was primarily due to the strong results of both domestic group companies and overseas affiliated companies in Asia including China. The table in slide 22 shows capital expenditures, depreciation and R&D expenses.

Next, I would like to discuss our unconsolidated financial results. The unconsolidated results are shown in slide 24. Please come to the next slide. With regard to dividends, we plan to distribute record high divi--, dividend of 45 yen per share. Nine yen increase per share from last year.

This reflects the record consolidated results as well as the principle of the stable dividend policy - pay out. As shown in slide 26, historically Toyota's dividend pay-out provided stable growth. Over the last two years however the increase has been more pronounced. We would like to focus more on dividends. Considering return to shareholders.

Please go on to the next slide. Toyota has already repurchased 311.4 billion yen equivalent of shares. And they authorized annual plan of 400 billion yen. This (inaudible) approximately 80% of the exercised ratio. Although the repurchased shares during this fiscal year are held in treasury stocks, we have no specific plans for a public offering. In slide 28, we will propose a new 250 billion yen annual share repurchase program at the next shareholders meeting.

The banks unwinding of total shares already passed its peak. At the end of March, 11% of total share were held by banks down by 4% a year ago. Nevertheless we want to establish the program in case of supply- demand imbalance in the market and to improve capital efficiency.

Now I would like to explain our prospects for the current fiscal year ending March 2005. Please turn to slide 30. Our outlook for unconsolidated vehicle unit sales is 7.02 million units, up around 300,000 year-on-year. We expect that sales in all regions would increase. In slide 31, the outlook of capital expenditures, depreciation, and R&D expenses are shown.

As for the consolidated profit outlook for the current fiscal year, we recognize that there are uncertainties regarding foreign exchange rates and interest rates at the same time, we have very important domestic and overseas projects to set up. We would like to make an effort to retain profit levels achieved in fiscal year 2004 as we tried to overcome these challenges to continue sales side efforts and the cost reduction efforts while absorbing the negative impact of the strong yen as much as possible.

Next, the prospective years for Toyota's operations excluding Daihatsu and Hino are shown. And already our unconsolidated prospective figures for the current fiscal year shown as well. This concludes my presentation. Thank you for your attention. Now, I would be happy to answer your questions.

Thank you Mr. Araki. During the question-and-answer session, we will have consecutive interpretations for questions and answers in both Japanese and English. We ask that you please follow the instructions of our conference operator. Please go ahead.

Thank you. [OPERATOR INSTRUCTIONS]. Our first question will come from Michael Brunstein (ph) of Prudential.

Good evening. Thank you very much for hosting the call. Could you tell us a little about the product pipeline and the impact that might have on your gains in North America? From what we can see, the product pipeline for Toyota looks pretty thin for the calendar year of '04 and '05 and I would like to understand what you think how that will impact your business.

(Japanese translation)

Let me respond to that question. It is quite true that the national rollout of Scion has come to the very fore and Scion actually has a very important role to play in stimulating new demand in North America. With Scion, we are now going to make a major new onslaught to target at Generation X and Y.

(Japanese translation)

As you have pointed out, the plan for our new product introduction this year might appear slightly less aggressive then otherwise. However, our strength lies in a well-balanced mix of structure of different models. That is to say, we have volume Sedan models, SUV, and luxury vehicle then represented by Lexus and all of those are doing quite well and if one adds Prius to that, we have been realizing very well-balanced sales and marketing of all those different models.

Last year, with respect to Sienna, supply actually could not catch up with extremely strong demand. However, that particular problem have been resolved this year and therefore, I think we will be able to supple Sienna in adequate numbers this year. And Tundra is also expected to make important contribution to earnings in North America and therefore, I believe, we would be able to satisfy the plan for North America with the existing new product pipeline.

(Japanese translation)

In addition to that, we are planning on a very important and significant minor change involving both Camry and Corolla distended to North America and we are expecting that they would be able to make important contributions to North American business and profit as well.

OK, great. And then, could you talk a little bit about what you see happening at the equity line and perhaps how China plays into that?

(Japanese translation)

What do you mean by equity line, could you describe that please.

Income from equity and joint ventures.

(Japanese Language)

As we have just pointed out, the Chinese projects are not consolidated because of the very strong guidance given by the Chinese authorities from the political perspective and therefore, the ownership ratio is restricted to 50 versus 50 and therefore, the Chinese business and the contributions is accounted for under the equity message.

(Japanese Language)

With respect to the financial results for the last fiscal year, the Chinese business accounted under equity methods have contributed a rather small rate, approximately at this juncture, the contribution has been around 5 billion yen or so. However, going forward, the production in China is expected to grow rather substantially, before long the unit sales will reach 400,000 units. However, even in that case, only half, 50% of the earnings from China would be accounted for as our income under the equity method.

(Japanese Language)

At the moment, we are enjoying very high level of profit ratio through our Chinese business. However, eventually as the market in China becomes more mature, that profit rate will start coming down. However, for the time being, we are enjoying and we are likely to continue enjoying this high profit base in China.

Thank you very much.

Thank you.

Our next question from John Buckland (ph) of Thaiwa (ph).

Good afternoon. You mentioned at the beginning of the answer of the first question, the Scion brand. I just wanted, if you could talk a little bit more about that? At a JD Power conference in London, they said that look like Toyota is starting to operate like General Motors, I am not sure exactly what they meant by that, but I wondered if you could just how this brand is being positioned? How much of the growth for North America is coming from the Scion brand and also the initial quality score from this brand, wasn't really up to Toyota's normal standards? I wanted if you could just address that issue as well.

(Japanese translation)

Before referring to Scion specifically, allow me to refer to the Lexus once again at this juncture. Lexus was introduced, targeting at the baby-boomer Generation. Even prior to the real establishment of so called market constituted by baby boomers, we particularly focused at the demands and needs of baby boomers and decided to introduced the Lexus as a brand targeted at them. As the baby-boomers became mature and grew, Lexus brand continued to grow together with them.

(Japanese translation)

In the case of Scion, our target is Generation X and Generation Y and like in the case of Lexus, we are expecting that the Scion brand be nurtured and developed as those Generations X and Y will continue to grow in the future.

(Japanese translation)

Actually, we have made extremely careful planning with respect to the introduction and launch of Scion itself. Last year, we introduced Scion specifically to the State of California alone on a trial basis and we studied and examined how the marketing was conducted in California. And on that basis, having gained experience on that state, we are going to realize the nationwide rollout in June of this year and going forward, we are hoping to sell somewhere around 120,000 units per year.

(Japanese translation)

There may be in the view that because Scion is catering to the requirements of the younger people, if one looks at the balance between the cost or price on the one hand and quality, one might feel that probably, the cost may emphasized at the expense of quality. However, that is not the case at all because that sort of philosophy or way of thinking is totally immunical to the thinking in Toyota Motor Corporation.

So, there is no room for concern that Scion might make mistakes with respect to quality or problem might arise with respect to IQ as the core, that is not the case and that is not going to be allowed with respect to Scion because we firmly believe that living up to Toyota standards and firmly retaining the Toyota standard is the basis on which we can build our brand equity and value and therefore, we are confident that we will assure the same quality standards with respect to Scion as we have been achieving for other Toyota brands.

(Japanese translation)

Did I answer your questions?

Yes, thank you. Just, you say 120,000 per year sales, I mean, you have got growth here of 77,000 to North America. So that seems to suggest that no growth for the other existing brands? I mean, is it not a wrong interpretation?

(Japanese translation)

I cannot respond to that question right away because it involves the different configuration of the product lineup, but we have no intention of restricting any specific brands and intentionally increasing other brands.

OK, thank you for your time.

[OPERATOR INSTRUCTIONS]. Our next question will come from John Greenhill (ph) of Lazard.

Thank you very much. Could you perhaps add few more words about the improved profitability of the financing operation and what we should expect going forward and secondly, just your forecast for unit sales in the international area. In the other section, seems to be a marked slow down from what we have seen over the last couple of years. Could you perhaps just say whether you are just simply being cautious?

(Japanese translation)

Yes, let me respond to this question relating to financial services business. We have been trying to achieve or reach 100 billion yen in terms of the overall operating income from financial services operations at as early as possible stage. However, we were able to achieve, this operating income in excess of 100 billion yen one year ahead of the schedule and in the previous fiscal year, the financial services earned 146 billion yen in operating income representing a significant 115.7 billion yen increase from the previous fiscal year.

(Japanese translation)

If I may breakdown the factors resulting in the increase in operating income in excess of 100 billion yen, about over one half of the overall increase were due to the business expansion that is to say, the increase in loan outstanding as well as decrease in loan loss reserve, which also had a positive impact, and so the two combined accounted for over one half and the remaining one half is due to approximately 50 billion yen increase in valuation gains on derivatives.

(Japanese translation)

This gains from derivatives operations totaling 56.3 billion yen might appear extremely large. Included in 146 billion yen operating income of the current fiscal year, the valuation gain in that was 19.3 billion yen and the difference is 60 billion yen. This relates to the fact that we had valuation loss in the previous fiscal year relating to derivatives transactions and therefore, the difference for the 56.3 billion yen and therefore, it does not mean that predominant portion of operating income of 146 billion yen in the current fiscal year has come from derivative transactions. That is not the case.

(Japanese translation)

Secondly, in the last fiscal year the earnings from other regions showed a significant increase because all the regions including Asia, Latin America and Africa performed very strongly. But there is one special factor relating to Africa. The operations in South Africa was newly consolidated and the South African operation, was subsidiary has now become a consolidated subsidiary and therefore its absolute amount have - are being added to the overall income from the other regions. And since that it will be treated as a change for the current fiscal year. Relative to the current fiscal year, in the subsequent year the earnings from other regions might appear smaller. That is just say the contributions from South Africa might appear as if it has decreased however that is not the case and it actually is due to the special factor of South African subsidiary being consolidated.

Sorry, sorry can you just briefly tell us how many units and how much operating profits that consolidation EBIT?

Specifically of South Africans subsidiary you are talking about?

Yes please.

(Japanese translation)

The unit sales increased by, the South Africa added 118,000 units in unit sales and 8.4 billion yen in operating income.

Thank you.

[OPERATOR INSTRUCTIONS] Benjamin Moyer of Merrill Lynch has our next question.

Hello Mr. Araki, I have two questions. The first one is about IMV. Can you tell us is it discussed briefly what your targets are for IMV and how you to plan to achieve them and you mentioned that this program will start in 2004? What will you be doing specifically in 2004 related to IMV? That's the first question. And the second question is on your cost cutting; every year Toyota achieves a large amount of cost cuts. Can you put this year's amount in context? Is it more or less than recent years and what do you expect in the current fiscal year relative to last year. Thank you.

(Japanese translation)

Let me talk about IMV project first. Under the IMV project, production will be conducted in Thailand, Indonesia, South Africa, and Argentina, and all together in aggregate, we are planning to produce 400,000 units.

(Japanese translation)

We will produce 200,000 units in Thailand, of which 100,000 units will be exported outside of Thailand. And in Indonesia, we will produce 70,000 units, of which 10,000 units will be for export. and in South Africa, the production will be 60,000 units, of which 30,000 will be exported to European countries and African countries. In Argentina, the production level will be 60,000 units of which 45,000 will be exported to America countries and other countries in the Central and South America.

(Japanese translation)

The most important characteristic of this IMV project is that production in each country is not restricted to cater to the requirement of that particular country alone, rather we are trying to achieve the division of the work so to speak, involving five different vehicle models resulting in mutual supply of those models amongst these involved countries. The idea is to consolidate the volume, so that cost reduction can be realized through greater volumes and this involves not just vehicles, but to respect of unit, the division of labor will be conducted amongst countries involved. Producing diesel engines or gasoline engines and transmission or steering will also be divided in terms of production amongst different countries, resulting in mutual supply between and among those countries and those will realize the reduction further.

(Japanese translation)

The basic concept is to realize globally ideal or optimize the production and supply. Rather than producing vehicles in each individual country we are trying to supply vehicles on a global basis mutually through a division of worker, division of production jobs. It is extremely difficult to explain how the initial start-up of production is conducted. So, I would like to restrain from doing that, but some of the operation production will be initiated, inaugurated in summer of this year.

(Japanese translation)

Briefly, responding to your question relating to our cost reduction. The benefit accruing from cost reduction, during fiscal year ending in March 03, was 290 billion yens. And for fiscal year ending in March 04, it was 230 billion yens. And our projections for the period ending in March 05 will be around 200 billion yens.

(Japanese translation)

The (inaudible) 21, our cost reduction program basically is the bench marking project or program. For each component, we are bench marked, and carry out activities to reduce cost on the components listed. So with respect to those parts on which, the design has been achieved on the ideal basis, every time the vehicle is redesigned through model change, the cost reduction activity is conducted and implemented, and therefore fiscal year to fiscal year variation, is due to the number of model changes conducted in specific year, the size and scale of the model change, as well as the number of vehicle units actually, redesigned through model of change. And that is the major reason behind this, year-to-year variation, in cost reduction.

Yes I just wanted to clarify one. The production at the, the four countries involved in IMVS, 400,000 units this year. What was the production of these countries last year?

(Japanese translation)

400,000 units is the added projection that we are aiming to achieve. Once the IMV is fully up and running, and in full gear. And therefore it is not that this total amount of 400,000 units will be produced by the end of the current fiscal year, because at the IMV project will be implemented and start operation will be started in stages. So this 400,000 units will not be reached by the end of the current year.

Now with respect to the existing models, which have formed the basis of the IMV, including our pick-up trucks and multi-purpose vehicles, on that basis, in the previous models, so this is not the IMV itself. And on that basis the current level of production is around 200,000 units, and therefore our intention was to double the size of production, through the implementation of the IMV project, to deliver a 400,000.

Thank you.

Thank you.

[OPERATOR INSTRUCTION]. Our next question will come from Angus Boteral (ph) of Ontario Teachers Pension Plan.

Hello. I was just asking, wondering, on the use of cash, given that the buybacks are going to be lower than last year, and the CapEx, depreciation, R&D spending is not going to be substantially different, year-over-year. And it looks like the cash balance is grown, and there seems to be some inter loaned debts to the financial services company, meaning that there is a bit higher cash on the balance sheet than it first appears. Given all these factors I am wondering whether we can expect some other difference between last year's buybacks, and this year's expected buybacks to be directed towards dividends, and sort of a corollary to that, whether there is a target for the amount to cash on the balance sheet?

(Japanese translation)

The difference in the amount spent for a share repurchase during fiscal ending in March 03 and that ending in March 04 was at 70 billion yen and to that extent are the - less amount was spent for share repurchase during the fiscal year ending in March 04 and this is primarily due to the fact that unwinding the growth of our shareholding by banks have been peaking out and in line with that we had been gradually reducing the amount spent on share repurchase. As we have correctly pointed out to that extent as the aggregate amount spent for dividend payments increased from 125.8 billion yen last year to 151.2 billion yen in the current fiscal year.

(Japanese translation)

And as we also pointed out because of the release of our shares buyback in the process of unwinding for shareholding is peaking out the share repurchase and share retirement will start coming down and to that extent the resources available for dividend payment will increase meaning there will be greater room for us to consider our increase in dividend.

(Japanese translation)

However what is important is whether or not we can retain, firmly secure the amount of free cash flow, through the cash flow. Structure. That is to say we had a approximately 1 billion yen in after tax income, our net income and depreciation is in the range between 700 to 800 billion yen and CapEx crossing around 1 billion yen which leaves about 700 billion yen in free cash flow. So the basis for consideration where would be whether or not we can retain and secure that size of cash flow.

(Japanese translation)

And how much of the peak cash flow is to be spent to secure our future growth and how much should be used for returning to the shareholders, will be considered by closely examining the cash available as well as overall net income trends.

(Japanese translation)

Year-after-year we will spend about 1 billion yen, let me rephrase it. Automobile industry is the kind of industry in which year-after-year the capital investment needs to be made to the tune of 1 trillion yen and the research and development would require about 600 to 700 billion yen and therefore as our sales continue to grow, what is the appropriate amount is cash very important consideration and we think that is very important for us to retain the very large size of cash on hand to prepare for those requirements.

(Japanese translation)

I wonder if you have been able to understand our basic philosophy in this area.

Yes, thank you.

[OPERATOR INSTRUCTIONS]. Next we will hear from John Greenhill of Lazard.

Just a quick follow-up question on that actually - one is that I think that the company treasury stock is now the number one largest holder of the shares, which seems a little bit inappropriate and I wonder why you, if you could comment why you refused to cancel the treasury shares and secondly the market seems far more willing to reward dividend payments and share buyback, and why you don't consider perhaps redressing the balance more in favor of dividends and perhaps lower buyback.

(Japanese translation)

I am fully cognizant and of the consideration of the part of the shareholders, which values dividend payment more and would think that dividend payment is very important. However I have to refer to the mergers and acquisitions defense here in Japan. To due date stock share holding, especially by banks, was, probably the only way available for us to defend ourselves from hostile takeover, or mergers, and acquisitions. And therefore this has been a long establishing practice here in Japan for banks to have shares of the corporations here in Japan. And over 40% of our shares has been of course held by banks.

However in the short periods of time of a few years, the banks shareholding has been alarmed, and this has indeed, have the signifcant potential of, substantially undermining the supply and demand balance in the market. And therefore in that process we saw, that it is absolutely important and necessary for us to absorb those shares released by banks in the market in general by the purchasing and retiring those shares, and we gave highest priority to that, to date. And therefore out of the 50% of the shares we purchased, say in that process, we canceled them, and the remaining 50% is currently held in the form of treasury stocks.

(Japanese translation)

As a result of those efforts, probably I should refer to what happened to the, towards the share price, how it has evolved. After the bursting of the bubble here in Japan, had there has been increasing, downward trend, shall I say, an economic deflation, and in that context the Nikei average continues to decrease, whereas on relative terms, the value of purchased shares continue to increase, to date. And therefore I think it safe for me to say, that our buyback program, did have a very important benefit.

(Japanese translation)

The unwinding, excuse interpreter. The ownership by banks of our shares have already peaked out with their percentage, having coming down to 11% currently. And that means that there is now less of a need for us to cancel our shares, as there are shares repurchased. On aggregate terms, the share repurchase, and dividend combined, if one looks at the total return to share holders, we have been returning about 50% of our net income to share holders, by combining both, the share repurchase and dividend payment. But now that there is less of a need for retiring or canceling those shares, we will be able to reallocate those resources, thus release the two dividend payment.

Thank you.

Our next question will come from John Buckland of Thaiwa.

Yes, thank you. I have seen some comments about, some of your sales in European restricted by, inability of supplies to keep up demand. I just wondered if you had some idea of, you known, how much of, its like volume you have lost for that, and what you are doing to improve the situation, and how do you expect the sales to subsequently develop?

(Japanese translation)

Quite true, during the last fiscal year, while the overall European market, had stood at 99% of year-on-year, shrinking a little from the previous fiscal year, the Toyota sales in 03, was 110% of the previous year. So our sales were going very strong in the context and the U.K plant and other plants, as a result of that suffered from supply shortage. So how can we increase our supply capacity, is the issue in question?

(Japanese translation)

Our approach is not to construct new plant right away, rather we will first think of how best we can make a more effective and efficient use of existing plants and production capacities. And to that, and to a certain extent we will revitalize our Turkish a plant, so that supply from Turkish plant can be increased, and we also increase supply from South Africa. And furthermore, we intend to shift to three-shift operations as early as possible, in our French plant. So the first approach is to make the best and most efficient use of our existing production capacity. And furthermore, the Czech plant, which is a joint venture plant with Peugeot will start producing 300,000 units, as shortly.

But I thought the problem was with supplies not with Toyota's ability to assemble the cars but it is a suppliers ability to deliver the parts?

(Japanese translation)

Rather than suppliers' capacity representing a bottleneck in the total supply picture, we think it is first of all necessary for us to make the most efficient use of our existing plants and production capacity.

OK, so the comments of the supplies as a bottleneck is not correct. Can I just understand that?

(Japanese translation)

That is correct, suppliers are not the bottleneck in this process.

OK thank you.

And gentlemen our final question will be from Michael Brunstein of Prudential.

Hi again thanks for the follow-up. Can you give some guidance on the tax rate, how we should think about that, are there any new drivers with your changing level of consolidation, changing profitability overseas etc?

(Japanese translation)

This is related to tax rate overseas or in Japan?

No, I am talking about the overall tax rate.

(Japanese translation)

In terms of the overall tax rate we have no intention of selecting the location of production or changing the location of production because of the purpose of tax saving or in order for us to save tax. As a global company operating throughout the world as a multinational corporation, of course we would like to see avoidance of double taxation throughout the world.

(Japanese translation)

With United States for the first time in 30 years, as the bilateral tax treaty has been just revised and come July of this year a new tax treaty between Japan and United States will come into effect. In essence is that the new tax treaty is very beneficial in promoting mutual investment that two way investment flow between Japan and Unites States. And the similar type of tax treaty is seriously desired to be implemented and applied in European countries. However in Europe the taxation rate is still is the prerogative of individual covering states rather than consolidated at the EU level and I would like to see strong leadership exercised by EU authorities for that purpose.

OK great. So when you boil it down what does that mean for Toyota's tax rate?

(Japanese translation)

At the moment the rate of corporate income tax in japan on the effective level is 38.6% and that I think is more or less on par with the average level all over the world.

And is that the effective rate we should use when modeling Toyota's earnings?

(Japanese translation)

I think that also is a right approach.

All right, thank you very much.

Mr. Sue, there are no further questions today. So at this time I would like to turn the conference back over to you for any additional or closing remarks.

Thank you, this concludes today's conference call. Should you require further information regarding today's conference or on Toyota please feel free to contact out IR representative in London and New York. Their contact details were given at the end of the invitation to this conference call. Thank you again for joining us today. Good-bye.