豐田汽車 (TM) 2006 Q4 法說會逐字稿

Good day everyone; my name is Vicki and I would like to welcome you to the Toyota Motor Corporation’s financial results for the 12 months ended March 31, 2006 conference call with Chairperson, Mr. Takeshi Suzuki.

[OPERATOR INSTRUCTIONS].

I would like to remind all participants that this conference is being recorded at the request of the hosting Company. I would now like to turn the call over to Ms. Kuno Fuji from Toyota, who will introduce the conference.

Hello everyone, thank you for joining us today. My name is Kuno Fuji member of Accounting Division of Toyota Motor Corporation. I would like to welcome you to today’s discussion of earnings results for the 12-month period ended March 30, 2006.

Before introducing today’s presenter, I would like to make a correction to the data some of you have received. It relates to supplemental material, page 3, the second line from the top. The line starts with “parent” was erroneously inserted just below Research and Development. We are sorry for any inconvenience caused by this.

Now let me go back to the conference. I am joined by Mr. Takeshi Suzuki, Senior Managing Director of Toyota. Today’s conference call consists of 2 parts; first Mr. Suzuki will discuss the Company’s major activities in fiscal 2006 and 2007, followed by a review of Toyota’s earnings results for fiscal year 2006. At the conclusion of Mr. Suzuki’s presentation, we will open for your 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 our actual results may be materially different from those expressed by those forward-looking statements. A complete cautionary statement with respect to forward-looking statements is included on page 3 of today’s presentation material, which can be downloaded from our Internet page.

In addition, a complete cautionary statement with respect to insider trading is included on page 4.

Now I would like to turn the call over to Mr. Suzuki.

Thank you and hello everyone. I am Takeshi Suzuki, Senior Managing Director of Toyota Motor Corporation. Thank you for joining us for this conference call. I’d like to start by discussing highlights of the fiscal year 2006 financial results.

First, sales volume; consolidated sales were 7.974 million vehicles for the fiscal year. This dramatic rise was supported by strong demand, particularly in overseas markets. Consolidated vehicle sales; a net income achieved new record levels. Earnings trended upward in the latter half of the year resulting in positive year-on-year growth for the entire year. Although the effect of falling exchange rates was a contributing factor, the performance demonstrated the strengths of our Company’s ongoing operational efforts.

Before looking back at our main operation efforts during the fiscal year, I would like to remind you of our underlying growth strategy. As a Company in the manufacturing industry, we have been pursuing superior technology and product strengths as a source of growth. Also we have been globally strengthening supply and marketing capabilities to support them. What we are currently focusing on is improving the quality of each of these items. We are pursuing opportunities in all product segments worldwide while avoiding and absorbing risks in order to realize stable and long-term growth.

Next, I would like to explain where the opportunity lies and what has been done in fiscal year 2006. The global automobile market is continuing to grow, and Toyota continues to out-perform the market growth. This was a result of the strong trust of Toyota’s products won from our customers. We have been responding to market needs with launches of strong new models. We have also gained customer trust in our existing models through continuous efforts to improve quality and performance.

In the area of creating and developing new markets with products and technology, we have the hybrid vehicle technology. In the fiscal year 2006, the Toyota Hybrid System II was introduced in the [Horea, Kruger] and Lexus GS.

In addition, we have been able to increase profitability by cutting system costs in half. In fiscal year 2006, we sold 263,000 units and leased 600,000 units cumulative sales mark since 1997. We are presently working on development of our next generation hybrid system to upgrade performance and fuel economy by further slashing costs. [Inaudible] opportunities with improved products and technologies, yet balances must be accompanied by supply capability. Toyota’s basic policy on supply is to manufacture where the demand is, so we have been building production capacity in various overseas locations. But demand is growing on a global scale at a speed exceeding the pace of our build-up. For this reason, we have to increase the production capacity inside of Japan. This is because of accumulation of past business experience enables us to start-up more quickly in Japan than in other countries. We can also make capital investments that are [inaudible] in adapting to demand volume. Late last year, we built new production lines in Kyushu and Iwate, raising domestic output from 3.5 million units to 3.8 million.

In terms of improved marketing capability in fiscal year 2006, the prime example is Lexus. Fiscal year 2006 was the Dawn for Global Lexus, marking the beginning of the model lies as a global brand in the premium segment. Since the introduction of the Lexus in 1989, it has grown primarily in North America. The Lexus brand was introduced into Japan in August 2005, and since then we have been establishing the brand image quickly. We are also expanding exclusive network of Lexus dealers in Europe and China. This year, we will launch the new LS as a flagship model.

Let me move on to fiscal year 2007; Toyota has 4 models that sell more than 400,000 units globally every year. They account for 34% of the total sales volume. These cars will create global best, local best development concept. This means that we pursue development of platforms as well as key components to be shared globally, and at the same time combine them with the design and operability that satisfies local market needs accurately. This enables us to develop products efficiently and globally.

We began production of IMV in the year 2004 implemented through model change Camry this year. Carolla will also be changed over to a new model in each region accordingly; further plans to boost the sales volume and profits through improved product strengthening of these key models.

For cost reduction, Toyota has been engaged in a new program called Value Innovation Activities since last year. VI Activities are based on our past cost reduction activity, CCC21, and are innovative in that we have extended its reach into the advanced development concept and forecast on system unit. Let me give you an example. As you see in the slide, by taking a system-specific approach, we can significantly reduce the number of EDUs installed on each model and even realize improved performance. New models with improved performance through VI Activities are scheduled to be rolled out starting in the year 2007. With VI Activities we plan to realize a speed and a scale exceeding CCC21.

The key project for production capacity increased our plant start-ups in Guangzhou, China and in Texas United States. In Guangzhou, we plan to set up the global new body line we call GBL. GBL is a production line that realizes both outstanding manufacturing quality and production efficiency, and it will start operation in the rapidly-expanding Chinese market with production of the new Camry. Also, our Texas plant in the United States is scheduled to be opening this year. The Texas plant start-up will be executed without much support from Japan but with the Indiana plant functioning as its model operation and [inaudible] implemented by the Global Production Center set up in Kentucky as a training center for manufacturing skills.

Please see slide 17; this shows how these activities have contributed to profit; the level of actual or anticipated contribution to profit is shown by the depths of the color. As I mentioned earlier in my presentation, it is important to achieve our growth from and to maintain efficiency at the same time, while increasing profitability in each activity. We intend to keep a high level of operating margin through stringent control of global fixed costs. Our objective is to increase operating income through top-line growth while maintaining an operating margin of roughly 9%. Through these activities, our sales plan for the current fiscal year is 8.45 million units, up by 476,000.

Next, I would like to summarize our business prospect for fiscal year 2007, with increased sales volume we aim for an all-time high in net sales of 22.3 trillion yen. We expect consolidated operating profits of 1.9 trillion yen as will be explained later. Our business environment will remain [severe] with a significant increase in the raw material prices and competition intensifying; however, we will achieve results that exceed our latest financial results while continuing the investment for future growth. In consolidated net profit, we plan to maintain a high level of 1.31 trillion yen.

I would like to discuss our shareholder return policy. As for our dividend payout since fiscal year 2005, we have been aiming to steadily increase the payout ratio to 30% on a consolidated basis. Based on this policy, we plan to propose a dividend of 90 yen per share, an increase of 25 yen year-on-year for fiscal year 2006 at the General Shareholders’ Meeting. This latest dividend payout rose from 18.3% in the previous fiscal year to 21.3%. We hope to be able to achieve our goal of a 30% consolidated dividend payout ratio in the next 3 to 5 years.

Next, share buy-backs; at the General Shareholders’ Meeting, we plan to propose a one-year share buy-back program of up to 30 million shares for 200 billion yen. We have been actively involved in share buy-back in recent years as an effective means to return value to shareholders. We plan to exercise a new program with flexibility in order to improve capital efficiency and provide supporting case of demand supply in balance. As for Treasury stocks, Toyota does not currently plan to reduce its Treasury stocks.

In the following part, I’d like to elaborate on the financial result for fiscal year 2006. As you see in slide 24, Toyota marked a dramatic increase in revenue and profits. Please note that other income increased 143.3 billion yen in an evaluation gain arising from the merger of Tokyo-Mitsubishi Financial Group and UFJ Holdings.

Next, I’d like to provide the details regarding the operating income. Major factors contributing to the decrease were increasing expenses and effect of special factors. On the other hand, factors contributing to the increase were effect of exchange in foreign exchange rate, marketing efforts, and cost reduction efforts. Foreign exchange rate was a contributing factor, but more importantly the Company has achieved higher operating income through its own efforts, including marketing and cost reduction, which helped offset higher expenses.

Next I’d like to give an explanation based on location. In Japan, operating profits rose in terms of sales volume, demand in the market, excluding many vehicles have been weak, keeping business conditions challenging. However, an increase in production resulted in a growth in export and foreign exchange rates also contributed to profit growth.

In North America, sales slowed significantly; as a result operating profit increased although the market itself did not grow due to increases including oil prices, sales were extremely strong; chiefly our new models and compact cars such as Avalon, Tacoma, Prius, and Scion. We plan to vitalize sales further with the launch of the LS and Tundra during the current year. Having said that, we expect that the start-up costs of the new plant and the rising raw material costs will have a certain negative impact on profits.

In Europe, despite severe market conditions, our sales volume exceeded one million units for the first time. Operating profit, however, fell; investment for the capacity increase at our UK plant and the Yaris model change at our French plant combined with intense buying competition has kept business conditions challenging during the first half of last year. However, the situation is slowly recovering. We expect to see sales momentum rise with the launch of new models, such as the Yaris, Lexus IS and the [inaudible] and to see profit increase in the future.

In Asia, both sales and operating profit increased. The IMV products have started exports to Europe and other areas outside Asia, and are contributing to profits. IMV is progressing very well in both manufacturing and in sales, posting earnings from both volume increase and cost reduction and has realized marked growth in profit levels. However, market weakness in Indonesia and Taiwan, rising raw material costs, and other risk factors require attention.

In other regions, sales volume and operating profit increase, the start-up of IMV in Argentina and in South Africa has contributed to earnings.

In the financial business, operating profits decreased; however, this increase valuation losses in swaps by Japanese and American subsidiaries and the lack of restatement gains during the previous fiscal year at our U.S.-based company, TMCC was 63 billion yen in total. Excluding these factors, we are able to post a profit of 18 billion yen, demonstrating that profits are growing steadily with increased sales volume and accompanying growth of outstanding financial loans. We believe we will continue to improve earnings from financial business.

Moving on to equity in earnings in our affiliated companies; the increase is due primarily to steady profit growth by our Chinese joint ventures, as well as Toyota group companies in Japan.

Please see slide 33; CapEx expenditure rose dramatically. This is a result of the successive production output increases in Japan and other countries, and the impact of rise in raw material costs and fluctuations in the foreign exchange rates. Depreciation costs and R&D expenses have also remained at a high level.

Next is our unconsolidated business report, which posted a strong increase in revenue and profits. Slide 35 shows factors in unconsolidated profit growth.

Next, for fiscal year 2007, we hope to continue increasing revenues and operating profits. The foreign exchange assumption is 110 Japanese yen to the U.S. dollar, and 135 Japanese to the Euro, weakening over the product mix with the market shift toward comfort cars, realizing low material costs, among other risks have been incorporated into the above projections. We project that capital expenditure will remain high. This is due to the investments for new overseas plants, as well as maintaining existing plants, although R&D expenditures will rise by 107.4 billion yen. This is due mainly to new-car development as well as an increase in cost of hybrid vehicle development.

The unconsolidated financial prospect is shown in slide 38; we are expecting to see increase in both revenues and profits on a consolidated basis.

This concludes my presentation. Before moving to the q-and-a session, I would like to comment briefly on the lawsuit in the United States, which was reported in the media last week. Please let me say that Toyota is taking this lawsuit very seriously, especially because we have always made every effort to prevent any and all types of harassment through observance of our Code of Conduct, as well as through thorough compliance education. And because we have always dealt with any cases of harassment in the most strict manner. In light of the fact that the lawsuit is ongoing, we do not think it is a proper to comment on specific issues regarding it at this time.

Thank you for your understanding; now let us move to the q-and-a session.

Thank you Mr. Suzuki. During the presentation, there were several slides which were not shown on website due to system problems. We apologize for the accidental omission of those several pages.

During the q-and-a session, we will have consecutive interpretations for questions and answers in both Japanese and English. Now our conference call operator will explain how to connect to your line.

[OPERATOR INSTRUCTIONS].

Mike Bruynesteyn, Prudential Equity Group.

Hello Suzuki-san; I have 2 questions; first could you explain the distribution of the FX impact in the quarter which I believe was 150 billion yen; could you tell us how that hit different regions?

And 2, could you elaborate on your expectation for the impact on margins from your capacity expansions in particularly North America? Thank you.

First of all, I would like to explain the impact of 150 billion yen stemming from a foreign exchange rate movement during the fourth quarter. During the fourth quarter, in terms of a dollar/yen relationship, the yen depreciated and the predominant portion of this 150 billion yen relates to the yen depreciation vis-à-vis the U.S. dollar stemming from, and therefore this relates to the export of vehicles to the United States.

Secondly, the question relating to the impact of capacity increase on operating margin, especially broken down for different regions, we do not calculate the impact of our capacity increase for different plants or for different regions. Some items included, that must be included in the calculation makes the calculation of that extremely difficult.

However, specifically about North America, the substantial capacity increase of projects are twofold; one relates to the Texas plant where Tundras will be produced and the other one is the second plant in Canada where RAV-4s will be produced. And the impact of these two capacity increase projects in the plant on the operating margin on our profit during the current quarter, or current period would be negative because of the initial costs that need to be defrayed. However, starting in the next period and beyond, both of these plants, once reaching full-capacity operation would start contributing to the profit of our growth, and therefore, if I may summarize during the current period, the expense spending would proceed. However, starting in the next period, we will be able to reap profit out of the expenses spent in the current period.

[OPERATOR INSTRUCTIONS].

Ron Tadross, Banc of America Securities.

Good evening Suzuki-san; thank you for the call. Two questions; the first question is you said for the year that your marketing efforts resulted in a positive 240 billion yen improvement and I’m wondering if you could break down the volume portion of that versus I guess mix/price, somehow break out that n umber a little bit more.

And then second question is on capital spending; you’re guiding to about 7% of sales for capital spending versus your average the last 5 years I think was closer to 6% of sales. So I’m wondering if you could just explain where the change is coming from. What portion is new products versus expansion versus maybe raw materials as you suggested?

It is extremely difficult to share with you the breakdown of a 240 billion yen, in directly responding to the manner in which you have posed the question, because of the difficulty in capturing the specific figures, and allow me to refrain from giving those specific numbers.

However, let me respond to your question in the following manner, breaking down 240 billion yen in the following manner; that is to say 40 billion yen stems from the efforts made by TMC on a stand-alone basis and 200 billion yen was contributed by marketing efforts made by subsidiaries.

And this 200 billion yen contributed by subsidiaries efforts can be further broken down into the following manner; 50 billion was produced as a result of efforts made by subsidiaries here in Japan, and 150 billion yen is the result of the efforts made by subsidiaries outside of Japan, overseas.

And the 150 billion yen contribution by overseas subsidiaries efforts can be further broken down as follows; 70 billion contributed by Asian subsidiaries; 50 billion by subsidiaries in North America, and 30 billion by subsidiaries located elsewhere.

Regarding your second question, that is to say the reason why there has been change in the ratio of CapEx as a percentage of sales, I would like to apologize that we do not have any data analyzing the situation in line with the purport of your questions.

However, out of 1.1 trillion yen spent during the previous year 390 billion or approximately 400 billion related to GMC’s CapEx on a stand-alone basis and 1.1 billion yen is CapEx spent by subsidiaries. And of that 1.1 trillion yen CapEx spent by subsidiaries, domestic subsidiaries accounted for 500 billion yen. And 500 billion yen spent by domestic subsidiaries was primarily for the purpose of capacity expansion and therefore, I think it is the right way of understanding that a predominant portion of increase in CapEx during the period relates to the capacity expansion.

So should we read that as your -- because it’s increasing as a percent of sales -- that your rate of growth is increasing, or is it just a function of the fact that you’re spending more I guess for future growth?

Basically, we have been spending a sizable amount of money to increase capacity so that we can meet demand in the market. And if demand for Toyota vehicles or Toyota products continues to grow in the future, that CapEx currently spent would lead to the growth that we’ll be able to realize in the future, and that is actually the strategy that we would like to implement and realize, materialize.

And therefore, in the newly-established capacity or in the augmented capacity, if those capacities can produce vehicles or product groups that is accepted very wholeheartedly by the market, that in itself can lead to the future growth of Toyota, and that is the scenario that we would like to realize.

Okay, thank you very much.

[OPERATOR INSTRUCTIONS].

Matt Stover, Wellington Management.

Good morning and thank you for the conference call. Suzuki-san, on chart number 15 you give a timeline here for the implementation of the VI Activities, and then the realization of those cost activities. As the CCC21 program has matured, the value of overall cost savings has come down. As you think about the cost savings activities into the forward fiscal year, should we anticipate that the VI Activities will get off to a slow start and therefore overall cost savings activities into the fiscal year are flattish with last year, or should we see an acceleration in total cost savings? Thank you.

In the fiscal year ended in March 2006, the amount of cost actually saved totaled 130 billion yen. And this 130 billion yen in savings achieved is after netting out the impact of higher prices for precious metals among others. Currently, we are still generating profits or reaping our fruit out of this CCC21 Activities, and therefore, if the impact of higher raw material prices are excluded from the picture, a very high level of cost savings is still going on and still being realized at this moment.

However, since the CCC21 Activities have more or less played out, as the next stage cost reduction efforts, we have initiated VI Activities, and we are aiming at achieving cost savings through VI Activities that exceed what has already been achieved through CCC21 Activities. And therefore, in that sense once the prices for steel and aluminum, or precious metals becomes more settled, we expect cost savings to be realized far in excess of VI Activities, far in excess of what has been achieved in the past.

When we look at the chart number 15, the ’07 reference in terms of realization of cost reduction, is that fiscal ’07 or is that calendar ’07?

That’s based upon calendar year.

So calendar; now if we look at your comments, would it be fair to say that the incremental cost of raw materials in fiscal year 2006 was the order of magnitude 100 billion yen?

Actually, my consideration for the price realization or relevancy prevents me from sharing with you the precise numbers, but actually the impact of higher raw materials cost was bigger than 100 billion.

Okay.

Well, actually it exceeded 130 billion yen, but not as much as 200 billion yen, so I will leave the rest to your imagination.

Thank you very much.

Margaret Moore, American Century.

Good evening Mr. Suzuki, and thanks again for staying up so late to talk to us.

I have 2 questions; the first is regarding the Tundra which will be manufactured in the new facility in San Antonio for the end of this year. Given the announced slowdown in production by both Honda and Nissan, are you planning to actually ramp up production of the Tundra in San Antonio to full capacity within the first year of starting up the plant?

We still have some time to go before the start-up of the operation of that plant, and in the meantime we’ll closely observe the market conditions. And market tends to change in a very short span of time. But we will determine the market conditions very closely before we make any decision on that. That’s the basic stance that we currently have.

Needless to say, naturally if the market is big, we do not intend to overdo our capability and go ahead with the production. Production will be conducted keeping our eyes open to the market trends and market conditions. However, we have no intention of reducing the capacity of that plant in San Antonio. All I am saying is that we may respond to the market conditions by taking a more judicious approach vis-à-vis a start-up of operations but nothing has been decided at this point in time.

Furthermore, the gas prices themselves represent a negative factor for trucks, but at the same time, we are quite confident of the competitive edge that Tundra can offer, and therefore, we are somehow hoping that probably we can sell Tundra even in this market.

Thank you; my second question is regarding the media reports about your development of a new entry-level car that would be utilized, for example, in the Indian market or that would compete with the new Logan that the Renault group has come out with. And I was wondering if you could comment on it and how would that vary from some of your other entry-level products that you have announced or begun, such as the Igo or some of your other domestic models?

We do realize that in parts of the world, especially in [inaudible] and related countries, compact vehicles or so-called low-priced or low-cost cars would represent a very important model, especially in India we see in terms of that trend, and therefore we believe low-cost models would represent a very important model, especially in the Indian market.

And furthermore, with respect to low-priced vehicles, how we are going to collaborate or co-work with [inaudible] represents another important element for consideration. However, something similar that has been reported in part of the media has not been actually decided within Toyota and this is still under study at this juncture.

Thank you very much.

Curt Sanger, Mercury.

Good evening Suzuki-san; 2 questions regarding the share buy-back and dividend policy. The first question is on the share buy-backs. You are proposing another 200 billion yen in share repurchases. I’m wondering on the state of the current share buy-back program cash flow statement shows money spent on share repurchases fell by about half year-on-year. My question is will you finish your current share buy-back program by June, the full allotment? I believe it’s 250 billion yen.

The program lasts until the end of June when AGM is held, and therefore depending upon the market conditions, we might take action. And for the next few years to be covered by the program, what we are proposing at the moment is the proposal to be put forward at the Annual General Shareholders’ Meeting and we’re looking at the supply and demand conditions in the market at the considered program envisages the repurchase up to 200 billion yen, and the program of that scale is expected to be presented for the consideration of the AGM.

Okay thank you; also this evening President Watanabe reiterated the 30% dividend payout ratio target. My question is given the nice performance of your share price over the past 12 months or so, it’s become much more expensive clearly to repurchase shares. Will this increase the speed in which you shift to more dividend payouts and away from share buy-backs, or is that view unaffected?

As you accurately pointed out, the stock price has improved quite substantially and also the unwinding of cross-held shares has passed its peak in the market. And we intend to place the higher rate on pay-out ratio in terms of effort to return value to shareholders. However, the proposed 90 yen per share dividend for the current period is the outcome of our increasing emphasis on dividend payout and also the intention of increasing payout ratio top 30% over a 3 to 5-year period is also the result of this increased emphasis on dividend payment. If the stock price improves even further in the market, we might have to reconsider the situation; however, the currently proposed dividend amount reflects the current share prices in the market at the moment.

Great; thank you very much.

Rick Herman, Philadelphia International Advisors.

Oh hi Suzuki-san; thank you again for the call. A couple of questions regarding the factors contributing to operating income; the first question regarding the marketing efforts. Could you break out how much of the 240 billion comes from volume and how much from mix?

Actually, it is extremely difficult to break down the impact between model mix impact and volume-based impact, and we do not have any data based upon that analysis. However, I can say that out of 240 billion yen, 200 billion came from the marketing efforts made by subsidiaries. And that 200 billion contributed by subsidiaries can be further divided into 50 billion coming from domestic subsidiaries and 150 billion contributed by overseas subsidiaries. And the 150 billion yen contributed by overseas subsidiaries consists of 70 billion coming from Asia, 50 billion from North America, and 30 billion from other regions.

Okay thank you, and regarding the 98 billion for the other expenses, can you mentioned what the major contributors are there?

Other totaling 98 billion consists of the following major items; the computer systems-related expenses and also the expenses relating to plant maintenance or outsourcing of administrative activities and also expenses spent for the purpose of maintaining our business sites occupies the predominant portion of 98 billion.

Okay thank you; and then lastly on the R&D can you break down approximately how much of that is being spent for the hybrid development versus new models? I know that’s difficult because some of the new models are hybrids, but I’m just wondering approximately how much you’re spending on hybrids.

To break down the research and development expenses in the manner you described is not just difficult but extremely difficult, close to impossibility. However, research and development expenses remain at a very high level because of the greater emphasis placed upon the development of new advanced technology including both the hybrid systems and fuel cell technology.

Okay, thank you for that; and lastly if you could just talk a little bit about your global expansion and margins. There was a question earlier regarding margins, particularly in North America, but as Toyota continues to take market share globally and continues to enter into smaller cars expanding the smaller, the portion of the total sales that are smaller in cars, particularly in BRICS or other developing markets, can you discuss the strategy for margins?

Essentially, I can describe the situation in the following manner; the price is determined based upon the competitive situation in the market and if we can develop the very appealing attractive vehicles that will have competitive price against the vehicles for use by competitors, and if such appealing vehicles that we produce can command very strong demand and on top of that, if we can further reduce costs, needless to say we’ll be able to generate profit from that. And therefore from that perspective, smaller vehicles, or compact vehicles tend to have lower margins. And if our vehicles or any vehicles that can win over India market competition, then the margin for such a vehicle can be set at a higher level.

In the BRICS and other countries where compact vehicles or smaller vehicles tend to be predominant, those vehicles tend to carry lower margins and vehicles tend to be lower-margin vehicles. However, in places like North America, especially mid-sized sedans or SUVs or in the luxury segment such as the Lexus, since we are competing and winning in the competition and since there is further room for reducing costs because of the prices set at the relatively comfortable price, we can generate enough margin from those areas, and that is the general trend that we see in the pricing on margins.

However, it makes no sense simply continuing to say that compact vehicles are not profitable, and therefore, we are now trying to come up with the strategy that allows us to make profitable compact vehicles through a company-wide effort for cost reduction.

Okay, thank you very much for that answer.

Ms. Fuji I’d 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 on Toyota please feel free to contact our IR representatives 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.

Thank you; that concludes today’s conference. Thank you for your participation and you may now disconnect.