豐田汽車 (TM) 2008 Q1 法說會逐字稿

Good day, everyone.

My name is Matt Pepper and I would like to welcome you to the Toyota Motor Corporation fiscal year 2008 first quarter financial results conference call with your chairperson, Mr.

Takahiko Ijichi.

Your line will remain muted until the question and answer session begins.

(OPERATOR INSTRUCTIONS).

I'd 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 conference over to [Miss.

Iguno Fuji] from Toyota who will introduce the conference.

Hello everyone.

Thank you for joining us today.

My name is [Iguno Fuji], and I'm a member of the accounting division of Toyota Motor Corporation.

I would like to welcome you to today's discussion of the earnings results for three month ended June 30, 2007.

I am joined by Takahiko Ijichi, Managing Officer of Toyota, and Mr.

[Stephen Shaw], the narrator.

Today's conference call consists of two parts.

First, Mr.

Ijichi will discuss a summary of Toyota's earnings results, and Mr.

Shaw will explain further detail of Toyota's earnings results.

At the conclusion of Mr.

Ijichi'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 these forward-looking statements.

A complete cautionary statement with respect to forward-looking statements is included on page three of today's presentation material.

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

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

Ijichi.

Hello, everyone.

Thank you all for joining us for today's discussion.

Now I will discuss the details of Toyota's financial results for the three month period ended June 30, 2007.

I'd like to begin by giving you a brief overview of our sales and the financial results before turning the presentation over to today's narrator, Mr.

Stephen Shaw.

Please turn to the slide six.

For the first quarter of fiscal year 2008, consolidated vehicle sales increased by 71,000 units to 2.16 million units, compared with the first quarter of fiscal year 2007.

In Japan, the vehicle sales decreased due to severe conditions of the Japanese automobile market.

However, we were able to achieve increases in vehicle sales overseas in all regions.

As you can see, consolidated vehicle sales in North America increased by 15,000 units.

Furthermore, on retail basis, vehicle sales remained strong with an increase of about 50,000 units.

Please turn to the next page.

Next, I would like to talk about consolidated financial results for the first quarter.

Toyota posted substantial increases in both revenues and profits marking all-time high for all quarters to date.

I will now turn the rest of today's presentation over to Mr.

Shaw.

Thank you, Mr.

Ijichi.

Please move to the slide eight.

Now I would like to discuss the major contributing factors for the increase in operating income.

Major factors were marketing efforts such as increases in sales volumes, and improvement in product mix and cost reductions which offset the increase of material costs.

Beginning this quarter, the effect of variances in ForEx rates category will only include the impact from differences in exchange rates associated with actual transactions in foreign currencies.

The impact of translation difference in exchange rates for operating income of our overseas subsidiaries will now be accounted for in others, in the increases in expenses category.

This positive impact amounted to JPY21.8 billion in the first quarter.

Next, I would like to explain the results by geographic region.

The bar chart shows the results of operating income on a quarterly basis in comparison with the same period of the previous fiscal year.

First, Japan.

Operating income increased significantly by JPY103.6 billion to JPY396.6 billion.

Increase in exports in response to overseas demand, and improvement in product mix due to the strong sales of the Lexus LS, mainly contributed to this increase.

We launched the hybrid version of the new Lexus LS in May.

Please turn to the next page.

In North America, the launch of the new Tundra and the Lexus LS, and the increase in sales of fuel efficient vehicles such as the Prius, contributed to continued strong sales.

The number of vehicle sales of the Tundra in July achieved 23,000 units, reaching the monthly record of vehicle sales for three consecutive months.

Its sales are meeting expectations and are on pace for sales of 200,000 units, which is the sales target for this calendar year.

Operating income increased by JPY20.1 billion to JPY160.2 billion due to increased sales of the Tundra and other factors.

Please turn to the next page.

In Europe, operating income increased by JPY2 billion to JPY38.5 billion.

The Auris, which we rolled off the line in January, made a strong start, and the Yaris and Aygo are still performing well increasing the sales volume in this region.

As a result, Europe has continued to increase its profit since the second quarter of the previous fiscal year.

Please turn to the next page.

In Asia, operating income significantly increased by JPY19.6 billion to JPY49.6 billion.

Sales volume is steadily increasing, mainly in Indonesia.

The overall Southeast Asian market has started to show signs of recovery.

Also, increased profit in our Chinese subsidiaries, resulting from the expansion of local operations in China, has greatly contributed to the increase in operating income.

Please turn to the next page.

In other regions, operating income was JPY38.6 billion.

This significant increase of JPY22.7 billion is due to favorable sales in every geographic region.

Sales were strong, especially for the IMV in Africa, the Camry in Oceania, and the Yaris and the IMV in Central and South America.

Please turn to the next page.

As for financial services, operating income was JPY48.3 billion, achieving a high level of profit as the outstanding loan balance has been increasingly steadily.

Please turn to the next page.

Equity earnings of affiliated companies increased significantly by JPY25.6 billion to JPY81.8 billion.

This reflects the strong performance, mainly of Toyota Group companies in Japan and the joint ventures in China.

Please turn to the next page.

As for unconsolidated financial results, we posted record first quarter results across the board.

Please turn to the next page.

Contributing factors to the unconsolidated operating income were as on slide 17.

The rest of the pages are about Toyota's business prospects for fiscal year 2008.

All of them are the same as those released at the end of the previous fiscal year.

Lastly, I would like to inform you that Toyota announced today a share buyback program.

Please refer to the filing documents for the details.

This concludes today's presentation.

Thank you very much for your attention.

Thank you, Mr.

Shaw.

Now we would like to open for your questions.

During the Q&A session we will have consecutive interpretations for questions and answers in both Japanese and English.

Now, our conference call operator, Mr.

Pepper, will explain how to connect to your line.

Please, Mr.

Pepper.

Thank you.

(OPERATOR INSTRUCTIONS).

We'll go first to Steve Usher with [Japan Index].

Good evening.

Thank you very much for the call.

Could you please give us a slightly more detailed breakdown of the contributing factors to the rise in operating income, in particular, the cost reduction efforts?

For example, the rise in raw material costs versus pure cost reduction efforts.

And with regard to marketing efforts, can you give us an idea of volume versus price versus product mix?

And on the product mix aspect, if you could give us a breakdown by region, that would be very helpful.

And then a third and final question, can you give us a bit more color on the commendable gain in equity income, the -- a regional breakdown possibly?

That would be very helpful.

Thank you very much.

(interpreted) Thank you very much.

Let me answer your questions starting from the cost reduction efforts.

When we had our financial results announcement in the month of May we said that for this year we are expecting to generate the cost reduction savings of JPY130 billion.

Also, at the same time, we said that this JPY130 billion of cost reduction will be allocated between the first half and the second half of the year; namely, JPY40 billion for the first half of the year and the remaining JPY90 billion to be expected in the second half of the year.

And for this quarter we were able to achieve JPY20 billion out of the JPY40 billion assigned for the first half of the year.

So we are on track with the plan.

Some years ago our cost reduction was -- used to be very much larger in the month, something like JPY300 billion, and when we made our announcement about our plan for the cost reduction in the month of May we also added that we still have a large potential to generate a large amount of the cost reduction.

So for this fiscal year we are expecting JPY100 billion which will be in contrast with the timeframe we were generating as much as JPY300 billion.

So you would say that the difference would be the cost increase by the material increase.

So were able to achieve the sum, and we are on track with the plan as we were able to make our results both in terms of absolving the material cost increase and also were able to help our cost reduction efforts.

And, of course, after the material price increase which we assumed at the beginning of the year about one quarter of them is affecting us for this quarter and, therefore, if you add up our cost reduction efforts benefit and also the impact of the price increase, which was realized in the first quarter, you would say that some of the two terms are the performance of our company for the first quarter.

Now let me take up the second issue, which is the breakdown of this marketing effort.

On an unconsolidated basis these sales -- excuse me, marketing efforts have benefited JPY40 billion, and in an unconsolidated level, JPY60 billion.

So in total it's JPY100 billion, as a result of the marketing effort.

Now I would like to give you the breakdown of that JPY100.

First, the JPY40 billion attributed to the Japanese unconsolidated performance, domestic, plus/minus 0, and export is JPY40 billion.

And in terms of the breakdown of the subsidiaries, JPY60 billion, the breakdown is that for Japan it's minus JPY5 billion, and North America, JPY10 billion, and Europe, JPY10 billion, Asia, JPY20 billion, and others, JPY25 billion.

That's the breakdown for the subsidiaries.

In terms of the geographical division about the model mix, we don't have detailed data for that.

However, we can say that the mix has been improved both in Japan and North America, helped by the [LAS].

Okay.

Thank you.

So --

Excuse me, sorry.

And the last question is about the equity earnings and the total equity earning was JPY81.8 billion, of which JPY50 billion came from Japan and JPY15 billion came from China, and the remaining is other regions.

Okay.

Thank you very much.

So, is it safe to use the numbers then for raw material price increase for the full year is expected to be about JPY170 billion, and about JPY42 billion of that was realized in the first quarter?

(interpreted) You are safe to say that, but actually speaking the price increase of the raw materials for this quarter was a little bit higher than that but, roughly speaking, you are right.

Okay.

Great.

Thank you very much.

(OPERATOR INSTRUCTIONS).

We'll go next to Ron Tadross with Bank of America.

Thank you.

Can you hear me okay?

No.

(interpreted) Yes.

Okay.

Just on the marketing effort, is there -- could you break it down by volume, price, and mix, the JPY100 billion?

(interpreted) Sorry.

For the time being I don't have the data to explain the breakdown of marketing efforts for volume and pricing mix but -- so we don't have time to get those numbers and I'm very sorry for that.

Okay.

Just a few other quick questions.

On SG&A, do you think you can keep SG&A flat with fiscal 2007 on a yen basis about, I guess, about JPY2.2 trillion for the year?

(interpreted) Thank you for the question.

In terms of the trend of the SG&A, because the business is expanding, we think that the SG&A will go up gradually rather than keeping it to a flat.

Okay.

So maybe in the 3% to 5% range it'll go up?

(interpreted) You said JPY2.2 trillion, but if I look at the data the fiscal '07, the S&G was JPY2.5 trillion.

So the JPY2.2 trillion should be the one before -- one year before that, but you can say that from JPY2.2 trillion to JPY2.5 trillion, this is the rate of the increase of the SG&A, and I would say that you can extrapolate from this growth, and can say that we will continue this pace of increase of SG&A.

So the growth from the JPY2.2 trillion to JPY2.5 trillion is something like a 1.7% increase, but as of our business expense, we would say that the gross rate of SG&A will be slightly less than 2% rather than 1.7%.

Okay.

And then just two other quick questions.

The -- on capital spending you had a fairly slow start to the year, what is it that gets your rate of capital spending up in the other quarters?

And then on the yen, if you were to get to JPY115 to dollar you would need to be at roughly like about JPY110 for the next seven months, so do you really believe that the yen is going to JPY110 or are you just being conservative?

(interpreted) Thank you for the question.

In terms of the CapEx, the implementation ratio to the total CapEx plan at the end of the first quarter was 17%.

However, in the second half of the year, we are planning to implement major investment plans such as the number two factory of TMMC, Canada.

So it may look like a slow start but major investments are going to be implemented toward the end of the year.

In terms of the assumption of the yen/dollar movement, in our business plan the assumption is JPY115 to the US dollar.

I don't know where you pick up this JPY110 but we believe that this JPY115 assumption is still relevant and we haven't changing our prospect for that.

The yen has been at JPY120 for the first five months of your fiscal year.

To get to JPY115 for the whole year you'd have to be running at around JPY110 for the next seven months.

(interpreted) For the first quarters and also for the next four months we already have the actual numbers for the exchange rate, and hereafter we still continue to use the assumption of JPY1.15 vis a vis US dollar.

Okay.

Thank you.

(OPERATOR INSTRUCTIONS).

We'll go to Rick Herman with the Philadelphia International.

Hi.

Thank you for taking my question.

Could you break out the geographic operating income in more detail?

It was obviously very strong.

Can you tell us which regions were the largest contributors?

(interpreted) Would you like to know about the geographic operating income contribution, or would you like to know the profit and loss by destination?

Which is the case?

The operating income contribution to the other regions.

(interpreted) First of all, the other region consists of the Middle and Latin America, Oceania and Africa.

This other region has contributed to the operating income over JPY22.7 billion.

Out of this JPY22.7 billion about one-third came from Oceania, and the remaining is from the Middle and Latin America and then Africa, and the ratio is roughly equal between the two regions.

So it's about one-third from each region?

(interpreted) Yes but, actually speaking, Oceania is a little bit -- a little more than one-third, you could say that.

Okay.

Thank you for that answer.

In North America, there's concern that sales may be weakening due to the housing issue, can you address that and tell us if you've seen any weakness in your orders, in any particular models or regions?

(interpreted) For the North American business, you are right saying that in the first half we are seeing a decline of the business compared to the same period of last year.

Right now, the sales for the month of July is coming and you could say that last year the market of - the total market in July was unusually big and this year, compared to that, we have one day less for the operations, the operational days, the number of the operational days is one day less for this year and, therefore, the total market is about 10% declined from a one year ago level.

In addition to the declining market in general, there are some uncertainties, for example, for the interest rate and also the oil price remains very high.

However, the personal spending in United States remains very strong, and also the population is still growing in United States and, therefore, for the North American market in general, and in particular the US market, it would still maintain a rather positive feeling about its future.

So on a full year basis, we think that this year's result will be almost on par with the result of the last year.

In terms of the orders level, [acouyer] and [shina] is slightly decreasing volumes presumably because of the high oil price but we don't think it's such a significant reduction so we don't think it's going to give a big impact on our operation.

Okay.

Thank you for that answer.

Lastly, I'd like to ask, this isn't regarding the first quarter, but I believe this will be in the second quarter is the earthquake, in the [weaken] problem with the piston rings, can you give us any estimate on how much that's going to affect your earnings in the quarter?

The second quarter.

(interpreted) Due to this recent earthquake we had to stop the operation for 2.5 days, which is equivalent to five shifts of our operation.

And we have already made a recovery plan for those five shifts which have been lost during the earthquake.

We are going to have one shift for catchback in September and another one shift for catchback in October and the remaining three shifts to be recovered in the month of November.

And, therefore, although for the second quarter we will be affected by these lost five shifts, however, toward the end of the year, on a full year basis, there would be no major issue because of this earthquake.

Okay.

Thank you very much for that answer.

(interpreted) Thank you.

(OPERATOR INSTRUCTIONS).

We'll go to a follow-up question from Steve Usher with [Japan Index].

Thank you for the additional opportunity.

Could you please comment on sales volume and profitability in the Russian market?

Just that one question.

Thank you.

(interpreted) First, starting with the volume for Russian market, the first quarter was 50,000 units, which is a 20,000 units increase over the one year ago level.

In terms of the profitability of the Russian market, you could safely say that we can do the business in Russia with the higher operating income per unit than in Europe.

And if you just look at the operating income of -- toward Russia, for this first quarter alone we were able to increase the operating income of that company by JPY2 billion.

Great.

Congratulations.

Thank you very much.

(OPERATOR INSTRUCTIONS).

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 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.

Goodbye.

Thank you.

That does conclude today's conference.

Again, thank you for your participation.

You may now disconnect.

Portions of this transcript that are noted "interpreted" were interpreted on the conference call by an interpreter present on the live call.

The interpreter was provided by the Company sponsoring this Event.