豐田汽車 (TM) 2008 Q4 法說會逐字稿

Hello everyone.

My name is Nikki, and I would like to welcome you to the Toyota Motor Corporation fiscal year 2008 financial results conference call, with your Chairperson, Mr.

Takeshi Suzuki.

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

(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 Mr.

Yang from Toyota, who will introduce the conference.

Mr.

Yang.

Thank you.

Hello everyone.

Thank you for joining us today.

My name is [Sen Yang], and I am a member of the Accounting division of the Toyota Motor Corporation.

I would like to welcome you to today's discussion of the Toyota Motor Corporation's financial results for the 12-month period ended March 31, 2008.

I'm joined by Mr.

Takeshi Suzuki, Toyota's Senior Managing Director and our narrator, Mr.

[Gus Montieth].

Today's conference call consists of two parts.

First, Mr.

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

Montieth will explain the further details.

At the end of our presentation, we will open for your questions.

We expect that the entire call will last approximately one hour plus.

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 the 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 of today's presentation materials which, again, can be downloaded from our Internet website.

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

Suzuki.

(Inaudible).

It is my pleasure to present Toyota's financial results for the [year 2008].

Our consolidated vehicle sales increased by 389,000 units to 8.913 million units.

Our sales grew significantly in Asia where our market has been expanding rapidly, and in the resource-rich countries and the emerging countries in other regions, including Latin America and the Middle East.

Please go to page six.

In the fiscal year 2008, Toyota achieved a record result from net revenues to net income.

We believe this reflects the steady progress of our efforts to add further growth of our global operations.

To summarize the financial results, I'd like to bring your attention to the following two points.

First, total profit structure has become more geographically balanced and, second, our net income, which is ultimate profit of our business, has been steadily increasing.

To explain the first point, page eight shows the breakdown of operating income by regions outside Japan.

As you can see, operating income is now better balanced among the regions with growing contributions from resource-rich countries and emerging countries in Asia, Latin America, Oceania and Africa.

This can be attributed to our growth strategy of utilizing every opportunity across the full product line-up, and in all regions.

Page nine shows the trend of steady increase in net income.

This is as a result of rising income from our global operations and an increase in earnings from affiliated companies.

Growth of equity in earnings has been particularly strong and has more than doubled over the past four years, mainly due to the rapid growth of Chinese operations.

We plan to actively share the fruits of our growth with our shareholders.

At the Annual General Shareholders' meeting, scheduled to take place in June, we plan to propose a dividend payout of JPY140 per share for fiscal year 2008; an increase of JPY20 compared to fiscal year 2007.

We aim to achieve a consolidated dividend payout ratio of 30% in a short time, and to strive for continuous growth of dividend per share.

We have been actively buying back of our shares and purchased approximately 40 million shares, in excess of the amount authorized at the AGM last year.

In addition, we cancelled 162 million of Treasury stocks to define improvement of capital efficiency, while keeping approximately 300 million remaining shares in Treasury stocks to secure management flexibility.

We plan to cancel any additional shares that we purchase in the future.

We plan to propose, at the AGM this year, to repurchase up to JPY200b, or 30 million shares.

We wish to continue to meet the expectations of our shareholders through long-term growth in earnings and active shareholder return.

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

Gus Montieth.

I will be available to answer your questions at the end of the presentation.

Thank you.

Thank you, Mr.

Suzuki.

Next, I would like to spend a few minutes explaining our main activities in fiscal year 2008.

Looking at the business environment surrounding the automobile industry, there is a growing sense of an economic slowdown in developed countries, led by the United States, Japan and Western Europe.

On the other hand, the markets in resource-rich countries and emerging countries are growing rapidly.

Additionally, the conditions surrounding Toyota are changing rapidly with the rise in raw material costs, drastic changes in foreign exchange rates and more stringent environmental regulations worldwide.

We plan to turn all of these challenges into business opportunities to support our long-term growth.

I will explain how in the coming slides.

First, in developed markets, we plan to launch market-creating products designed to meet customers' diverse needs and increasing environmental awareness.

Since Toyota created the hybrid vehicle market with Prius, our total global sales of hybrid vehicles reached 1.41 million units as of March 31, 2008.

During the past decade we have achieved dramatic improvements in vehicle performance, especially in fuel efficiency, and the cost reduction of about 50%.

Today, environmental performance is one of the important deciding factors for customers.

Through competitive advanced technology, we plan to continue to enhance the product appeal and profitability of our hybrid model, and expand the model line-up.

We also aim to create a new market with the 2008 launch of the iQ in Japan and Europe.

It has a super efficient package created with our leading technology.

The iQ is also innovative in its pursuit of low CO2 emissions and high fuel efficiency.

We plan to accelerate the introduction of these market-creating new models next year and to revitalize the market, to increase earnings growth and enhance our brand value.

The automotive market in resource-rich countries and emerging countries are expanding rapidly.

Toyota's vehicle sales have grown remarkably as well.

In these markets, we plan to optimize our position as a full-line automator by launching products designed to meet unique needs in each region, and expanding local production.

In China, where we have built a solid business foundation, we will start Yaris production in mid-2008 to further expand our product line-up.

In the rapidly growing market of India, we plan to begin production of a newly-developed compact car in 2010.

In addition, we are endeavoring to strengthen our ability to supply Land Cruisers to the Middle East, Camry to Russia, and the new Corolla to Brazil to meet demand.

By reinforcing local production, as well as supplying from Japan and other regions, we will respond to strong demand in these countries, and achieve further growth and increased profit.

Next, I will discuss the measures Toyota intends to take to overcome the challenges of rising raw material costs.

The recent rise in raw material costs has been overwhelming, despite all of our efforts.

However, Toyota will continue to promote cost reduction activities to limit negative impact on the business, and strengthen our competitiveness.

The VI cost reduction activities that we started in 2005 began to bear fruit, with the model [change of crown] in February 2008.

The VI should continue to benefit all new models in the future.

Toyota has also been reviewing long-established manufacturing methods with the purpose of reducing the use of raw material.

With resin, for instance, we managed to reduce the thickness of the part by half while maintaining durability, reducing the use of resin by more than 30%, therefore, reducing cost.

We have also reduced the amount of materials wasted in the production process, and improved the yield rates by reviewing the manufacturing methods.

In addition, Toyota has been reducing the cost of sheet steel by, for example, decreasing the number of variations by approximately 20% from 600.

We will continue to promote further cost reduction through various activities.

We believe environmental performance will be the key for all business operation survival, therefore, Toyota is committed to various activities for sustainability.

To promote sustainable mobility, we are accelerating the development for the commercial launch of plug-in hybrid vehicles by 2010, which are currently being tested on public roads in Japan, the United States and Europe.

In terms of sustainable plant activities, we have reduced CO2 emissions by approximately 50% at the Tutsumi plant, compared with 1990.

Further, we plan to introduce the world's largest solar-powered generation system for the first time in an automobile production plant in order to reduce the use of carbon fuel-generated electricity and CO2.

The activities at the Tutsumi plant have been applied to our Banpho plant in Thailand.

We plan to extend them to other overseas operations, such as plants in the U.K., France and the U.S.

Through global reinforcement and promotion of these activities, we hope to achieve both environmental protection and sustainable growth for Toyota.

Next, I would like to discuss the outlook for fiscal year 2009.

We plan to achieve consolidated vehicle sales of 9.06 million units; an increase of 147,000 units.

We expect sales growth, despite the decrease in North America where the economy has slowed.

This growth will come primarily from resource-rich countries and emerging countries of Asia and the Middle East.

Moreover, our vehicle sales in China, which are not included in Toyota's consolidated vehicle sales, are expected to increase by 170,000 units from 470,000 units in fiscal year 2008 to 640,000 units in fiscal year 2009.

Our prospects for consolidated earnings are net revenue of JPY25 trillion, operating income of JPY1.6 trillion, and net income of JPY1.25 trillion.

As discussed, the current business environment is extremely challenging.

However, Toyota considers this headwind to be a valuable opportunity to become a more flexible and stronger Company.

To this end, we aim to eliminate waste and review the process and structure of every aspect of our operation.

With such internal reforms we will develop human resources and, thus, work to establish a Company with true strengths and long-term stability.

Next, I will discuss details of our financial results for fiscal year 2008.

As Mr.

Suzuki mentioned earlier, Toyota posted record consolidated results across the board.

Please turn to page 20.

Now let me discuss the factors that contributed to Toyota's profits in terms of net income.

Toyota's net income increased by JPY73.8b compared with the previous fiscal year, to JPY1.717 trillion, marking an all-time high.

Cost reduction and marketing efforts contributed JPY31.7b to operating income.

Also, our valuation loss on interest rate swap transactions had a negative impact of JPY48.1b on operating income.

Excluding this, Toyota marked a dramatic increase in operating income by JPY79.8b.

In addition, equity and earnings of affiliated companies increased by JPY60.6b due to the strong performance of Toyota's Joint Ventures in China.

Now I would like to review operating income results by region.

These slides show Toyota's operating income, represented by the bar chart, and the number of vehicles sold, indicated by the line chart, for the past five fiscal years.

In Japan, Toyota's operating income remained extremely high at JPY1.44 trillion, second only to last fiscal year.

We responded to brisk demand in resource-rich countries and emerging countries and increased export volumes through Toyota's flexible production system that is capable of responding to changing market demand.

By aggressively launching a series of new models, the Toyota Group's market share, including sales of mini vehicles, reached 42.0%; the highest share ever.

Next, I would like to discuss the North America region.

The rapid and dramatic decline in interest rates in the United States during fiscal year 2008 resulted in an exceptional increase in valuation losses on interest rate swap transactions.

The valuation loss arose due to accounting method, and it is not directly related to the sub-prime loan issue.

This slide excludes the influence of this valuation loss on interest rate swap transactions.

In the United States, the Camry, which was fully remodeled two years ago, has become the best selling passenger car for the sixth consecutive year.

Also, Toyota responded to the strong demand for the Prius in the United States by expanding its production capacity in Japan, resulting in a remarkable increase in sales volume.

Despite lower sales in the U.S.

automobile market year on year, Toyota's market share in the United States reached a record high of 16.3%.

Although there has been a decline in the profit of our financial operations, along with the economic slowdown, Toyota's operating income remains high at approximately JPY400b.

Next, let's move to Europe.

Operating income rose by JPY4.2b to JPY141.5b.

Sales of the Auris and Prius were favorable in Western Europe, despite sluggish market growth.

In the rapidly-growing Russian and Eastern European markets, sales of Camry and Avensis were brisk and contributed to profit growth.

We plan to continue to respond to local growing demand and further increase profit.

In Asia, operating income more than doubled to JPY256.4b compared to the previous fiscal year.

Profit growth in Asia has become one of Toyota's major growth drivers.

Sales of IMV and Yaris were strong in Indonesia and Thailand.

Demand for IMV vehicles was also high in areas outside of Asia.

Toyota's early investment to increase its production capacity in Thailand has started to show results.

In addition, we've started production of the new Corolla in Thailand and Taiwan this year, and are expecting to see further profit growth in Asia.

Next, let's move on to Latin America, Oceania and Africa.

Operating income was JPY143.9b; an increase of JPY60.4b over the previous fiscal year.

As you can see, profit growth was significantly higher than in previous years.

Sales volume grew in all regions due to favorable sales of models adapted for local tastes, such as Corolla in Brazil, IMV in Argentina and the Camry in Australia.

Strong brand value has led to high profitability.

We think these models will further contribute to profit growth in these regions.

I would like to explain our Financial Services business, excluding valuation losses on interest rate swaps.

With the credit crunch in the U.S., the loan loss ratio has been rising since the latter half of 2007, which is the principal cause of the decline in the Financial Services income.

Toyota has maintained a conservative credit policy.

That, combined with its efforts to strengthen credit control and debt collection practices, should lead to an improvement in the future.

On the other hand, we believe that the increase in outstanding loan balance, due to the increase in vehicle sales and the improvement in lending margins, will contribute to earnings.

Equity in earnings from affiliated companies increased significantly by JPY60.6b to JPY270.1b.

Business has been strong, primarily for our Joint Ventures in China and Toyota Group companies in Japan.

Our Chinese Joint Ventures are steadily developing their production and sales foundations in response to local demands.

The results of their efforts are greatly contributing to profit.

Yaris production and sales are scheduled to start in mid-2008 at our Joint Venture in Guangzhou, further improving our line-up in China.

We continue to work to achieve further progress in business growth and profit.

This slide shows consolidated CapEx, depreciation costs and R&D expenses, along with their regional breakdown.

Next, I would like to discuss our unconsolidated financial results.

We posted all-time highs in net revenues, ordinary income and net income.

Operating income remains high, second only to the previous fiscal year.

Turning now to unconsolidated net income, cost reduction and marketing efforts, including increased exports to resource-rich countries and emerging countries, contributed to income growth.

As Mr.

Suzuki mentioned earlier, Toyota's prospects for consolidated earnings are operating income of JPY1.6 trillion and net income of JPY1.25 trillion.

Now, I would like to discuss contributing factors to the consolidated operating income prospects for fiscal year 2009.

With the expected world-wide economic slowdown, Toyota aims to direct its marketing efforts to achieve steady growth in profits.

As for cost reduction, we are largely affected by the sharp rise in raw material costs.

However, Toyota maintains a high level of cost reduction capability.

In foreign exchange, we forecast the Japanese yen will appreciate by JPY14 against the U.S.

dollar, and by JPY7 against the euro.

Combined with the impact from other currencies, we believe that operating income will decrease by JPY690b.

In expenses, we will further pursue operational efficiency in order to curb spending by JPY160.3b over the previous fiscal year.

Despite the difficult business environment, we intend to continue investing activity for our future growth while further improving efficiency.

Prospects for major financial items are as follows.

Capital investment is projected to be JPY1.4 trillion, depreciation costs are projected to be JPY1.1 trillion and R&D costs are projected to be JPY920b.

This concludes today's presentation.

Thank you very much for your kind attention.

So, thank you Mr.

Suzuki and Mr.

Montieth.

Now, I would like to move on to the question and answer session.

We will also conduct interpretation for questions and answers in both Japanese and in English.

Now our conference call operator will explain how to connect your line.

Thank you.

(OPERATOR INSTRUCTIONS).

And we will take our first question today from Rick Herman with the Philadelphia International.

Please go ahead.

Hi, Suzuki San, thanks for the call.

I heard yesterday that Toyota had announced some small price increases on North American models, and I was wondering if there is a strategy to cover your raw material costs in certain percentage by price increases and, perhaps, a certain percentage by your cost reduction.

Could you just elaborate on your strategy there, because I know in the past that you were very reluctant to raise prices, especially in the current environment?

(Interpreted).

Let me answer that question.

There are various factors behind the decision to increase prices in the United States, and the decision has been based upon comprehensive examination of those U.S.

factors.

But, here, let me refer to two major factors.

One, the exchange rate relationship.

There has been appreciation of the yen substantially and, in order to make up for that, we have decided to increase pricing.

And second point is related to your point, that is to say raw materials cost has been increasing.

However, our [thought] is not that because of those two factors we will simply raise the pricing by a certain percentage in a simplified manner.

There is a competition going on in the market, we live in a very competitive market and, to what extent we can increase our marginal pricing in that competitive environment has been very carefully measured and weighed.

And, on that basis, the decision was made.

The outlook objective in this context is for us to see an increase in the amount of the profit and, considering the exchange rate movement as well as the raw material price increases, on the one hand, we examine the competitive environment on the other.

And, on that basis, from the comprehensive viewpoint, we decided on the price increase.

Okay.

Thank you for that explanation.

The other question is if you elaborate on any accounting changes for the interest rate swaps.

And on page 26 you've got two lines on the bottom; the valuation loss in accounting for interest rate swaps, and then including the valuation loss in accounting on interest rate swaps.

Can you just elaborate on what you're explaining there?

(Interpreted).

Did you refer to page 21 or 26?

26.

(Interpreted).

It's not that because we've changed the accounting standards as it applies to interest rate swap transactions.

The valuation gains and losses on interest rate swaps has changed for the current fiscal year.

We have been using the same accounting standards in calculating gains and losses on interest rate swap transactions.

However, because of the accounting-related technical matters, the operating income changes either upward or downward.

And it does not reflect the actual status of the Financial Services business, nor does it reflect accurately the regional breakdown or segmented information.

Excluding this factor, would allow a better understanding of the actual situation of the profitability and, therefore, we have decided to disclose this information the manner as shown on page 26.

Okay.

So the valuation loss is just reflecting the changes in the interest rates that have affected your interest rate swap?

(Interpreted).

That is correct.

Okay.

Thank you very much.

Thank you.

And our next question comes from Steve Usher with Japan Invest.

Please go ahead.

Good evening, Suzuki San.

Thank you very much for this call.

Just to follow up on the Financial Services operation, were there any additional -- additions to reserves either for residual pricing or for loan losses in the fourth quarter?

And, secondly, could you give us an update on your loan loss ratio and your delinquency ration?

And then I've got two other questions.

(Interpreted).

First of all, regarding the loss related to residual valuations, as of the end of March we decided -- we actually increased the reserves against all residual value losses for our Financial Services operation for the United States and Canada.

That is to say, in reality there has been some increase trending up in valuation losses and, therefore, taking a very conservative approach, we have decided to add to the reserves from the accounting treatment side.

Regarding the loan loss ratio in the case of TMC's in the United States, in line with the credit squeeze in the U.S.

market as well as the slowing down in economic activities in general in the United States, there has been some increase in loan losses.

Between January and March of 2008, that is, fourth quarter, the loan loss rate has increased to the level which exceeds 1%.

Of course, compared with the levels of loan loss ratio of other Financial Services entities, our level is still far lower than that.

However, we have decided to add to this reserve for loan loss reserve.

However, since April of this year because we have tightened our credit standard, or loan-lending attitude, there has been some signs of an end to an upward movement in loan loss ratio.

Our outstanding loan balance has been steadily increasing.

And with the market interest rate in the United States having come down, Financial Services interest rate margin has been moving upwards.

And, therefore, starting in the current fiscal year and beyond, I think the possibility of Financial Services operation will turn around and will start moving upwards.

The delinquency rate is trending more or less in tandem with the loan loss ratio.

That is to say, it has reached the stage where the upward movement has come to an end.

Okay, great.

Thank you very much for that.

Turning to your equity method income, could you give us a breakdown of the China contribution to that, and what are you forecasting for equity method income for the current fiscal year, March 2009 fiscal year?

And then I've got another one.

(Interpreted).

In the fiscal year that ended at the end of March 2008, the equity method earnings totaled JPY270b, of which JPY67b was the contribution from our Chinese operations.

And, actually, relative to the previous fiscal year, this profitability profit of the Chinese operation represents more than a doubling from the previous year's level.

And for the currently running fiscal year, regarding the earnings from equity method affiliated companies, we have been taking a conservative approach in saying that the prospect of that remains more or less at the same level as the current year, that is, fiscal '08.

Okay, thank you.

And for the Chinese operations, do you expect them to be at roughly the same level, or do you expect further improvements in China?

(Interpreted).

Before long, the Guangzhou Toyota will start producing and selling Yaris.

And we are going to round up a new product line out there as well.

And, therefore, we would like to increase sales volumes.

I think we can do that.

And, together with that, we would like to also improve the profit of that.

However, in terms of the projection for the profitability, we use a rather conservative assumption in that regard.

But, basically, our fundamental stance is that we would like to grow both the sales volume and the profit of that operation.

Okay, great.

Thank you.

And then my last question, could you comment on the profitability in Brazil and the outlook in terms of volume and profitability for Brazil in this new fiscal year?

(Interpreted).

Regarding Brazil, in March of this year we introduced a new model of Corolla.

And, partly thanks to that, the sales volume last year stood at 72,000 units, and we would like to increase that by about 10%.

And Brazil is the market where Toyota can really leverage its brand value.

And our sales there have been accompanied with a very high profitability.

And, therefore, we would also like to grow our profits in Brazil as well during the current fiscal year.

Okay, great.

Thank you very much.

Thank you.

Can we have the next question, please?

And we will take our next question from Kurt Sanger with Deutsche Bank.

Please go ahead.

Good evening.

Thank you.

I want to come back to the Finance business please.

In the fourth quarter, North American operating profit was minus JPY12.4b about.

Of that, what was the negative -- the total negative contribution from the Finance business?

(Interpreted).

First of all, during the fourth quarter the operating income for the North American operations represented a rather substantial negative figure.

And one of the factors behind that was the valuation loss on the interest rate swap transactions I alluded to earlier.

And during a single quarter the valuation loss increased by JPY48b, correction of the figure.

Is your question specifically related to the fourth quarter only?

Or are you also asking about the full-year figures?

Right.

Suzuki San, I am asking about the fourth quarter.

I am trying to understand how much of the negative number was from the Finance, and how your core profitability in the Auto business is trending.

So, I believe in the third quarter, the North American Finance business lost about JPY6b between reserves and valuation losses.

I'd like to know that number for the fourth quarter as well, please.

[I'm still listening].

(Interpreted).

So, am I right in understanding that you are interested in knowing the Financial segment's figure out of the regional segment figure for North America -- North American segment information?

Correct.

(Interpreted).

Regarding North America, during the fourth quarter the Financial segment profitability, the negative figure of that, is approximately JPY13b.

The negative impact coming from Financial segment on the profitability was approximately JPY13b.

And in addition to that, as I mentioned earlier, our U.S.

operations booked or recorded a valuation loss on interest rate swap transactions to the tune of JPY56b.

Could you -- JPY56b or JPY54b.

JPY56b, I am sorry.

JPY56b is the right number.

Okay, all right.

So, we are looking at about JPY69b total loss?

(Interpreted).

Yes, JPY69b is the loss of the Financial businesses, including the valuation loss on the interest swap transactions.

Okay.

Forgive me for being (spoken in a foreign language), Suzuki San, but of the minus --

It's all right.

It's all right.

Of the minus --.

(Inaudible) number.

Of the minus JPY13b, excluding swaps, often you give us a core number, right?

So, core business plus [20], but the increased reserves, minus 35.

How much was your reserve increase that you answered to Mr.

Usher earlier, that you increased reserves for used cars and loan loss?

How much was that reserve increase?

(Spoken in a foreign language).

(Spoken in a foreign language) can answer this.

Okay, I understand.

(Interpreted).

Figures relating to residual loss or the loan loss reserve are the figures that we do not disclose in principle.

But there are substantial --.

However, both the actual level of the residual loss and the loss of the future projected level, as well as the [outage] for loan loss reserves are showing the clear signs of stability.

And during the current fiscal year I expect those figures to start declining gradually, because there are already such signs emerging.

Okay, great.

Thank you.

And, Suzuki San, thank you for your many, many years of help.

Thank you.

Thank you.

I also say thank you.

Okay, Mr.

Sanger.

Can we have the next question, please?

And our next question comes from Margaret Moore from DuPont.

Please go ahead.

Hello, Mr.

Suzuki.

I have a couple of questions.

Turning on to Kurt's question earlier, I was wondering if you could talk in more depth about your expectations for this year's Automotive production and model mix trends in all the major geographies.

So, where -- what sort of cars will you be selling, and what kind of production capacity utilization will we see in North America, in China, in Japan and in Europe?

The expanse in utilization [not just] capacity level?

The capacity utilization and sales volume mix, capacity utilization.

Thank you.

(Interpreted).

Let me start with Japan and, first of all, regarding model mix we have just introduced the new model of Crown and, therefore, I think -- from the prospective possibilities I think the model mix will become more favorable to us.

Moving on to North America, given the levels of the gas prices, trucks and large sized SUVs certainly will have an uphill battle.

However, to start with further (inaudible) large sized SUVs are not that [understandable] possible.

And, therefore, in terms of the model mix in North America we expect some shift moving towards hybrid vehicles or compact vehicles.

But that will mean -- not be in such an extent as to have a substantial negative impact on our profitability in North America.

However, we are expecting sales volumes in North America to be lower than the previous year overall.

And, therefore, we also expect profits of North America to decline.

In Europe, we are expecting the growth of vehicle volume sales, especially a substantial increase in volume both in Russia and Eastern European countries.

And we are not boasting any substantial change in model mix.

So, therefore, I think we will continue to have a rather stable high level of traffic in our European operation.

In Asia, we plan to grow the volumes substantially and -- because the new model Corolla has been introduced.

And, especially Corolla, is an extremely popular model in Asia, I think the model mix will be quite favorable to us in Asia as well.

Regarding the production of capacity and also the status of operations in our plants, there are only two plants where the volume reductions have led to a lower rate of operations, namely, the Indiana plant and Texas plant in the United States.

But are you also interested in knowing the production capacity for each region?

Yes, please.

(Spoken in foreign language).

Yes.

Can I ask a follow-up question, then?

Can you comment on -- now that you have the Crown out in the market, and this is our first experience of the VI (inaudible) auto, full model change, can you talk about the degree of cost reduction that has been achieved in that?

And how -- over what period of time it rolls out onto your other full model changes?

And, secondly, in the Chinese market are there any major headwinds in terms of the cost of expanding your plants, or of a dramatic decline in your mix, as you ramp up Yaris, that explains the flat equity contribution?

I am just -- I am suffering from the contradiction in your high expectations for the Chinese market and your expectations for no growth in equity income.

(Interpreted).

First of all, regarding VI activities, as you correctly pointed out, the benefit of those VI activities are adding and (inaudible) realizing with the Crown for the first time.

And the cost savings achieved with the new model of Crown has been in line with our expectations.

That is to say, in terms of the cost reduction percentage, it's been in the double-digit area.

However, as I am sure you are fully aware of, the total amount of the cost saved is not directly reflected in terms of the policy of the figure on Toyota's profit and loss statement, because the benefits of cost savings or reductions is shared by customers, Toyota suppliers and Toyota itself.

But, at any rate, the VI activities and the the expected cost reduction have been achieved in line with the plan with the new model of the Crown.

And, going forward, all the new models will embody and carry the benefits of the IV cost reduction activities.

For example, Eisai, which will be launched next week, will be embodying -- next week, will be embodying the concrete benefits of the VI cost reduction activities.

Now, let me go back to China.

The profitability of our Chinese operation, or probably I should say vehicle sales there, have far exceeded our expectations during the previous fiscal year, in the sense that we did too well; much better than we had anticipated.

And we assumed that it is too optimistic for us to expect that extremely strong trend to continue indefinitely.

And, therefore, we have been taking a somewhat conservative approach in assessing the profitability of our Chinese business.

And another point related to the point you made, that is to say the [integration] of the Yaris production there, at the end of this month we will start producing Yaris in China.

And, of course, we have to be spending -- will be incurring some start-up costs for that introduction of the Yaris production.

And, therefore, during the current year we will be booking some temporary expenses stemming from the Yaris production.

However, as you pointed out, we may be too conservative in coming up with the projections for equity method earnings.

But we are making every effort so that the actual results will exceed that current outlook forecast.

Thank you very much.

(Interpreted).

And, going back to the regional levels of production strategy, let me give you the figures in other.

North America, the production capacity trends -- capacity currently stands at 2.02 million units.

And Europe, 805,000 units, Africa -- South Africa, 200,000, Australia 100,000 units and Asia, including China, has the production capacity of 1.768 million units.

And the 2.02 million units that I gave for North America, includes Canada as well in the North American figures.

And Latin America 151,000.

And the total -- the production capacity outside of Japan stands at 4.9 million units.

And the production capacity in Japan stands at 3.8 million units.

And the global total is 8.7 million units.

But the numbers I have just given you are the production capacity of Toyota vehicles.

When you refer to consolidated sales volumes or production volumes, they also include those figures of Daihatsu and Hino.

So when you make comparisons, please take care in that regard.

The capacity numbers I have just given you relate only to Toyota vehicles.

Thank you.

And, Mr.

Suzuki, I also would like to add my thanks for all you have done to raise disclosure and relations with investors at Toyota, and we will miss you very much.

Thank you very much.

Very fortunately, I have announced every year it's the record.

Thank you very much.

Well, thank you, everyone.

And it's the time for us to conclude today's conference call.

If you do require further information regarding today's conference on Toyota, please feel free to contact our IR representatives in London and in New York.

The contact details were given at the end of the invitation to this conference call.

Thank you again, and goodbye.

Thank you, and goodnight.

And, ladies and gentlemen, this does conclude today's conference.

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.