豐田汽車 (TM) 2010 Q1 法說會逐字稿

And again we would like to say good day to everyone.

I am the Premier Global Services operator.

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

(Operator Instructions).

And 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.

[Taro Takado] from Toyota who will introduce the conference.

Please go ahead.

Hello everyone.

Thank you for joining us today.

I am Taro Takado a member of Public Affairs and Investor Relations for Toyota Motor Corporation.

I would like to welcome you to the fiscal year 2010 first quarter financial results conference call.

I'm joined by Mr.

Takuo Sasaki, Managing Officer of Toyota and (inaudible) Hayashi.

Today's conference call consists of two parts, first Mr.

Sasaki will give the highlights of Toyota's earnings results and Miss Hayashi will take over the rest of the presentation.

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

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

Also please note that the following presentations 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 statement 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 material, which again can be downloaded from our Internet home page.

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

Sasaki.

Hello everyone.

I am Takuo Sasaki, Managing Officer of Toyota Motor Corporation.

Thank you everyone for joining us today.

I would like to discuss Toyota's financial results for the first quarter of fiscal year ending March 2010.

Please look at page five.

Our consolidated vehicle sales from April to June 2009 fell by 785,000 vehicles from the same period last year to 1.401 million vehicles.

The global economy has remained sluggish due to the impact of the financial crisis which hit last fall, and new car demand has been affected severely, particularly in North America.

However, the introduction of demand stimulating measures, such as scrappage incentives by individual governments, including Japan have begun to trigger a revival in some countries and regions.

Please look at page six.

In reflection of this market environment, our consolidated financial performance for the first quarter resulted in net revenues of JPY3.836 trillion, operating loss of JPY194.9 billion, pre tax loss of JPY138.5 billion and net loss of JPY77.8 billion.

And now I will turn the rest of today's presentation over to Miss Hayashi.

Using slide seven, I would like to explain the major factors for the decline in our net income.

By comparison to last year, our net income declined by JPY431.4 billion to a loss of JPY77.8 billion.

The left side of this slide shows the major factors, which impacted operating income for the first quarter.

The decline in vehicle sales and the appreciation of the yen had a major impact on our earnings.

Although we were able to make certain improvements in variable and fixed cost reduction, our operating income declined by JPY607.4 billion.

Please go on to the next slide.

As a result of emergency profit improvement activities, we managed to generate an earnings improvement of around JPY230 billion for the first quarter and we are on track to achieve our initial target of JPY800 billion for the full fiscal year.

With regard to variable cost reduction efforts, our emergency VA activities, in close collaboration with the suppliers and cost reduction activities at manufacturing lines have begun to bear fruit.

In addition, we are making steady progress in achieving greater reductions in fixed costs, than we planned at the beginning of this fiscal year.

Next slide please.

I'd like to now explain the consolidated operating income by region.

As shown in slide nine, we posted a decline in operating income in all regions due to global weakness in the new car market.

In particular, we resulted in an operating loss in Japan where profitability of our exports was affected by a stronger yen.

Going on to the next slide, I would like to discuss our operating income for the Financial Services segment for the first quarter.

Operating income, excluding interest swap valuation losses, increased by JPY8.7 billion to JPY34.6 billion year-on-year.

Improvements in our lending margin, thanks to a declined funding cost and decreased residual loss related expenses, thanks to stabilization in the US used car price, contributed positively to our earnings.

Going forward, we plan to further improve earnings from Financial Services segment by applying adequate risk controls.

Going on to the next slide; equity and earnings of affiliated companies was JPY3.6 billion, down JPY91.4 billion from the same period last year.

This was largely due to decreased earnings of Japanese affiliated companies.

For your reference, slide 12 shows our unconsolidated financial results for the quarter.

We resulted in net revenues of JPY1.6287 trillion, operating loss of JPY181.8 billion, pre-tax profit of JPY12.4 billion and net income of JPY5.9 billion.

Slide 13 summarizes the major factors which reduced our unconsolidated net income for the first quarter last year.

Next, I would like to discuss our outlook for the fiscal year ending March 2010.

Please go on to page 15.

We've revised our consolidated vehicle sales target that we announced in May from 6.5 million vehicles to 6.6 million units.

This is a result of the upward revision of our consolidated vehicle sales plan for Japan by 100,000 vehicles.

Our overseas sales plan remains unchanged.

This upward revision of Japanese sales reflects the positive effects of the Government's demand stimulating measures, such as the eco car tax break being sold throughout the market.

We are now expecting to see the first increase in domestic sales in five years.

In addition, the recently launched new hybrid models, such as the third generation Prius and Alexis HS250h have received a very positive response from our customers.

We will continue to develop vehicles closely from the point of view of our customers to further improve sales.

Next slide please.

We've revised our consolidated financial forecast for the fiscal year ending March 2010 to the following, applying revised foreign exchange rate assumption of JPY90 against $1 and JPY130 against EUR1; net revenues of JPY16.8 trillion, operating loss of JPY750 billion, pre-tax loss of JPY700 billion and net loss of JPY450 billion.

The next slide please.

We also revise our consolidated financial results forecast for the first half of this fiscal year ending March 2010 to the following; net revenues of JPY7.8 trillion, operating loss of JPY400 billion, pre-tax loss of JPY350 billion and net loss of JPY250 billion.

Please see slide 18 summarizing the main factors behind our revised consolidated operating income forecast.

We raised our target for emergency profit improvement activities from JPY800 billion to JPY900 billion in view of an increase in Japanese vehicle sales and the continuing reduction in fixed cost.

We, however, maintain our forecast for capital expenditure and R&D expenses.

We would strongly promote profit improvement activities across the Company in order to further improve our earning prospects.

This concludes my presentation.

Thank you very much for your kind attention.

Thank you Mr.

Sasaki and Miss Hayashi.

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

I would to limit the number of your questions to two questions each.

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

Thank you Mr.

Takado.

Today's question and answer session will be conducted electronically.

(Operator Instructions).

We will now pause a moment to assemble the roster.

And our first question comes from Kurt Sanger.

Good evening, Sasaki san, (spoken in Japanese).

Thank you for the call today.

Can I ask a question on the finance business, please?

Your Financial Services business, the first quarter profit, if I look at the JPY49.6 billion profit, how much of that absolute profit was recorded in North America approximately?

(Interpreted).

So, when we say North America, it includes America and Canada.

However, I would like to limit my perspective just to America; so, out of this profit, TMCC accounts for about JPY30 billion.

Okay.

In that number, can you please clarify, are there -- were lease valuations -- lease valuation was a negative last year.

Is that a positive number this year, or continues to be a negative factor but just smaller?

(Interpreted).

So, you have talked about this valuation.

I would like to answer in terms of the residual value loss.

So, this term TMCC had a residual value loss of JP3.3 billion.

To be precise, the actual residual value loss that has been incurred was slightly more than JPY7 billion.

And we also have to account for the residual value loss reserve.

And this was a positive JPY4 billion.

So all in all, it ended up in the residual value loss of JPY3.3 billion.

Kurt Sanger Great.

Thank you.

Can you give me the same numbers for the credit losses, or credit reserves?

(Interpreted).

So, the bad debt cost totaled JPY35 billion, which includes the actual bad debt loss of about JPY20 billion.

And the provisioning for the bad debt reserve had been JPY15 billion.

So, in total the cost for the bad debt was JPY35 billion.

Okay.

Thank you.

In the fourth quarter of last year, you took a very, I think, high provision levels for bad loans.

I'm surprised to hear that that is still negative for the reserves.

Can you comment on the loan loss ratios for the business?

What's happening within the business, please?

(Interpreted).

So, for the first quarter, from April to June in America, on average, the bad debt ratio was slightly more than 1%.

To be more precise, it was 1.02%.

And can you give me that same number for last year, first quarter?

(Interpreted).

The first quarter last year was 0.99%.

Therefore, in terms of the bad debt ratio, comparing the first quarter this year and the first quarter last year it is comparable.

Therefore, the actual loss incurred for the bad debt this year is almost at the same level as the previous year.

(Spoken in Japanese).

Next question please.

(Operator Instructions).

Our next question comes from Margaret Moore with Dupont Capital Management.

Yes.

I was wondering if you could discuss your view of the trend in recovery of the auto market (inaudible).

You provide a -- because of the impact --

Excuse me.

Can you repeat your question?

Your voice is not coming through.

I'm sorry.

Can you hear me now?

Yes.

Okay.

My question is to ask -- to discuss the current trends in auto sales and your expectations for the rest of the year as you have revised up, reflecting the strength of the Japanese market after the eco subsidies began to improve volumes there?

Can you discuss what you are expecting in markets outside Japan and what models, in particular, you think might be particularly beneficiaries of any subsidies ongoing or predicted?

(Interpreted).

Thank you, Margaret.

Thank you for taking part in the conference call again.

Now, about the American market; I think you know more than myself.

But the annualized rate of sales of cars in the US market from January to June had been below the 10 million unit line.

However, we have learned for the first time this morning that, on an annualized basis, looking at the July number, the units had increased to 11.2 million units.

However, with regards to how much this trend is sustainable is somewhat unclear, because we don't know whether the bill to extend the scrapping incentive in the United States would pass the Congress.

So, whether this trend would continue and would push up the vehicle sales is not something that we are sure of at the moment.

Having said so, there are still positive signs, such as GM and Chrysler are seeing a turnaround since they filed for Chapter 11.

So there are bright signs.

And around May, we were saying that the annual sales volumes in the States would probably be around 9.5 million to 10 million units.

However, looking at the recent trends, we believe that it would be closer to the 10 million unit line.

But there are other risk factors that we have to take into account, such as the rising unemployment rate.

So, looking at the situation cautiously, we would like to see what we can do.

And concerning Toyota models that may become the beneficiary are currently the new RX model and Prius is selling quite well.

And also, we are expecting a launch in the US market in September, Lexus HS250h.

So, I believe these would be the models that would sell quite well.

Now, turning our eyes to the European market.

In Western Europe and Central Europe, especially the Western European countries have incentives and stimulus packages introduced by the governments in that region.

However, it is quite difficult for us to foresee the future trends, especially in markets, like Russia and the Eastern European countries, where there is this recession, which makes the forecast of the economy quite pessimistic that the market is forecasted to be contracting.

So, compared to the last year's level, I believe that the overall European market would be below the 2008 volume.

Now, talking about the Chinese market.

According to the Automotive Association of China, a forecast has been released for 2009 vehicle sales.

And the forecast is about 11 million units.

That is 117% of the previous year's level.

We believe the sales for Toyota vehicles would be around the level of the overall forecast for the Chinese market.

However, in the first half, Toyota sales was below the market average growth.

But in the months of May and June there has been a good growth seen in the locally produced models, such as RAV4 and Highlander; and also the major models of Toyota, such as Corolla and Camry, is going to be popular and is selling quite well already.

Therefore, we believe that the overall sales volume of Toyota would exceed the sales level of the previous year 2008.

And in June, maybe I said that these locally produced vehicles had exceeded the average market growth.

But I would like to be accurate.

We caught up with the average market growth rate.

Margaret, [does this] --?

Yes, thank you very much.

Okay.

Next question, please.

(Operator Instructions).

Our next question comes from Gavin [Thomson], British Airways [Engines].

Hello.

Thank you very much for the call.

Perhaps I could ask the first question related to production trends and tying it in with the current inventory position.

Looking at your monthly global production, it's back to around about 560,000 units.

I'm just wondering what your outlook is for the next quarter in terms of production?

And tying that in with the inventory, I think, 47 days in the US at the moment and what kind of level would you be comfortable with at the moment, for inventory, please?

(Interpreted).

With regards to the production volume, as you are already aware of, we have conducted production adjustment from the months through January to March.

And this has gone on up to April.

And so, production adjustment had been carried out.

And compared to the first quarter, concerning the production volume for the second quarter and beyond, what I can tell you is that we are planning to steadily increase the production volumes.

However, when it comes to the quarterly production volume, I'm sorry, but please excuse me from sharing with you specific numbers.

Now about inventory, so as of the end of March, our inventory level has come down quite close to the optimal inventory level.

And what do I mean by quite close to the optimal inventory level?

That is, the inventory level slightly exceeding the optimal level.

That was the situation as of the end of March.

Now, as of the end of June, we have almost hit the optimal level target.

Therefore, we no longer need to further reduce the inventory.

And I know that my answer is too abstract, so I'd like to be more specific.

From the end of March to end of June in absolute units we have, on a global basis, reduced inventory by about 150,000 units.

That is from the end of March to end of June.

By region, whether or not the regional inventory level is surpassing or below the optimal inventory level, I'd like to be a bit more specific.

For North America, it is now becoming below the standard inventory level, I should say, which means that we have to gradually start building up the inventory in North America.

For the European market as a whole, it is the standard level of inventory.

In China, it is on a standard level of inventory.

For Asia, it is slightly below the standard level.

And although it is not by a great margin, the region where it is surpassing the so-called standard level of inventory is Africa, Oceania, and the Middle East.

Okay.

Thank you very much for that.

Perhaps my second question, which is looking at the other regions in Asia, And I know you've touched on China and how incentive schemes are working well there, but perhaps in other parts of Asia and other, if you could expand upon the current market conditions and the outlook, please?

(Interpreted).

Please give me a minute, I'm sorry.

Okay.

(Interpreted).

It is very difficult to generalize, because there are so many countries in the Asian region.

However, I can say that Taiwan is one of the countries in Asia that is showing marked recovery, thanks to the introduction of the car replacement tax break and other incentive measures.

Taiwan was the market in which the car sales kept dropping for the past several years, but now it is showing positive growth.

And concerning the Asian countries, in the first half of this year, from January to June, and especially from January to March, the car sales in these countries in Asian have been quite stagnant.

However, because of the stabilization of the political conditions, and also because of the introduction of the economic stimulus packages of these Asian countries, there is gradual improvement in car sales.

However, overall, on an annualized basis, I believe that the car sales would be slightly below the level of 2008.

That's all.

Okay.

Thank you very much for that.

Next question, please?

Our next question comes from [Julie Boot], Pali International .

Yes, hello.

Your cost-cuttings amounted to JPY230 billion in the first quarter in total, and I wondered if you could give me a more detailed breakdown, exactly where -- which areas you could cut costs, and maybe also by region, how much costs were cut in Japan?

And also, you said you will increase your cost-cutting target for this year.

Could you elaborate on this as well, where exactly do you think can you cut costs?

(Interpreted).

Now, to be specific, I think what you meant by cost reduction included variable cost and fixed cost reduction, in total JPY230 billion.

And so with regard to the cost cut, we have been implementing the so-called VE activities, as well as VA activities.

Those activities are mostly an effort to try to reduce costs on the design work, and also, together with the cost reduction in design, we have reduced costs of raw material totaling in about JPY50 billion.

And also in factories and also logistics, we have manage to cut costs by about JPY30 billion.

And with regard to the breakdown of fixed cost cuts, I believe the breakdown is given in the PowerPoint material.

There is this reduction of labor cost by about JPY20 billion, R&D cost reduction by about JPY30 billion and JPY100 billion comes from, according to this category, others, which includes about JPY40 billion reduction of sales cost and also a reduction of repair and maintenance, as well as quality assurance costs, which totals about JPY130 billion.

And I think you have also enquired about the breakdown of the additional cost cut that we have announced, and so that is the cost reduction both for variable and fixed cost initially in May.

And we have announced that we target cost reduction of JPY800 billion to be the starting point.

And on top of the minimal cost reduction, we have intended to implement various activities to further add cost reduction on top of this JPY800 billion.

And as a result of building up our assets, we have managed to further reduce costs by JPY50 billion.

To be very specific, variable cost reduction, the additional portion is JPY20 billion.

And that mostly comes from the outcome of a so-called emergency VA activity, which is to thoroughly review the specification and to reduce the variable cost.

And JPY30 billion of fixed cost reduction, that is an addition on top of the original target, mainly comes from the reduction of sales cost, labor cost, operation cost, as well as depreciation.

And so, by adding up all the efforts that we are making in various areas, we have managed to reduce further fixed costs by JPY30 billion.

And you have also enquired about the cost reduction by region.

The specific breakdown is difficult to give.

I don't have the data at hand.

However, with regards to this cost reduction totaling JPY80 billion, JPY60 billion comes from TMC, and the remaining JPY20 billion comes from other affiliated companies.

And as for the fixed cost reduction, JPY150 billion, JPY40 billion comes from TMC, and the remaining JPY110 billion comes from our affiliates.

Okay.

Thank you very much.

Can I ask just a second question about the sales development in Japan?

Sales have fallen in the last quarter by, I think, over 20% in Japan.

It was despite the Government incentive scheme and despite the launch of the new Prius, but you have still increased your forecast for the year for sales in Japan.

And I just wondered if you could explain to me how you think that sales will improve how you will get to achieve this number, what will change in the next nine months, because the incentives have already taken place, if you think that they will have a bigger impact in the next coming months?

(Interpreted).

Concerning the Japanese domestic car sales, in the month of March the sales level was, indeed, below the previous year level.

It was below 70% on a year-on-year basis.

To be more specific, it was 69%.

However, in the month of April, May, June, July, gradually, in terms of the year-on-year growth ratio, it has been improving.

And the so-called eco-car tax break and eco-car subsidy system that was introduced by the Japanese government only came in April, and the new Prius model was launched in May.

So the impact has come to the sale starting from May and gradually in the month of June and July, gradually pushing up the sales volumes.

And the overall market sales in the month of July was, on a year-on-year basis, 96%.

That was the entire market.

For Toyota sales, it was 97%, compared to the same period last year.

And for the month of August, we are receiving various orders.

Orders are coming in very smoothly.

Therefore, our outlook is that the sales volume for the month of August would exceed the previous year's level for the first time in 13 months.

As far as the Japanese car market is concerned, in the month of April, people were still refraining from buying new cars.

However, in the month of June, July, the tax effect has come to show effect, and also the launch of new model has come to show visible effect.

Therefore, we believe that the Japanese car market is reviving, and we expect this to continue.

Okay.

Thank you very much.

Okay.

There are no further questions today, so this concludes today's conference call.

If 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.

Thank you very much.

Goodbye.

Goodbye.

And that does conclude our conference call.

Thank you for your participation.

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call.

The interpreter was provided by the Company sponsoring this Event.