豐田汽車 (TM) 2011 Q4 法說會逐字稿

Hello, everyone.

Welcome to the financial results conference call for the fiscal year 2011.

I'm [Amiko Tomita] from the public affairs division of Toyota Motor Corporation.

Today, I'm joined Mr.

Takahiko Ijichi, senior management director in charge of our accounting group.

Hello.

To start, our interpreter, Ms.

Morita, will read out a statement from our president, Mr.

Aki Toyoda, before presenting Toyota's earnings results.

The presentation material can be downloaded from our Internet home page.

After the presentation, today's discussion will proceed in a Q&A format, with consecutive interpretation.

You're welcome to ask questions.

We expect the entire conference call to last about 60 minutes.

Please note that the presentation and discussion will contain forward-looking statements that reflect our plans and expectations, based on current information and circumstances.

The actual results, therefore, may be materially different.

A complete cautionary statement concerning forward-looking statements and insider trading are included on pages two and three of today's presentation material.

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

Morita.

The following is Mr.

Toyoda's speech.

First of all, I wish to express my sincere condolences to the people who tragically lost their lives in the Great East Japan Earthquake, and my continuing sympathy to all those who have been affected by the disaster.

We finished the fiscal year to March 31st, 2011, with improved operating income of JPY468.2 billion, as a result of our efforts on marketing and cost reduction, despite a negative impact of around JPY100 billion from the earthquake.

Our business environment continued to be challenging, due to yen appreciation, among others.

Nevertheless, we managed to improve our profit structure even further, thanks to the support from all our stakeholders, in particular our customers.

Shortly after the earthquake, which occurred exactly two months ago, Toyota had to suspend production at all its vehicle manufacturing plants in Japan.

On April 18th, we resumed vehicle production at all of our manufacturing plants, including [Central Auto Miagi Plant] and [Canto Auto Erata Plant].

We have been operating at about 50% until today.

However, thanks to the efforts at onsite operations, I'm pleased to be able to inform you that our efforts for production normalization have been progressing faster than our expectation announced on April 22nd.

We announced on April 22nd that our vehicle production was expected to increase in stages, from July in Japan and August overseas, from the current lowest levels.

We are now confident that our vehicle production will recover to about 70% of our normal production volume on the worldwide basis from June, allowing for some differences among regions and models.

We are currently making our utmost efforts to make further improvements, while carefully assessing the ongoing situation by region and model.

Furthermore, we now expect a return to two-shift operation at a substantial number of our manufacturing plants in Japan.

I wish to express my gratitude for all those who have been supporting and enabling this progress, especially our suppliers and local governments in the affected regions, and at the same time, confirming my commitment to ensuring the delivery of our vehicles as soon as possible to all our customers who have been waiting for them.

Unfortunately, we are still not in a position to discuss the financial outlook for the current fiscal year to March, 2012, as we need more time to complete the examination of our production and sales plans.

We therefore will not able to announce a financial outlook today.

As we make progress with the revision of our production and sales plans, we will endeavor to announce the financial outlook for the current fiscal year by the middle of June.

I thank you for your understanding.

We will continue to issue timely and appropriate updates regarding the situation of our production recovery and financial performance.

With regard to the dividend for the fiscal year ending March, 2011, we plan to propose an increase of JPY5 to JPY30 per share at the annual general shareholders meeting, in reflection of the financial results and our policy to return value to shareholders stably and consistently.

Together with the interim dividend of JPY20 per share, this represents JPY50 for the full year.

We would like to make further efforts to ensure that our shareholders will feel rewarded for holding shares of Toyota for a long time.

On the 9th of March, shortly before the occurrence of the Great Earthquake, I announced the Toyota Global Vision, in order for all Toyota employees across the world to share, and for all stakeholders to appreciate Toyota's goal, which defines what kind of company we want to be.

By exceeding customers' expectations, through manufacturing always-better cars, we will enrich the lives of communities, which in turn will enable us to build a stable base of business.

By ensuring this cycle, we will continue to share generated profits with our host nations and communities, through taxes, and achieve sustainable growth.

Of course, our top priority is now on the recovery from the earthquake damage and normalization of production.

Our hybrid vehicles, with their long cruising distance and ability to generate and supply electricity, were much appreciated by our customers in the disaster-affected areas, where shortages of gasoline was very serious.

We plan to add a new function to Prius, plug-in hybrids, and all other popular vehicles so that they could be used as electric power generators in case of emergency.

This way, we would like to deliver vehicles swiftly, that will be more and more appreciated by our customers.

In each country and region, our local operations have been taking the lead in deciding and implementing the counter measures that should work best for their respective markets.

In this regard, I feel confident that region-led management, under Toyota Global Vision, is now being put in place.

Through this experience, I have further strengthened my confidence in our Company's direction, led by the Toyota Global Vision, and have renewed my commitment to making my best efforts to fulfill the vision.

I believe that our human resources will develop particularly by overcoming hardships, such as those we face today, and that we will be able to establish a stable base of business that will support Japan-based manufacturing and the future of Global Toyota.

Thank you for your kind and continued support.

Thus far, I read out the speech delivered by Mr.

Toyoda, president, and from here on, I would like to discuss details of Toyota's financial results for the fiscal year to March, 2011, following the presentation materials.

Although the Great East Japan Earthquake in March affected sales by 170,000 units, our consolidated vehicle sales were 7,308,000 units, an increase of 71,000 vehicles over the previous year.

Sales in Japan decreased substantially, due to the negative impact of the expiration of environmentally-friendly vehicles subsidies and the earthquake.

Conversely, sales were strong in both Asia and the other regions, where we recorded a significant increase over the previous year.

In Asia, thanks to strong IMV sales in Thailand and Indonesia, and strong sales of Etios in India, we achieved record sales for the full year.

Sales grew considerably in the other regions, especially in the Middle East and Central and South America.

Our consolidated financial performance for fiscal year 2011 resulted in net revenues of JPY18.9936 trillion, operating income of JPY468.2 billion, pre-tax income of JPY563.2 billion, and net income of JPY408.1 billion.

Moving on to the next page, page seven, I would like to explain the major factors affecting net income next.

By comparison to last year, net income increased JPY198.7 billion, to JPY408.1 billion.

The left side of this slide shows the major factors that impacted operating income.

Although yen appreciation had a major negative impact, we managed to offset this through a significant increase in vehicles sales, particularly in emerging markets, and through continued cost reduction efforts, such as company-wide VA activities, enabling us to increase operating income by JPY320.7 billion over last year.

Please note that the figures in the slide 7 summary include the negative impact of the Great East Japan Earthquake, which is as follows.

Decreased effects of marketing activities, JPY100 billion, decrease in cost reduction, JPY5 billion, increase in expenses, JPY5 billion, and discounts to a total of JPY110 billion for the negative impact on our operating income.

Moving on to slide 8, this shows the major factors influencing the difference between the actual result and our previous forecast of operating income, announced in February.

As you can see in the summary, excluding the negative JPY110 billion impact of the earthquake, operating income was JPY578.2 billion, which exceeds the previous forecast of JPY550 billion.

This shows we are steadily progressing with our profit improvement activities.

As mentioned in a recently announced Toyota Global Vision, our target is to secure an operating profit margin of 5% and operating profit of about JPY1 trillion, even at JPY85 to $1, and at 7.5 million vehicle sales.

We aim at positioning ourselves to achieve this as soon as possible, and we are progressing as planned.

With slide 9, I would like to explain our consolidated operating income for the year by region.

In Japan, although profits received a boost, thanks to cost reduction activities and marketing efforts, overall operating income decreased due to the effects of yen appreciation and the Great East Japan Earthquake.

In North America, operating income improved significantly, thanks to increased vehicle production, cost reduction activities, and the contribution from financial services, from the first half of the year in particular.

In Asia, thanks to strong sales of IMV models, especially in Thailand, we were able to achieve a significant increase in profits and the record operating income for the full-year period.

In Central and South America, Oceania, and Africa region, thanks to strong sales, especially in Brazil and South Africa, we continued to post a high level of operating income.

Next, let me discuss our operating income for the financial services, by referring to page 10.

Operating income, excluding swap valuation gains and losses, increased by JPY104.9 billion, to a record JPY320.8 billion.

This was thanks to a significant decrease in our loan loss and residual loss related expenses, as well as an increase in our lending balance, following reinforcement of our financing programs, mainly in the United States.

Going forward, we plan to maintain stable earnings from financial services, while applying adequate risk controls.

Page 11, equity and earnings of affiliated companies increased by JPY169.6 billion, to JPY215 billion over the previous year.

This mainly reflected the strong improved contribution from affiliated companies in Japan and China, and the valuation losses on our shareholding of certain affiliates, which had affected last year's earnings.

Slide 12 summarizes our unconsolidated financial results for the year.

We resulted in net revenues of JPY8.2428 trillion, operating loss of JPY480.9 billion, ordinary loss of JPY47 billion, and net income of JPY52.7 billion.

With regard to shareholder return, we plan to propose a year-end dividend of JPY30 per share, at the ordinary general shareholders meeting next month.

This is page 13.

The full-year dividend will therefore be JPY50, including the interim dividend of JPY20 per share.

We continue to regard the dividend as our most important means to return value to shareholders, and intend to pay it stably and consistently, to develop a long-term trusted relationship with our shareholders.

Also, our dividend policy should continue to appropriately reflect our assessment of the company's long-term financial stability, earnings results, and investment plans.

As mentioned in Mr.

Toyoda's speech, we are postponing the timing of announcing our forecast of consolidated vehicle sales and earnings for the fiscal year to March, 2012.

As we make progress with revised production and sales plans, we will make efforts to announce the financial outlook of fiscal year 2012 by the middle of June.

And your understanding of this situation would be much appreciated.

It is with much regret that we have been causing inconvenience for our customers, due to our supply disruption.

We will make our best effort to manufacture and deliver as many vehicles as possible, and normalize our production as soon as possible.

At the same time, we will continue to develop a strong foundation of earnings generation, through constant profit improvement activities, including cost reduction efforts, such as company-wide VA and other variable cost reduction activities, and fixed-cost reduction efforts.

This concludes the presentation and thank you very much for your attention.

Thank you.

In order to answer as many questions as possible, we would like to ask each participant to ask a maximum of two questions.

You do not have to provide a name to ask a question.

Further questions may be possible later if time allows.

Now, our conference call operator will explain how to get connected.

We'll take our first question.

Good evening.

Thank you very much for this call.

This is Steve Usher from JI Asia.

Two quick questions, if I might.

First of all, on the balance sheet, we saw a significant increase in marketable securities under fixed assets, JPY1.3 trillion increase to JPY3.6 trillion yen, and I was just wondering if you could give us a bit of color on that increase, on what the strategy is there, what the nature of the increase was.

Secondly, could you give us a breakdown of your equity method income, between China, the domestic affiliates, other key areas?

Thank you very much.

(interpreted) All right, first of all, let me describe the reason why there has been such an increase in marketable securities on our balance sheet.

Considering the efficiency of asset management and the investment activities, we purchased long-term government securities with relatively high yields, and that's the primary reason behind such an increase in marketable securities.

Moving on to the factor behind this increase in earnings from [equity methods] subsidiaries, let me give you the breakdown between China and Japan.

Starting with China, there has been an increase by JPY15 billion, from JPY64 billion last year to JPY79 billion this year, and in the case of affiliated companies, here in Japan, last year, their financial results have been quite difficult, posting a loss of JPY23 billion.

However, there has been a boost in earnings during the current fiscal year, which brought the earnings from equity method, domestic companies, to JPY115 billion, and this resulted in JPY140 billion in earnings from Japanese-affiliates.

We'll now move to our next question.

Yes, this is [Margaret Moore] with [Gutan Capital Management].

I have two questions.

The first is, could you comment on your expectations for domestic vehicle sales in Japan, and your outlook for mix there?

And secondarily, if you could comment on your expectations for commodity cost inflation and what measures, any measures, that you might be taking differently this year, to alleviate the cost pressure that you have not done in the past?

Thank you.

(interpreted) Let me start with the description of the Japanese market, first of all.

In 2010, the Japanese market reached a high level, especially in the first half, because of the strong effect of so-called scrap incentives.

But in reaction to that, in the second half of last year, that is, in 2010, there was significant reduction overall in the market, and this year, we have been expecting that there will be reactionary reduction compared with the previous year.

And that was the expectation we had prior to the earthquake in Japan.

And therefore, first of all, let me share with you our anticipations, the anticipations, expectations, we had prior to the earthquake.

Excluding mini vehicles, we expected the market to be 2.75 million vehicles.

That's around 85% of the previous year.

And in that general market, we expected our further sales to be [JPY1.3 million], so this was our expectations prior to the earthquake.

And as you already know, there has been substantial disruption since then, because of the earthquake and disaster, and therefore we will be compelled to make significant revisions to those numbers, both in terms of market expectations and Toyota's sales outlook.

Moving on to your question about the model mix, because of the impact of the disaster, at this juncture we do not have a clear idea as to which models will be produced, to what extent, including Lexus lines.

And at this juncture, we do not yet know whether the model mix will be better than the fiscal year that ended in March, 2011, so including that aspect, we would like to make expectations non-publicly, by some time middle of June.

Moving on to your question about the prices of raw materials, commodity prices in general, even since the beginning of 2011, as you already know, there was been continued increase in prices, of oil, of coal, iron ore, among others, and those are the materials that have significant impact upon our financial performance and therefore, we remain very diligent over their development.

However, at this juncture, price movements going forward defies any predictions.

And we are determined to offset this higher raw materials prices through our continued efforts in improving costs, so the negative impact can be offset as much as possible.

For example, in fiscal year that ended in March, 2011, I cited the figure of JPY180 billion as the benefits of cost improvements.

However, in reality, this represents the net figure of cost savings.

After offsetting the higher raw materials cost in general, and therefore, on the gross basis, we still have the capability of generating a cost savings of JPY300 billion overall, and the difference between JPY300 billion and the earlier figure I cited in terms of the cost savings represents the negative impact stemming from higher raw materials costs.

(Operator instructions) We'll take our next question.

Hello, this is Kurt Sanger from Deutsche Bank.

Thank you, [Ijici San], for the meeting earlier and the call today.

I have two questions.

The first is on North America.

Page nine, your give a North American operating profit of JPY311.9 billion.

Can you give us the breakdown of the finance business contribution to that number, is the first question.

(interpreted) In terms of the financial performance of the North American segment for fiscal year ending in March, 2011, the operating income excluding so-called swap-related valuation gains and losses on the accounting basis, stood at JPY311.9 billion, and of that, JPY270 billion came from financial services, excluding valuation gains and losses of swap transactions.

The automotive business in the past couple of years remained a pretty tough, which may have caused some concerns on your part.

But in the fiscal year just ended, the automotive business has returned to the positively profitable situation, and this demonstrates the fact that gradually, the earnings structure in North America has been on the improvement- has been improving.

The second question, if I may-- first, thank you for your clarity today, in the production plans.

Very straightforward and appreciated.

Now, I'll be an analyst and of course always ask for more.

But the one thing that we did not get today, that we usually receive from Toyota, is a breakdown of the auto and the finance business balance sheet, and the cash flow statements.

That is, I believe, a critical element in trying to properly value Toyota.

Can you give us a little help, at least, in perhaps giving us the interest-bearing debt figure for the finance business?

Maybe the operating lease depreciation number as well.

Last year, I believe the total interest-bearing debt was about JPY11.1 trillion and the operating lease was about JPY348 billion.

Some guidance on those figures would be helpful in the valuation process.

(interpreted) First of all, today, because of the impact of the Great Earthquake, it was very difficult for us to determine, and also make progress towards the date for announcing financial results for the previous fiscal year.

And therefore, we were not able to disclose the breakdown between automotive business and financial services businesses, in terms of balance sheet or profit and loss statement.

And those figures we intend to disclose in the securities registration statement, which we intend to submit on June 24th.

In terms of detailed figures relating to financial businesses, what I have at hand relates to interest-bearing liabilities or debt alone, and if possible, if I can find the figure, I will try to answer the other aspect as well later on.

But as of the end of March this year, for the financial businesses, the interest-bearing debt stood at JPY11.19 trillion -- JPY 11.19 trillion.

(operator instructions) We'll take our next question.

Yes, this is Ben Moyer from BlackRock.

I have a question first about your financial operations.

You mentioned that profits increased partly due to a drop in loan losses and residual losses.

These two factors have been positive for you for at least the last two years.

I wonder if you could give us any assistance in understanding the size of these effects in absolute terms, and also the year-on-year changes in reduced loan losses and residual losses?

That's my first question.

(interpreted) Let me give you some figures relating-- figures indicating to what extent those costs or expenses decreased in comparison with the previous fiscal year.

In terms of both our loan loss expenses and residual loss expenses, in the United States, the used car prices stood at a very high level, much higher than our expectations, and in addition to that, the loan loss rate came down quite significantly.

And for those reasons, both the loan loss expenses as well as residual loss expenses decreased.

Compared with the previous year including the provisioning established, the loan loss had the profit-boosting impact, positive impact, totaling JPY100 billion, and a residual loss expenses had the profit-boosting impact of JPY30 billion.

We have not been disclosing absolute figures of those parameters, but let me give some idea in these regards.

During the previous year, loan loss expense had the negative JPY100 billion impact, but this year, this has been generating positive effect.

That means we had substantial reversal gains from that factor.

Moving on to the residual loss-related expenses, in the previous fiscal year, we had negative JPY20 billion stemming from that factor, but this year, we are enjoying positive benefits from that, and the difference of those numbers was what was mentioned earlier in the presentation.

Second question, and my final question, is on quality-related costs.

In addition to the earthquake, Toyota has been dealing with the effects of recalls the previous fiscal year, and I wonder if you could somehow quantify the absolute -- absolute effects of your quality costs and that would include warranties, reserves, the cost of recalls, legal costs, et cetera, et cetera?

If you could possibly provide an absolute number for last fiscal year, and then the change in that value from the previous fiscal year, because I'm assuming that Toyota has been burdened by unusual costs in relation to these events, and that these costs will drop out over time, so I'd like to understand what the benefit might be of this dropout, so that's why I'm asking it.

Thank you.

(interpreted) Allow me to comment on quality-related expenses.

In the fiscal year just ended, at the end of March, 2011, there has been JPY30 billion increase in quality-related expenses compared with the fiscal year that ended in March, 2010.

However, the figure that I have just mentioned, that represents a change or increase from the previous year, includes only warranty cost and recall-related costs, and it does not include any legal expenses.

And in terms of the absolute amount, combining both the warranty expenses and recall-related expenses, that totals to that JPY560 billion last fiscal year, and that increased to JPY590 billion in the fiscal year just ended.

And we received many questions, including some from domestic investors, indicating their concerns over the future evolution of those costs.

However, we have been addressing those quality-related issues by establishing a special committee on global quality in the past year, and obtaining opinions or advice from experts outside of the company, and among others, and availing ourselves of those opportunities.

We have been taking very quick and prompt field actions in order to ensure safety and also peace of mind, from the customer's viewpoint.

And those proactive efforts have resulted in the number that I just given you.

In terms of the absolute amount of warranty expenses and recall-related expenses.

And in fiscal year that will end in March, 2012, and beyond, we expect these unusual expenses to peak out and gradually decrease over the period.

Please allow me to confirm, are there any more questions you would like to ask?

We still have about 10 minutes, and we'd like to take as many questions as possible.

If there are no further questions in the queue, we would like to conclude today's conference call.

If you require further information, please contact our IR representatives in New York or London.

Thank you very much for joining us today.

Goodbye.

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.