豐田汽車 (TM) 2012 Q2 法說會逐字稿

Hello, everyone.

Welcome to the second-quarter financial results conference call for fiscal year 2012.

I am [Tauro Takara], Public Affairs of Toyota Motor Corporation.

Today I am joined by Mr.

Takahiko Ijichi, Senior Managing Officer in charge of our Accounting Group.

Today's discussion will proceed in a Q&A format with consecutive interpretation.

By way of introduction, our interpreter, Ms.

Marita, will first read out the presentation on behalf of Mr.

Takahiko Ijichi, Senior Managing Officer.

The presentation material can be downloaded from our Internet homepage.

After the presentation, you are 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 our current information and its circumstance.

The actual results therefore may be materially different.

A complete cautionary statement concerning forward-looking statements and insider trading are included on page 2 and 3 of today's presentation material.

In addition, we have one announcement to make before the presentation of our second-quarter results.

Due to the effects of the widespread flooding in Thailand, we have decided to adjust our level of production in Japan next week, the week starting from Monday, November 14.

This is in addition to the production adjustments that we made this week.

We have already posted this information on our home page.

Now opening remarks from Mr.

Takahiko Ijichi.

(interpreted) Good morning and good day to everyone.

I am Ijichi.

Thank you very much for participating in this conference call despite your occupied schedules today.

My special appreciation goes to North American participants, for whom this must be pretty early in the morning.

In the first half of this fiscal year, we recorded operating loss of JPY32.6 billion because of the impact of earthquake and continued appreciation of the Japanese yen.

Nonetheless, we were able to exceed the earnings forecast we announced in August.

As for the forecast of financial results on the other hand, we have decided to put off the announcement of that because of the fact that impact of the flood in Thailand still remains quite uncertain and I would very much appreciate it if you could show understanding of that situation.

So from here on, we would like to explain to you the details of that through the presentation to be read out.

I would like to discuss Toyota's financial results for the first half of the fiscal year, which will end in March 2012.

Please look at slide 5.

As our vehicle production was significantly impacted by the Great East Japan earthquake in the first quarter, our consolidated vehicle sales for the first half of the year decreased by 689,000 units to 3.026 million units compared to the same period last year.

In Japan and North America, where the earthquake impact was particularly serious, our vehicle sales fell substantially year-on-year.

In Asia on the other hand, our vehicle sales exceeded to last year's results despite the earthquake.

This is thanks to strong sales in countries such as India, Indonesia, and Thailand.

Please take a look at the chart on the right-hand side for our consolidated vehicle sales for the second quarter.

Our vehicle sales though declined by 90,000 units in total due to the earthquake, increased year-on-year in Asia, where Etios has been successful in India and in other regions such as Africa and Oceania.

As slide 6 summarizes, our consolidated financial performance for the first half of the year resulted in net revenues of JPY8,015.9 billion, operating loss of JPY32.6 billion, pretax loss of JPY1.4 billion, and net income of JPY81.5 billion.

Although this result represents a decline in revenues and profits year-on-year, it exceeds our earlier operating income forecast which was announced in August.

Next using slide 7, I would like to explain the major factors affecting net income.

By comparison to the first half of the last fiscal year, net income for this first-half decreased by JPY207.6 billion to JPY81.5 billion.

The left side of slide 7 shows the major factors that affected operating income.

On the positive side, we increased our marketing efforts including reduction of marketing expenses and achieved further cost reduction.

On the negative side, however, we experienced a decline in vehicle sales as a result of the earthquake as well as rapid yen appreciation, both of which resulted in a significant decline in operating income.

Please note that the negative impact of the earthquake on our operating income totaled JPY320 billion.

Consolidated -- slide 8 summarizes our financial performance for the second quarter.

Net revenues of JPY4,574.9 billion, operating income of JPY75.4 billion, pretax income of JPY79.1 billion, and net income of JPY80.4 billion.

Please refer to slide 9 for the major factors which influenced net income for the second quarter.

With slide 10, I would like to explain our consolidated operating income for the first half of the year by region.

In Japan, where our production was affected by the earthquake and aggressive yen appreciation severely undermined our export earnings, operating loss increased dramatically.

In North America, we made efforts such as reducing marketing expenses, however due to the disruption caused by the earthquake and the particularly high level of earnings from financial services in the same period last year, operating income fell year-on-year.

In Asia, particularly Thailand and Indonesia, however, we managed to overcome the earthquake impact and maintained a high level of operating income.

Slide 11 summarizes our operating income by region for the second quarter.

In Asia and other regions where our vehicle sales increased, we continued to post a high level of operating income.

Next let me discuss our operating income for the financial services.

Please look at slide 12.

Operating income excluding swap valuation gains and losses decreased by JPY20.7 billion to JPY163.4 billion.

For the first half of the last fiscal year, operating income was particularly high primarily as a result of reversal of provisions mainly in the United States, although a decline year-on-year, operating income for this first-half has remained at the high level.

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

Let me now move on to slide 13.

Equity in earnings of affiliated companies decreased by JPY54.3 billion to JPY79.5 billion over the -- compared with the same period of the last fiscal year due to the earthquake, which particularly affected the earnings of our affiliates in Japan.

Please refer to slide 14.

Our unconsolidated financial performance for the first half resulted in net revenues of JPY3,346.6 billion yen, operating loss of JPY322.3 billion, pretax loss of JPY75.6 billion, and net income of JPY49.7 billion.

Next I would like to discuss our interim dividend.

Please look at slide 15.

With regard to our interim dividend, we plan to maintain JPY20 per share.

We continue to believe that dividend payment is the most important means of returning value to shareholders.

In order to reward long-term and trusted relationship with our shareholders, we intend to ensure consistency of our dividend payment.

As for the level of dividend, we will make decisions adequately ensuring our long-term financial stability and considering our earnings prospects and investment requirements.

Finally, I would like to comment on our full-year earnings prospects.

In August, we announced consolidated operating income forecast of JPY450 billion.

Following the recent floods in Thailand, we have been in the process of assessing their full impact on our vehicle production and sales.

As this requires some more time, we are not able to announce our latest forecast today.

We hope to make an announcement as soon as possible once it becomes feasible to do so.

Thank you for your understanding.

We will continue to update the investment community in a timely and adequate manner on the ongoing situation concerning our production recovery and earnings outlook.

This concludes the presentation.

Thank you very much for your attention.

Thank you.

In order to answer as many questions as possible, we would like to propose that each participant should only ask up to two questions.

You do not have to name yourselves.

Further questions might be possible later if time allows.

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

(Operator Instructions).

We will take our first question.

Good evening.

Thank you very much for the call.

Two questions from me.

First of all in terms of your parent operations, it appears particularly from the second quarter results that the strong yen is having a very negative impact on parent profitability.

Can you please share with us what measures you are adopting in order to reduce your yen sensitivity in the parent operations.

My second question has to do with equity income.

On slide 13 you detail the figures.

Could you please give us a breakdown between the domestic affiliated companies and for example, China in terms of your equity income?

Thank you very much.

(interpreted) First of all, I would like to share with you the initiatives we are taking in order to reduce the sensitivity to yen fluctuation.

First of all, we believe that we must maintain the domestic production volume of a least 3 million units.

One issue is how to deal with our effects exposure in order to maintain domestic production volume at 3 million.

First of all, currently out of that 3 million domestically produced, domestic sales totals 1.3 million units and we are trying to do our best so that the percentage of domestic sales in the overall domestic production can be increased further.

In respect to the vehicles destined to export markets, we are trying to reduce the Japanese domestic content of that and domestic production ratio of that so that we can increase the local production on those vehicles currently destined to export markets.

Through those means, one of the ways to reduce our exposure is to deal with the replacement or rebalancing of our vehicles.

Secondly, with respect to engines, transmission units, and also including some supplier parts, we are taking initiatives to increase the local procurement and local sourcing ratios.

For example in the case of Camry that was recently launched, we have been able to increase their local procurement ratio to 90% or so and we intend to promote those activities further in North America, Europe, and Asia.

Lastly but not least, currently we are not actually importing that many parts and components from overseas, but actually there are many capable manufacturers and suppliers in Asia.

So taking advantage of those capable manufacturers outside of Japan is one possibility and also we may be taking advantage of obviously operations of those suppliers with whom we do business currently.

And those are some of the means that we will pursue in order to increase the imported parts.

Moving on to the second question regarding the regional breakdown of earnings accounted for by equity method, of the total JPY79.5 billion, approximately 50% of that, one half of that relates to the affiliated companies in Japan at approximately 40% is the subsidiaries in China and the remaining 10% relates to other companies.

Great, thanks very much.

Could you also give us that same breakdown for the first half of the last fiscal year?

(interpreted) Last fiscal year we had total of JPY133.8 billion in earnings accounted for by equity method and breakdown of that between domestic and China for example was slightly less than 60% coming from Japan and slightly over 30% relating to China.

Next question, please.

I was wondering if you could give us an update on your expectations for the China market and also while it's not very big for you, the European market for you.

And second, could you discuss your expectation for incentive spending in North America now that your supply chain had been [disaffected] again?

(interpreted) First of all, about the Chinese market, because of the impact of the earthquake between April and June we suffered from the shortage of inventory there and because of that we somehow held back on the sales promotion efforts.

Affected by that, there is the period during which there was a temporary decrease in sales in China, but thereafter as the production recovered, sales started to evolve quite steadily and strongly.

And in the most recent three-month period, our sales growth outstripped the market trend.

With respect to the overall market, currently our outlook is that this year is the market is likely to increase or exceed somewhat the market level of 2010 because of the continued strength.

And in that overall market conditions, we are aiming at achieving the sales level of 900,000 units, which is in line with our original target.

Moving on to Europe, where we see quite similar trends as we have seen in China, that is to say between May and July because of the supply shortage, our market share in Europe decreased to the level which is somewhat higher than 3%, but in and after August as supply began to recover and especially with the new remodeled Yaris launched into the market in September, we are gradually regaining our market share there.

With respect to the European market per se, we are expecting the market level to exceed somewhat the size reached last year.

That is to say we are expecting somewhere around 19 million units in terms of the overall market size in Europe and in that general market conditions, we are expecting or aiming to exceed -- aiming to achieve 800,000 units, which is somewhat higher than the level we attained in 2010.

But given the fact that the financial crisis or uncertainties are destabilizing the market, we are hoping that financial crisis settles down as quickly as possible.

With respect to the United States, I would like to talk about the US market per se before moving into these European centers.

The US market has been gradually recovering and especially in the past two months or so, the market on the annualized basis recovered to the level of around 13 million units and in terms of the calendar year 2011, we are expecting the market to reach around 13 million units in size.

In that market condition, we are expecting to see some impact of flood in Thailand, but with Camry launched playing a central role especially since the November and with new models to be sufficiently introduced including Yaris and also be Prius B, we are hoping to recover the sales conditions and sales itself, hoping to reach 1.58 million units on the calendar basis, as we planned.

In terms of the incentives, at this moment the level of the incentive remains at the significantly reduced or curbed level.

But we find it a bit perplexing that there is a significant gap or disparity between the per unit basis incentive announced by Auto Data and the actual amount per unit or per vehicle incentive defrayed by TMS itself.

And actually at this point in time, the actual level of incentives paid is around one half that announced or reported by Auto Data.

In terms of the future outlook, we are unable to announce any financial result outlook or forecast and therefore I would like to refrain from making any definitive comment with respect to the incentives as well.

I would like to extend apologies for that fact.

Thank you.

Yes, the Company said you made smaller or better profits in the first half than anticipated.

I wonder if you could give me an indication of roughly how much?

And secondly, I wonder if you could give us more detail about the impact of the flooding in Thailand so far on your operations, both direct and indirect.

(interpreted) First of all, allow me to explain to you the impact of the flood in Thailand.

First of all, on October 10, Thai Toyota stopped its production operation and gradually the impact spread to Japan, North America, and Asia outside of Thailand.

And in terms of the outlook of this week, that is to say November 12, the overall number of units affected by the flood in Thailand on a global basis is likely to be 150,000 units and the breakdown of that is 40,000 in Japan and 110,000 globally or outside of Japan.

Now, in terms of the status of our operation in affected areas, first of all here in Japan domestically compared with the recovery plan of the production to make up for the lost production due to the earthquake compared with debt level, the current level of operation is 70% or 80% of that.

That's Japan domestically.

And as I said, the production operation has stopped in Thailand and the level of operation is around 40% in Asia outside of Thailand and that in North America is around 90%.

Often asked question includes whether there is any possibility of the impact spreading to other countries or whether there is any possibility of operation, production operation of our plans to be stopped.

But we are now have placing the supply of parts and conditions of that under scrutiny and we are not able to share with you any more details as of today.

But at any rate, the impact of stemming from the flood in Thailand is not as big as the impact that we suffered from the Great East Japan earthquake.

I would like to continue on and share with you the reasons why our actual results for the first half, the six-month period, exceeded the forecast we announced in August.

First of all, through sales efforts including efforts made in financial services, we were able to hold back sales expenses and incentives from the level that was anticipated or planned at the initial period and furthermore, there has been some improvement in vehicle mix.

Combining these two factors, the positive impact of results exceeded JPY40 billion.

On the other hand, quite unfortunately yen continued to appreciate, producing negative impact of around JPY40 billion.

Setting these two factors against each other, we were able to produce the net effect which allowed us exceed the previously forecasted level by a small margin.

Thank you for taking my question.

Question is about China.

It appears that about 70% of your Asian sales come from China.

First of all, is that approximately correct?

(interpreted) Are you talking about sales revenue or sales volume?

Both.

(interpreted) Please give us a moment to look into the figures.

In terms of the retail sales volume, China accounts for about 40% of the overall retail sales in Asia.

Does that answer your question?

Oh, I'm sorry.

Yes, and in terms of value, would it be approximately the same figure?

(interpreted) In terms of the sales revenue, since Chinese operation is run by our joint venture entity, with [First Auto] and (inaudible) Auto as our partners, and therefore Chinese sales revenue is not included as a part of the consolidated sales revenue.

And while I did say that China accounts for about 40% of the retail sales units volume and Asia, but with the figures I have on hand, I cannot make comparison in terms of the sales revenue generated by China.

Okay, thank you very much.

Then just very recently, there has been talk about how things are slowing down in China.

For Toyota, have you noticed any slowdown in growth rates just say in the past two months in China?

(interpreted) With respect to China itself, since the beginning of this year we have been sensing that the market -- overall growth of the market has lost the impetus or strength that it used to display in the past years.

But in terms of the period since July where the impact of our Great East Japan Earthquake has been more or less nullified compared with the overall market growth, our growth rate was 128% in July and 115% in August, 110% in September, and 133% in October.

Those are in comparison with the previous year's months and therefore our growth rate far exceeded the growth rate of overall market and we have been extremely strong in those periods in China.

Thank you very much.

That was very helpful.

Next is final question.

Thank you, I had two questions.

The first one is on your volume.

Could you remind us what your full-year volume forecast was as of I believe August when you announced your first quarter?

And then could you just comment -- if we think about your likelihood of achievement, we can divide the factors into those related to Thailand and the other factors.

If we exclude the impact of Thailand, could you say that you were in line to achieve your forecast and if not, could you explain where the problem areas might be?

That's the first question.

(interpreted) When you talked about -- is it calendar year or fiscal year?

I think fiscal year would be more helpful.

(spoken in Japanese)

Could you just remind us of what those volume figures were for the fiscal --?

(interpreted) So the period you are speaking is the full year, the full fiscal year figure on the consolidated basis, the one we announced in August?

Yes, that's correct.

(interpreted) That was 7.6 million units.

That was the figure announced previously.

And until the flood and its subsequent impact on Thailand began to take place, we thought that we would probably be able to achieve the volume that is somewhat higher than the figure we announced in August.

But because of the flood in Thailand and resultant impact, we do not know whether we will be able to attain that forecast announced in August or not.

Okay, I know that you don't have a forecast but because of the flooding in Thailand, but could you just offer some background information on how Toyota has been affected by the flooding in Thailand so that we on our own might better be able to gauge the amount of volume that you will lose because of the flood?

And that would take into consideration what your capacity is in Thailand, maybe the components that you might be suffering a shortage in, and the models that might be effected or the volume lost to date.

These are pieces of information that would be helpful in estimating the impact on your lost volume.

Thank you.

(interpreted) First of all, our production capacity in Thailand is 650,000 units and between October 10, when the production operation in Thailand was suspended and November 12, the number of units lost in production overseas was 110,000 units and of that, 90,000 is the direct result of the flood impact of the flood in Thailand.

In terms of the number of parts affected and also lost in supply were disrupted in terms of supply, the critical part in that category primarily includes resin parts, cast parts, and electronic parts.

All together approximately 100 items are disrupted in terms of supply.

A variety of models have been affected because from Thailand parts are exported both to North America and Japan, but in terms of the volume lost, the IMV models produced in Thailand was the most affected.

I just wanted to confirm that your assembly plant in Thailand there are not under water.

Is that correct?

(interpreted) You are right.

As of today, our assembly plant has not been damaged at all.

Okay, thank you very much.

Thank you.

Unfortunately our time is almost up.

Please allow us to conclude today's conference call now.

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

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 the Event.