豐田汽車 (TM) 2016 Q2 法說會逐字稿

Hello, everyone. Welcome to the financial results conference call for the FY16, second quarter. I am Nobukatsu Takano from the accounting division of Toyota Motor Corporation.

Today we have Mr. Tetsuya Otake, Managing Officer in charge of the accounting group of Toyota Motor Corporation; and Ms. Morita, an interpreter, with us.

The agenda of today's conference call is as follows.

First, Mr. Otake will briefly discuss the highlights of Toyota's earning results, and then Ms. Morita will take over the rest of the presentation. This will take about 10 minutes. After the presentation, you are welcome to ask questions.

Please note that the presentation contains forward-looking statements that reflect our plans and expectations and our actual results may be materially different from these statements. A complete cautionary statement concerning forward-looking statements is included on page 2 of today's presentation material, and a complete cautionary statement concerning insider trading is included on page 3. Both of the statements can be downloaded from our Internet home pages.

Now I'd like to turn the call over to Mr. Otake.

Hello, everyone. Thank you for joining us today. I am Tetsuya Otake. It's my pleasure to discuss today's financial results for the first half of the fiscal year ending March 2016.

Let me start with slide 5.

Compared to the same period of last fiscal year, consolidated vehicle sales for the first half of this fiscal year decreased by 199,000 units to 4.278 million units as a result of declining sales in the regions such as Japan, Asia and the Middle East, despite a solid increase in sales in North America.

Please see slide 6. Consolidated financial results for the first half of the current fiscal year were net revenues of JPY14,091.4 billion, operating income of JPY1,583.4 billion, pre-tax income of JPY1,675.1 billion and net income of JPY1,258.1 billion.

Now I would like to hand the rest of today's presentation to Ms. Morita, our interpreter.

(interpreted) Next, using slide 7, I would like to highlight the major factors which impacted operating income year on year. Despite decreased vehicle sales and increased expenses, mainly to promote research into cutting-edge technologies and TNGA, progress and cost-reduction efforts and other profit improvement activities, in addition to favorable foreign exchange rates, contributed to the increasing operating income by JPY231.4 billion year on year.

Please take a look at slide 8.

Consolidated financial results for the second quarter of this fiscal year were net revenues of JPY7,103.8 billion, operating income JPY827.4 billion, pre-tax income of JPY829.8 billion, and net income of JPY611.7 billion.

For your information, slide 9 summarizes the major factors which impacted second-quarter operating income year on year.

Next, I would like to discuss operating income for each region, focusing mainly on the first half-year performance indicated on the left-hand side of each slide.

Please take a look at slide 10 for Japan.

In Japan, although the Alphard, the Vellfire and the new Sienta drove sales, overall vehicle sales for the first half decreased by 46,000 units year on year to 984,000 units as the mini vehicles market fell following an increase in vehicle taxation.

Operating income nevertheless increased by JPY239.4 billion year on year to JPY958.2 billion as a result of favorable foreign exchange rates and cost-reduction efforts, despite increased expenses mainly to accelerate research and development activities.

Please look at slide 11.

In North America, against the backdrop of continued strength of market conditions, vehicle sales increased by 18,000 units year on year to 1.413 million units, driven by the Lexus NX and the Highlander in particular.

Operating income. excluding valuation gains and losses from interest rate swaps, etc., remained around the same level of the first half of the previous fiscal year at JPY285.7 billion. This was primarily a result of cost-reduction efforts, etc., that contributed to higher profit being offset by the impact of foreign exchange rates and an increase in labor costs and other expenses.

We have recently started the production of the Lexus ES in Kentucky in the United States. We plan to enhance our competitiveness through localized production of the Lexus ES in North America, its largest market in the world.

In Europe, on slide 12, first-half vehicle sales were down 7,000 units year on year to 407,000 units. This was due to continued weakness of Russia and other markets in Eastern Europe, despite increased sales in Western Europe, such as Spain and the United Kingdom, where the Auris hybrid and the Yaris hybrid performed particularly strongly. Despite cost-reduction efforts, etc., operating income decreased by JPY2.9 billion year on year to JPY30.2 billion, mainly as a result of fewer vehicle sales.

Please take a look at slide 13.

In Asia, overall vehicle sales for the first half were down 101,000 units year on year to 654,000 units. This was due to continued weakness of main markets, namely Thailand and Indonesia, and intensified competition across the region. Nevertheless, operating income reached JPY244.1 billion, up JPY31.2 billion year on year, supported by cost-reduction efforts and favorable foreign exchange rates.

In Asia, we have developed an optimal procurement and production system, mainly in Thailand and Indonesia, which have grown as global production and supply centers. This enables us to maintain a solid earnings structure which is less susceptible to fluctuations of foreign exchange rates.

Although outlook is currently uncertain, we expect that Asian markets will grow as economies advance over the medium to long term. Therefore, we will continue to promote activities to strengthen our business foundations, such as the rollout of the new IMV models, in order to increase our sales once demand recovers.

Please move on to slide 14.

In other regions, vehicle sales fell by 63,000 year on year to 820,000 for the first half due to decreased sales in the Middle East and Central and South America where the market slowed down, mainly due to the effects of lower oil prices and depreciation of local currencies.

Operating income decreased by JPY11 billion year on year to JPY66.8 billion, primarily due to the impact of foreign exchange rates and increased expenses, despite the positive impact of marketing efforts and other factors.

Next, please look at slide 15 for financial services.

Operating income, excluding swap valuation gains and losses for the first half of this fiscal year, was JPY180.1 billion (sic - see slide 15, "JPY180.0 billion"), up JPY16.8 billion compared to the same period of last fiscal year, mainly due to an increase in both lending balance and lending margins.

Next, please refer to slide 16.

Equity in earnings of affiliated companies for the first half decreased by JPY4.2 billion year on year to JPY161.6 billion, mainly due to lower net income of our affiliated companies in China. Please note that fiscal year end of our affiliated companies in China is in December. Therefore, equity in earnings of these companies for the first half of this fiscal year reflects their earnings from January to June 2015.

Next I would like to discuss shareholder return. Please look at slide 17.

With regard to the interim dividend, we would like to propose JPY100 per share. In addition, earlier today, our Board of Directors resolved a share repurchase program of up to JPY150 billion, or 23 million shares of our common stock.

Please refer to slide 18 which compares our shareholder return programs for the current and previous fiscal years.

First, with regard to dividends, the proposed interim dividend for the current fiscal year represents a payout ratio of 25% as opposed to 21.1%, or JPY75 per share interim dividend for the previous fiscal year. This reflects our intention to improve the balance between interim and year-end dividends.

Second, in this fiscal year, a share repurchase program was resolved by our Board of Directors at the end of the first half. This reflects our intention to exercise share repurchase more flexibly.

Next, slide 19 shows the scheduling of our share repurchase programs for the current fiscal year for the purpose of providing returns to shareholders.

Adding the new program of up to 23 million shares, or JPY150 billion, to the previously announced program of up to 40 million shares, or JPY300 billion that was resolved at a Board of Directors meeting on May 8, we plan to repurchase up to 63 million shares, or JPY450 billion, altogether during the current fiscal year.

Please look at slide 20.

With regard to treasury stock, we plan to continue to hold approximately 300 million shares, in order to maintain flexibility of management and capital expenses, and cancel excess shares beyond this level in principle. Hence, we plan to cancel 80 million shares of treasury stock during the current fiscal year.

We intend to enhance our corporate value by steadily implementing initiatives for sustainable growth. At the same time, we will strive to develop long-term trusted relationship with our shareholders through stable and sustainable dividends.

In addition, we intend to repurchase shares flexibly as a means of shareholder return. In this way, we would like to enhance return of value to our shareholders.

Now I would like to move on to discuss our outlook for the full fiscal years. Please look at slide 22.

With regard to our consolidated vehicle sales for the full fiscal year, we are reducing our previous forecast by 200,000 units to 8.75 million units, due to expected sales decrease in the emerging markets, such as Asia, Africa and the Middle East, where market conditions currently lack visibility, and in Japan where the minicar market remains sluggish.

We plan to successively launch new models which will represent our pursuit of ever-better cars, including the Lexus RX, which is progressive in every aspect, including quality, design, driving and safety; and the new Prius, which is even more fuel efficient and truly fun to drive.

Please take a look at slide 23.

We've revised our assumptions of foreign exchange rates to JPY115 per $1 and JPY130 per EUR1 from October onwards, thus adopting JPY118 per $1 and JPY133 per EUR1 on a full-year basis. Based on this, we are revising down our forecast of net revenues by JPY300 billion to JPY27,500 billion from our previous forecast in August.

Our forecast of operating income, pre-tax income and net income, remains unchanged.

Next, please look at slide 24 for an analysis of our [latest] operating income forecast in comparison to August forecast. We maintain our previous operating income forecast of JPY2,800 billion. This factors in the assumed decrease in vehicle sales of 200,000 units and increase in expenses for innovation to develop attractive products and services. It also factors in the actual foreign exchange rates and the progress in our cost-reduction efforts during the first half of the current fiscal year.

For the automotive industry to grow further, various challenges need to be addressed, such as rapid advancement of technologies, including IT, and requirements for the global environment, as well as safety and security.

To grow steadily each year with true competitiveness, Toyota will continue to strengthen its profit structure through gross margin improvement per vehicle and control of fixed costs, while leading innovation to address environmental, safety and security requirements, and supporting the development of a new mobility society.

We will continue to embrace challenges in order to realize a future mobility society; for instance, challenges towards sustainable society through sustainable -- substantial reduction of CO2 emissions from vehicles and manufacturing plants, global recycling of water and other resources, and nature conservation activities.

Challenges for achieving a future mobility society where anyone can move safely, smoothly, and freely through safety and automated driving technologies, including automated driving on highways to be commercialized around 2020.

Challenges for new value creation such as research and development of a artificial intelligence which is expected to revolutionize automated driving and robotics technologies, and thus lay the foundation for future industrial technologies.

Finally, please take a look at slide 29 for the outlook of research and development expenses, CapEx and depreciation expenses.

Please note that our latest forecast for R&D expenses is up JPY10 billion from the previous forecast. As for CapEx and depreciation expenses, our forecast remains unchanged.

This concludes my presentation on the financial results for the second quarter of the fiscal year ending March 2016. Thank you very much for your attention.

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.