豐田汽車 (TM) 2017 Q4 法說會逐字稿

(foreign language) Ladies and gentlemen, thank you very much for taking time out of your occupied schedules to join us for this meeting.

We would like to start the announcement of financial results for fiscal year that ended in March 2017.

First, let me introduce to you the officers who are present for this meeting today: Akio Toyoda, President and CEO of Toyota Motor Corporation; Executive Vice President, Osamu Nagata.

Good afternoon, ladies and gentlemen.

Nobuhiko Murakami, Senior Managing Officer

Good afternoon.

And about the timetable for today's meeting.

First of all, President, Mr. Toyoda, is going to share with you the outline of financial results.

And that will be followed by the speech by EVP, Mr. Nagata, who will be describing the details of financial results.

And after that, we would like to entertain questions.

And today's financial results announcement, including Q&A, will be uploaded through our website.

And journalists are participating in this session from Nagoya office as well.

It's been relayed from there.

And at the outset of the information and materials distributed to you, there is some cautionary statement about the forward-looking statements, so please go through that at your leisure.

So first, President, Mr. Toyoda, is going to extend his first remarks -- make his remarks.

Thank you for waiting, ladies and gentlemen.

I am Toyoda.

And good afternoon, and thank you all very much for taking the time to join us today for the announcement of financial results.

Looking back on the fiscal year that ended on March 31, we achieved operating income of JPY 1,994.3 billion due to concerted group-wide cost reduction efforts, coupled with all-out sales efforts in each country and region.

I would like to take this opportunity to thank each and every one of our customers around the world for choosing us.

We are again also extremely grateful to our dealers, suppliers and all our stakeholders for their invaluable support.

We have decided to set the year-end dividend for our common stock shareholders at JPY 110 per share.

As a result, the total annual dividend will be JPY 210 per share, including the interim dividend of JPY 100 per share.

We also plan to implement a new share buyback up to a maximum of JPY 250 billion or an upper limit of 50 million shares.

We aim at continuously improving our corporate value for our shareholders to make them feel rewarded for their long-term investment in Toyota.

Concerning our financial results, I would like to briefly talk about my philosophy.

Our desire is to contribute to the world and to people by enriching society through monozukuri manufacturing.

To this end, we have aimed to make our company itself one capable of sustainable growth regardless of the circumstances.

I have said that we have entered the implementation phase of sustainable growth by pursuing our 3 main goals of making innovative cars and developing people, which we improved during our intentional pause, taking up challenges for the future and reinforcing our management and financial foundation.

While there is no doubt that we need to continue these activities going forward, I feel that the outlook of our earnings for the current fiscal year, with neither the positive nor negative impact of foreign exchange rate, honestly present the current strength of our true selves.

When it comes to making ever-better cars, our challenge of making cars in a completely new way by introducing TNGA has manifested in the new Prius PHV and the C-HR new compact SUV, meaning we are now able to deliver TNGA-based vehicles to our customers.

I realize now that, through TNGA, our efforts to make ever-better cars have started to take root as an unshakable axis that penetrates our technological development, production engineering and production sites.

Until now, there are times when Toyota's cars were called boring or were said to be lacking in character.

But I now feel that in terms of driving and design, our customers have begun to favorably evaluate our cars.

On the other hand, when it comes to making ever-better cars in a smart way, it is becoming apparent that there is still room for improvement.

For example, might it not be the case that an ever-enthusiastic desire to make ever-better cars is putting priority on improving our competitiveness in terms of performance and quality while leaving issues of cost and lead time for later?

Or is the way we work capable of thoroughly implementing the basic principle of appropriate sales price minus appropriate profit equals ideal cost?

In other words, I feel a strong sense of crisis about whether or not we are actually executing car-making from the perspective of customer in all Toyota workplaces, from development, production, procurement and sales, all the way to administrative divisions.

I believe that making ever-better cars starts with compact cars.

To provide the fun and freedom of mobility to as many people as possible, compact cars, even if they are small, must be safe and comfortable.

Even if they have small engines, they must provide stress-free driving performance.

And precisely because they are compact cars, they must, most importantly, accomplish such while still being affordable.

In the in-house company system we introduced last year, we launched the Toyota Compact Car Company, which specializes in compact cars, made Daihatsu a wholly owned subsidiary and established a compact car company for emerging markets, among other actions.

These we have done with an aim toward returning to the basics of car-making for compact cars.

Our in-house companies responsible for compact cars will benchmark each other and learn smarter ways of making such cars.

Furthermore, with these in-house companies competing and such with our in-house companies responsible for larger vehicles, the in-house companies will improve by learning from each other.

Through this, I want to make Toyota's car-making simpler and more low cost.

It is my view that the latest financial results demonstrate Toyota's desire to steadily and continually advance our investment in the future rather than place top priority on short-term profit.

The present automobile industry is being asked to make a paradigm shift, for which, as I see it, especially AI, autonomous driving, robotics, connected systems and other new domains, will hold important keys.

It is exactly because such an age is upon us that we believe it is necessary to cultivate a company that has technological capabilities and the will to create the future.

And it is why we established TRI, Toyota Research Institute, in January last year.

I want to continue planting seeds with a look to 10 or even 20 years into the future.

We are not the only ones planting such seeds as various players in other industries, such as IT, are also doing so as well as are car manufacturers in emerging markets, among others.

Not only cars themselves but the future automobile industry as well might evolve into a world that is completely different from that up until now.

I want cars to be loved by everyone around the world.

For cars to be loved, while innovations in software will play an important role, I believe that even more important is combining such with the hardware that we have refined over many years to create a car that can become a customer's cherished partner and one that is invaluable.

For smiles on our customers' faces, approaching both software and hardware from all directions is Toyota's way.

That is because it is our responsibility to deliver safety and peace of mind to all people.

Although we still have a long way to go, I believe our company is transforming into one strongly resolved to changing today for tomorrow, that takes risks and is willing to take it upon itself to open the way forward.

We have strengthened our financial foundation and are ready to invest steadily under all circumstances.

I want us to put everything we have day by day into cultivating the seeds we have thus far planted so that our accumulated efforts will allow us to achieve competitiveness that will enable us to survive in the future.

Finally, if I may briefly mention my feelings about the current fiscal year, I want this year to be one in which we do everything we can to take a critical look at our true selves and strive to improve our competitiveness.

For this, it is important that we steadfastly advance our investment in the future as well as advance both making ever-better cars and smart car-making, which are inseparable.

The biggest concern for management is, more than there being an issue, not knowing whether there is an issue or not; and, if there is, not knowing its severity.

Such as by introducing an in-house company system and creating alliances, we have continued to innovate to encourage management and our workplaces to bring problems to light and make improvements.

We must take a sincere look at what we have accomplished and what we have yet to accomplish.

Based on this, we will continue to make progress in staying on track with our goal to achieve sustainable growth.

Thank you in advance for your continued understanding and support.

Thank you.

My name is Nagata.

It's my -- a pleasure to discuss Toyota's financial results in details.

The -- compared to the previous fiscal year, consolidated vehicle sales increased by 290,000 units to 8,971,000 units.

Vehicle sales grew year-on-year in Japan, Asia and Europe, mainly driven by new models.

This more than offset the decline in vehicle sales in the Middle East, where local economies and markets suffered from weak oil prices.

Consolidated financial results for the fiscal year ended were net revenues of JPY 27,597.1 billion, operating income of JPY 1,994.3 billion, pretax income of JPY 2,193.8 billion and net income of JPY 1,831.1 billion.

I would like to explain the factors which impacted operating income year-on-year, as shown here.

Despite the positive factors, such as cost reduction and marketing efforts, operating income was down 809 -- JPY 859.5 billion compared to the previous fiscal year, mainly due to the continued appreciation of the yen and an increase in expenses.

And please find the breakdown of the effects of foreign exchange rates in the Footnote 1 in the bottom-left corner of the slide.

Apologies for small letters.

There were altogether JPY 780 billion of translational impact of foreign exchange rates involving the U.S. dollar, the euro and other currencies.

In addition, there was a translational impact of foreign exchange rates of JPY 130 billion concerning the operating income of overseas subsidiaries and of JPY 30 billion concerning the fiscal year-end balance of provisions in foreign currencies.

Please note that these translational impacts were previously included in the factors named other and increase in expenses, et cetera, respectively, but are now classified -- reclassified into effects of foreign exchange rates for better clarification.

Excluding the overall impact of foreign exchange rates and swap valuation gains and losses, operating income improved by JPY 120 billion year-on-year as a result of profit improvement activities throughout the year.

Now I would like to give you the breakdown of our operating income by region.

In Japan, vehicle sales increased by 215,000 units year-on-year to 2,274,000 units, driven by new models such as the Prius, Roomy, Tank and C-HR.

Operating income, nevertheless, declined by JPY 470.7 billion to JPY 1,206,000,000,000 due to the impact of foreign exchange rates and an increase in expenses.

In North America, vehicle sales remained stable year-on-year at 2,837,000 units.

Operating income was JPY 330.9 billion, down JPY 174.7 billion compared to the previous fiscal year, mainly due to increased incentives and marketing activities and an increase in expenses.

Looking on to Europe.

Vehicle sales grew by 81,000 units year-on-year to 925,000 units on the back of solid sales of the brand-new C-HR and the RAV4.

Nevertheless, operating income was down JPY 87.6 billion year-on-year to a loss of JPY 11.8 billion.

This is mainly a result of an increase in expenses and the depreciation of local currencies, such as the British pound and Russian rubles.

In Asia, vehicle sales were up 243,000 units year-on-year to 1,588,000 units, driven by new models, such as the Calya, Sienta and IMV series light trucks, especially in Indonesia and the Philippines.

Operating income decreased by JPY 30.5 billion year-on-year to JPY 424.4 billion, largely due to the impact of foreign exchange rates and the decreased exports to the Middle East.

In other regions, overall vehicle sales for the fiscal year were 1,347,000 units, down 247,000 units year-on-year as a result of significant decline in vehicle sales in the Middle East.

Operating income decreased by JPY 39.9 billion to JPY 63.4 billion, primarily due to the negative impact of increased expenses and foreign exchange rates.

Next, I would like to move on to the description of operating income of financial services.

Operating income excluding swap valuation gains and losses for the fiscal year declined 80 -- JPY 78.6 billion year-on-year to JPY 240.4 billion.

Although the lending balance continued to grow, the costs related to residual value losses increased as used car prices for passenger cars in North America deteriorated.

And for equity in earnings of affiliated companies for the fiscal year, it increased by JPY 32.9 billion year-on-year to JPY 362 billion.

This was a result of solid performance of our affiliated companies in Japan.

Next, let us look to shareholder return.

With regard to the year-end dividend on common shares, we are planning to maintain JPY 110 per share.

As a result, the dividend on common shares for the fiscal year will be JPY 210 per share, including the interim dividend of JPY 100 per share.

This is the same amount as the previous fiscal year.

We continue to aim at paying stable and sustainable dividends while using the consolidated payout ratio of 30% as a benchmark.

We also plan to buy back up to JPY 250 billion or 50 million shares of our common stock.

Adding this to the JPY 199.9 billion of shares of common stock that were repurchased as a means of shareholder return for the first half of the fiscal year, the total share repurchase for the fiscal year, which ended in March 2017, will be up to JPY 449.9 billion or 79 million shares.

We intend to continue to flexibly exercise share repurchases to improve shareholder returns and capital efficiency.

Now this slide shows the year-on-year comparison of our shareholder return.

In addition to the dividend on common shares, we plan to pay a dividend of JPY 105 per share on the Model AA class shares on a full year basis.

As a result, the total amount of dividends for the fiscal year to March 2017 will be JPY 632.4 billion.

Adding this to the planned share repurchase of JPY 449.9 billion, the total shareholder return for the fiscal year will be up to JPY 1,082.4 billion, and the total return ratio will be up to 59.1%.

Now I would like to move on to discuss the outlook for the current fiscal year to March 2018.

Consolidated vehicle sales are expected to be 8.9 million units, down 71,000 units year-on-year.

We anticipate that vehicle sales will increase in Asia and other regions, such as Oceania and Africa, but decrease in Japan, where the new model effect will be diminishing as well as North America.

Now our assumptions of foreign exchange rates for the 2018 forecasts would be JPY 105 per dollar and JPY 150 per euro.

Based on this, our forecasts of consolidated financial performance are net revenue of JPY 27,500,000,000,000, operating income of JPY 1,600,000,000,000, pretax income of JPY 1,800,000,000,000, net income of JPY 1,500,000,000,000.

For consolidated operating income forecast, we forecast a JPY 394.3 billion decrease in operating income compared to the fiscal year which ended in March 2017.

Major factors are as follows: firstly, the negative effect of foreign exchange rates based on the assumption that the yen will appreciate to JPY 105 per dollar and JPY 150 per euro will be JPY 110 billion; secondly, cost-reduction efforts will be undermined by the anticipated increase in raw material costs and will be net JPY 90 billion as a result; thirdly, the effects of marketing activities will be negative JPY 245 billion, mainly due to an assumed increase in incentives for North America, where competition is getting tougher; finally, expenses, et cetera, is expected to increase by JPY 145 billion.

As a consequence, operating income, excluding the impact of ForEx rates and swap valuation gains and losses, et cetera, is expected to be down JPY 300 billion year-on-year.

Now for the outlook of R&D expenses, capital expenditures and depreciation expenses.

As you can see in this slide, R&D expenses are expected to be up JPY 12.5 billion to further promote the development of our advanced and cutting-edge technologies.

CapEx is expected to increase by JPY 88.2 billion compared to the previous fiscal year, mainly due to investment for the introduction of new TNGA models.

As emphasized by Akio Toyoda, our President, we are taking the outlook of the current fiscal year very seriously.

Further and more profit improvement activities are needed.

We will strive to minimize the decline in earnings by all possible means, such as effective marketing activities in all regions, enhancement of product appeal and competitiveness, reduction of fixed costs and extensive cost-reduction activities, including VA and VE.

This concludes my presentation on the financial results for the fiscal year that ended in March 2017.

Thank you very much for your attention.

Now ladies and gentlemen, at this juncture, we would like to entertain questions from the audience.

If you have a question, please raise your hand so that the microphone can be brought to you, and please state your affiliation and name.

And to receive many questions as -- from as many people as possible, I would like to ask each one of you to limit the questions to 2 questions per person.

[Kagawa] of Yomiuri Newspaper.

First of all, what is your assessment of the financial results of the fiscal year in question?

Mr. Toyoda said that there was no impact of exchange rates, and this reflects the strength of a true self.

Including that, you are booking 2 consecutive years of a profit decrease, and how do you assess that?

In addition to that, North America were -- which is a mainstay market for you, for the fiscal year in question, the volume decreased, and also the increase in selling expenses were expected.

Could you elaborate on the details?

For 4 months running, there has been some decrease in the market itself.

And could you share with us your view of the market conditions as well as the political conditions?

For example, the Secretary of Commerce has stated that he cannot accept the current trading relationship with Japan.

So what is your view of the political risks relating to the United States as well?

Allow me to respond to your first question.

That is to say the financial results of the fiscal year just ended and also the fiscal year for -- that is scheduled to end in March 1918 -- 2018 that I think is very important, and therefore, I would like to refer to that.

Mr. Toyoda mentioned that for the current fiscal year that ended in March 2017, this reflects the strength of Toyota of its true self because it had very little impact of exchange rates.

But our forecast for the currently running fiscal year ending in March 2018, that represents a very severe situation.

And if I have to consider that as a strength, that makes me feel very frustrated and very bitter.

I should -- cannot tolerate that, and I cannot accept that.

We will pursue every efforts and measures and implement those measures to improve profitability so that we can make every effort to achieve maximum recovery.

Let me be more specific.

Those who build cars and those who sell cars must use and spend money in the smarter way, and we intend to address that.

We learned a great deal from other companies.

Looking at their products, we learned a great deal from alliance partners.

And using them as our yardstick for assessing ourselves, I realize that there is so much room for us to achieve further improvement.

The in-house company system, TNGA, those are new strategic challenges we have embraced.

And by making full use of that, we will hone our competitiveness so that we can further strengthen the ever-better cars that we can deliver to the customers.

The second question with respect to our view of the North American market and the strategy for our North American business, so let me respond to that aspect you have a question.

As we have heard in reports, North American market, especially the new car market in United States, for calendar 2017 is around 17.2 million units, somewhat slightly down from the previous year.

But this remains a very large and very important market.

Having said that, I must also add that overall in industry, the incentives are trending upward, and the competitive environment in the market has become much fiercer.

Now what are we doing to address that sort of market condition?

This year, the mainstay TNGA-based model is the Camry, which is to be launched this year; and C-HR, which was introduced this year.

We will accelerate the sales of C-HR and the Camry to be introduced.

And also, we have been increasing the capacity with the smaller investments for SUV and other pickup trucks.

And we'll make full use of those capacity for trucks so that we can increase the supply of light trucks.

And through those measures, we are expecting to sell the same level as last year of around 2.45 million units.

I earlier talked about incentives.

Compared with our competitors, Toyota is spending this amount of incentives and having elaborate supply and demand management as well as good inventory control to address that situation.

But going forward, the new model of Camry, the TNGA-based model and also the increased capacity of pickup trucks and SUVs, we will make sure that we will not get involved in excessive incentive awards, so to speak, or incentive competition.

We intend to exercise adequate control in that regard.

Allow me -- your question also alluded to political risks, and therefore, as the third aspect, I would like to refer to those political situations.

There is policies to be announced by the new administration, especially trade policy, tax policy, tax reform.

It's very difficult to foresee specifics of those, so we will very carefully observe and monitor any developments in that country.

But as far as Toyota is concerned, in any country in which we operate, we always aim at becoming the best-in-town company in the country we operate in.

And we intend to maintain the same [approach] in the United States.

Not just the employment, the investment, procurement and human development, through social contribution and cooperation with other industries, we'll continue to contribute to the society and industry.

And we have this strong determination and faith of us wanting to contribute through those endeavors, and we'll try to make every effort to have those faith and determination understood by our U.S. administration.

For Toyota to become best-in-town company, we must enhance our own competitiveness in each market we operate in, so we will make sure that our plants in North America will compete against each other so that they can enhance their manufacturing capabilities and competitiveness in the United States.

Thank you.

My name is [Yamada] from [NHK].

I have 2 questions.

Mr. Toyoda, last year at this financial performance meeting and also today in your presentation, you talked about having the will or determination.

With a strong will, you will be pursuing a lot of activities.

And among those, R&D and capital expenditure would be very important pillars.

And you mentioned that you will continue to invest in these areas.

JPY 1 trillion more R&D and capital expenditure is what you will be aiming at.

And will this level be maintained in the future?

Will this high level be maintained in the future?

That is the first question.

And the second point is about your outlook.

The U.S. dollar is JPY 105, you mentioned, which means a higher yen compared to previous years.

Why did you decide for a higher yen as the assumed exchange rate between the U.S. dollar and the Japanese yen?

Now let me answer that question.

For R&D expenditure and R&D investment and capital expenditure, for -- those things are necessary, we will continue to make investments.

However, not just simply adding the amount of investment but how to earn by ourselves the -- our necessary funds for those investments is what we have to think about.

We have to create a strong financial foundation so that we can create the source for those investments.

And we need to improve profitability for that.

As the President mentioned, software and hardware will have to be approached together so that we make contribution to a better society in the future and so that we can create new seeds for future business for the company.

And in order to do that, we need to make further strategic investments.

We have to make sure that our profitability or the financial foundation does not have a negative impact on those strategic activities.

The second point was about the exchange rate.

Usually, this year, April, we take the average of the medium exchange rate.

Actually, in April, it was about JPY 110.

And we take a more -- a JPY 5 conservative view than the actual numbers.

And so when we make our profitability and our plans, we use that formula to look at the average medium exchange rate of the previous month.

Kudo of Nikkei Newspaper.

I have 2 questions.

Question number one, with respect to your challenges of the management over medium and long term, in terms of the way in which research and development is conducted, for 4 years running, the research and development expenditures exceeded JPY 1 trillion.

Mr. Toyoda mentioned that the automotive industry may completely transform itself and become a totally different world.

In 7 years, the sales revenues stemming from automobile doubled when Toyota Automatic Loom's created an automotive industry, and you established a TRI, in which the new external human resources are used, which represents a totally new way of pursuing business, including those aspects.

If you simply use the existing approach, you might hurt the future picture of Toyota.

And what sort of sense of crisis do you have?

The second question relates to the external environment of protectionists in the United States and other countries are urging companies to invest in respective countries or employing more.

In the United States, you initiated production activities in the '80s.

And in 1990s, the suppliers invested in the United States to supply parts in -- to Toyota in the United States.

What are the areas in which you can invest more in the United States to increase your competitiveness?

And is there any specific area within the United States which is important to you in order to ensure equity amongst different states?

First, allow me to respond to your question relating to the way in which we approach research and development.

Oftentimes, the term that Toyota wants to do it all on its own or the open innovation or alliance with the external partners and those different concepts are discussed frequently.

When we consider the technology and develop technology in the new world, speed is of essence and also the -- ensuring -- securing talent who are capable of developing that technology swiftly and speedily.

In order to enhance speed, not just focusing on going -- doing those research and development on your own, but broaden our sphere of vision to look at the entire world in the broader perspective.

And that's why when we established TRI, we asked Dr. Gill Pratt to join Toyota's group, and that was based upon this sort of a concept and philosophy.

The sheer size of research and development, where the financial wherewithal of the large corporation means a lot, departing from that, whether we are an attractive enough company for which talents are willing to work for in the various speedy manner is one area that we have to spend more efforts to.

Over a medium and long term, can we continue to make research and investment -- research and development investments in excess of JPY 1 trillion?

Let me respond to that aspect.

After the Lehman crisis and world financial crisis, we suffered the loss-making position.

We found ourselves in the loss-making position.

When we did that, we came to realize that our situation caused serious troubles and difficulties for many stakeholders in our company.

And I vividly remember that, and that's etched in my own soul and heart.

So the company of the size of a Toyota booking a loss caused a serious difficulty for many stakeholders as they want to pursue sustainable growth.

And therefore, going forward, even if the earnings may be 20% lower or sales may be 20%, we wanted to make sure that we can propulse the profit; and aiming at that, we continue to implement measures to improve profitability.

And in that, there are some structural matters, exchange rate or material expenses.

There are some structural issues, and also there are other transient temporary matters.

When it comes to structural issues, we have continued to say that now that Toyota sales are more than 10 million units and Toyota having become too large may be a problem itself.

And that's why we established in-house company in April last year.

And not just having a company with the volume over 10 million but -- units but having smaller in-house companies and also for each regions, by clearly identifying issues and problems in each of those companies, we have decided to approach and address these difficulties, and we have embarked on those measures to address those structural changes.

But because we have the history of 80 years as simply operating based upon functions of different areas, so even if we change the organizational structure in April last year, that does not produce visible results right away.

Therefore, I hope you allow us a little more time to see some evidence in terms of the results of our structural efforts.

In terms of temporary matters, last year, there has been limited factors stemming from exchange rates, but cost-improvement efforts have produced positive results.

And including the outcome for next fiscal year, the exchange rate impact is assumed to have 0 impact.

But compared with the gross cost improvement, some people may be expecting that cost reduction may be somewhat weaker than before.

And this might represent our structural efforts, which -- through -- for which we change our structure to be in-house company, and we need to change the work style and also to accelerate our speed of performing those works, and those are the only means we can achieve a better improvement.

R&D, the CapEx and also shareholder returns, we have continued to achieve JPY 1 trillion in each of those metrics.

But given the size of Toyota, we must be able to sustain that continuously, and that's the only way in which we can achieve sustainable prosperity together with all the stakeholders.

That, I think, is our obligation and responsibility to attain that.

As we aim to do that, at the moment, the sales revenue is very difficult or very slow to increase.

But in that environment, we'll continue to make those efforts.

And as the paradigm shift continues, we must make investments in those areas which does not produce immediate profit right away.

That's a difficult challenge that we are confronted with.

However, because sales revenue is not growing more rapidly, whereas in the past, we were able to make the investments as the seeds for future and also in other areas, we were able to reap profit based upon past investments, while sales revenue continued to increase, we were able to do that because those were synchronized with each other.

But once the sales revenue growth stagnates, we have to make decision as to whether or not we continue to invest in certain areas and whether we need to discontinue certain investment in certain areas.

It's very difficult for a successful company to discontinue something.

But in the case of sports, I mean, booking 2 consecutive years of losses would mean you are failing 2 conservative years or 2 tournaments in running.

And I hate to be beaten.

I hate to be defeated.

We don't want to betray the confidence and expectations of stakeholders, so whenever we identify those issues during the fiscal year, we intend to take improvement efforts so that we can improve the situation for next fiscal year.

With respect to the increasing trend of protectionism or request a voice by various countries to -- for Toyota to make investments, how are we going to ensure competitiveness in those requests?

How are we going to ensure fairness amongst those different regions or another aspect of questions?

So I would like to separate my answer to 2 elements, external issues and internal issues.

Externally, not only in the United States but in any country or region in which we are allowed to do our business, we will further strengthen our activities to earn understanding of that.

And we need to increase the people who has good understanding of what other guys doing.

So the employees we have in local areas, our business partners, our political leaders will continue to explain what we are doing to those people to earn their understanding so that we'll have Toyota's faith, Toyota's determination and Toyota's activities and contributions better understood.

It's somewhat difficult to describe this, but there may be the case where, because they don't have full understanding and they may have some resentment against the company or because the understanding is lacking, that may have caused some protectionist tendencies, so I want to avoid that.

Secondly, internally, from the perspective of ensuring our own competitiveness, the local production, the local procurement need to be developed further and achieve evolution in terms of materials, the lower-tier suppliers, the second-tier or third-tier suppliers.

And for each item or each product area, the Japanese production or Japanese operation is more competitive than outside of Japan.

So whether we've been able to keep our competitiveness or whether there are people and companies who have the potential to improve competitiveness, by determining that, not just looking at the protectionist tendencies, we would like to think of the further evolution of local procurement and local production further.

At this juncture, I'd like to invite questions from Nagoya office.

Are there any other questions from Nagoya?

This is Nagoya.

A person from [Chubu Keizai Shimbun], the newspaper, has a question.

My name is [Kikuchi] from [Chubu Keizai Shimbun].

I have 2 questions.

Number one is about the Japanese market.

In the year ending March 2018, if you look at the exchange rate trends and the geopolitical risks overseas, there is a lot of -- there seems to be a lot of downside risks.

And in order to have sustainable growth of the business, I think you will need to create a very strong and solid domestic demand.

For the Japanese vehicle sales, you are forecasting a negative number.

But how do you see the current challenges?

And how do you intend to boost demand in Japan?

The second question goes to Mr. Nagata and Mr. Murakami.

For both of you, I think this is an official debut for you to attend the financial performance meeting.

This year, it's very difficult to make forecasts into the future more so than before.

So how do you intend to make

(technical difficulty)

Mr. Nagata, in particular, you don't have any experience with accounting or finance.

So as CFO, you will have to work on that.

And Mr. Murakami, you are the Chief Communications Officer, so how do you intend to contribute to the improvement of the profits of Toyota?

Your first question was about how we see the Japanese market and how we intend to boost the demand in the market.

Over the medium to long term, the challenge would be the demographics.

Our population is declining and aging.

And with it, we can expect a shrinkage in the vehicle market.

And also, we are seeing new trends like sharing service, that is not possessing or owning things.

So I understand that things will continue to change rapidly.

We have to fully understand the changes surrounding us.

We have to take a customer's perspective.

Currently, in Japan, we have a J-ReBORN program.

We work with the dealers to introduce various measures promoting digitization and also looking at region-specific activities.

And through this activity, we intend to reactivate the Japanese market with

(technical difficulty)

Roomy, Tank.

We work with Daihatsu, so we -- including TNGA, we need to continuously introduce appealing products to the market with it.

1.5 million in the Japanese market, we will continue to look at that number as a benchmark.

Your second question was about as CFO, how will I contribute?

I wouldn't talk too much about numbers.

My experience is more in procurement, in external affairs and production.

So finance, accounting and sales financing, these are things that I have not -- I do not have too much experience in the past.

But I will continue to work as I did in the past with the same aspirations.

Platform companies, president of regions, CEOs, and heads and company heads, I will continue to communicate directly with these people.

And in order to do that, what kind of issues are they facing?

What are they missing?

What do they have to do?

What kind of ideas should they have?

I will directly talk with them so that I can encourage and motivate them, and I will exercise my authority so that they will move in that direction.

Now Mr. Murakami?

As a company, working on improving profitability is something we have to do.

Sales and marketing, production, cost reduction, people, everybody has a role to play.

And as Mr. Nagata mentioned, each department and each function will have to work earnestly to achieve targets.

And the CFO will be a centerpiece in doing that.

As a Chief Communication Officer, I believe my role is the following: first, not only internal people but dealers and suppliers, the Toyota group as a whole will have to be looked at.

Each person will have to move in the same direction and be effective as possible.

In order to do that, how should we communicate with each other?

I will always keep that in mind in carrying out my responsibilities.

I believe that is my responsibility.

Externally, what we are doing, the efforts we are making will have to be understood by others.

And we have to communicate effectively so that people outside the company will trust us and place confidence in that.

With media and all other stakeholders, I intend to have very close and good, effective communication.

I believe that is my role and responsibility.

In particular, in our case, Akio Toyoda is sitting next to me.

He is the best speaker that we have or the best communicator that we have.

My role is Chief Communications Officer, but my role is to effectively utilize the President and also support him so that he can do his job effectively.

I think that is my role as well.

[Owei] of TV TOKYO.

Once again, I'd like to ask a question about North American business, and I'd like Mr. Toyoda to answer my question.

Toyota announced a new investment plan in the United States, but U.S. automotive market seems to be stagnant in terms of growth, but U.S. market is the largest, biggest market for Toyota.

And what is your view of the future of North American business?

And what sort of strategy are you formulating for that?

And secondly, in relation to the operating income of financial service [segment], the residual cost loss increased because of the used car price decrease.

What is the likely course of the used car price in the United States?

And what sort of impact would that have on leasing business or lease sales business?

With respect to the second part of your question, may I ask that part, that is to say, the impact on leasing, among others, from our side, rather than Mr. Toyoda?

Actually, this is related to your first question, the U.S. market itself, the Toyota Motor Sales, Bob Carter is the CEO of that, and at one forum, he mentioned as follows.

This year, the U.S. sales units may be lower than that last year.

And since the beginning of this year, in terms of a monthly sales trend, the monthly sales have been below the same period previous year, so there are signs of a softening in the U.S. market.

And in the used car market in particular, the passenger cars are trending weaker.

The customers are very much interested in seeking pickup trucks and SUVs, and those are very strong in both new cars and used cars, so the passenger cars are weakening.

And same applies to luxury brand as well.

The Lexus passenger cars are competing against the German-brand vehicles, but this is -- segment is no exception.

It has been weakening, both in terms of new cars and used cars.

But not everything is negative in this regard.

The number of vehicles offered in the used car market oftentimes stems from the end of lease vehicles, but there are different -- these programs, some are 24-month lease, and others are 36-month lease.

And there are variations, and we are seeing the major variation there.

Within a year or 2, there may be some conversions in those different types of leasing programs.

And therefore, the residual value loss will not remain as in persistent program, in my view.

But as I mentioned in my response to one of the questions earlier, if we fall into the competition in terms of offering higher and higher incentives, be it for new cars or used cars, or simply impair the brand value of the vehicle and company concerned, there's no positive aspect, and therefore, we would like to resort to proper marketing and sales efforts without allowing ourselves to be thrown into this incentive competition.

In terms of your first question, true, the total market in the United States and also, the number of vehicles sold by various carmakers, what I'm especially making a focused attention is at the retail sales volume.

And here, in terms of a retail sales volume, Toyota is achieving steady growth.

But various companies are offering incentives, and so in terms of the sales units of different companies, sometimes, it includes wholesale figures as well.

So in the sustainable manner, both dealers and sellers as the manufacturers, for us to ensure a sustainable business in terms of a retail sales volume, we need to sell as many cars as much as possible to individual customers in the United States, and we intend to continue doing that.

In terms of the used car prices, what we see today is a major shift from sedan market to SUV and truck market, and that shift is affecting the sales trend.

And therefore, as many customers owned sedans, so sedans are offered into these used cars.

But market itself is now seeking SUVs, many customers in the market are seeking SUVs, and they cannot find the right vehicles they seek in used cars.

But the usable life of vehicles is at 30 years.

First 10 years, customers buy new cars, and they can use first 10 years.

And the remaining 15 years, that can be divided into 5-year period each, the first-time used car users and second -- the second-time owner of the used cars, and the third-time owner of the used cars will mean the new generation will shift to the new car and scrap their car.

So that represents a life of a vehicle, I think.

To ensure sustainable growth of the automotive industry, the value that is enjoyed by owners of those vehicles must be ensured in the sustainable manner.

That's what we must do as a carmaker.

And therefore, for new car owners, the used car owners, the secondary used car owners, as those transitions take place, we must make sure that the value of that particular vehicle does not decline significantly.

And the secondary or third-time owners of those used cars may be able to buy at the appropriate prices, and we must make sure that, that cycle is active in the market.

Otherwise, the automotive industry itself cannot remain viable.

So from the viewpoint of owners, we must ensure and preserve the value enjoyed by them in our cars, and that, I think, is our responsibility as well.

Sean McLain from The Wall Street Journal.

Apologies for the question in English.

My first question is for Akio Toyoda.

Last year, you mentioned the plant in Mexico as being a key component of your plan to create a firmer financial position for the company.

Does that still hold true today?

Are you still planning to build the plant in Mexico?

And secondly, I'm wondering about production cuts, whether or not you could shed any light on whether -- how much of that will come from the U.S. given that production cuts in the U.S. in the current administration might not just be a financial consideration but also a political one.

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The question was for Mr. Toyoda.

But again, let me explain first, and as necessary, I will ask Mr. Toyoda to add some comments.

Your first question was about the Mexican factory, the Mexican plant.

Currently, the construction of the new plant is ongoing.

So once we determine that we will be establishing a plant in a certain location, unless there is a real major change in the environment, considering employment and our responsibility to the local community, our basic stand is to continue that plan because we have that responsibility to the local community and for the local employment.

We have to make sure that the new plant will be competitiveness, and we will continue to make efforts towards start of production at the new plant.

Your second question was about our production cuts.

Maybe I didn't fully understand your full intent of the question.

U.S., Canada, Mexico, the automotive market in these markets in terms of increase in population and relatively stable economy, these are markets that can sustainably and stably grow.

And if you look at each of the different plants, and that is maybe related to a previous question, pickup truck and SUV supply and demand balance is very tight.

And for passenger cars and sedans, the market is a bit sluggish, so we have some extra capabilities.

So not only production cuts, but we have to look at the production flexibility; how to build the necessary cars with the smallest amount of investments in the shortest possible lead time.

So that kind of production flexibility will be the centerpiece of our strategy.

And if the focus of my answer is not correct, please tell me so.

We produce vehicles in various countries, and we also sell vehicles in various countries.

Regardless of the location, the vehicle or the automobile industry has a very broad and wide supporting industry.

So regardless of the country, regardless of the region, our relationship with the community in which we have our locations is very important.

And we cherish and place a lot of emphasis on that relationship with the community.

So once we decide that we will build a plant or a location, we will think of putting smiles on the faces of the local people.

And I believe, ultimately, that will contribute to the country.

The key word for developing business activities in that company -- country is competitiveness.

When you say competitiveness, a lot of people talk about numbers like labor costs and productivity.

But we at Toyota sees our competitiveness a little bit differently.

Do we have enough human resources that could implement improvements?

How can we work with the local people to be effective?

And we need employees that think about the evolution of the company, and also the company needs to think about the future of the employee.

So it's like a give-and-give relationship.

The company, employees and local community will have to support each other.

The kind of best-in-town is what we aim at.

And having that kind of human resources is what we see as competitiveness.

And so not only in Mexico but also in various states in United States in which we have locations, we uphold that thinking.

So for new locations and our existing locations, we aim at a win-win or a give-and-give relationship.

So we will work closely with the local community for sustainable growth.

We will continue to make efforts to that end.

So I'm looking for -- we're looking forward to support from the American side as well.

There may be other people wanting to ask questions, but since the scheduled time has come, I would like to invite one final person to ask the question.

[Miyamoto] of Chunichi Newspaper.

In relation to the key word of expanding gap and also the term capitalism for public interest, I would like to ask a question using these 2 words.

The Trump administration birth and also the Brexit were caused by enlarging gap or disparity, and we -- Japan is not immune from that.

And to prevent the gap from expanding, as President Trump in the United States is trying to make every effort, the manufacturing can play a very important role in shrinking that gap.

And for a manufacturing business to be maintained sustainably and to be viable, some people say that the concept of capitalism for public interest must be very important.

The company must consider all the stakeholders, not just shareholders, but it must also distribute profit to employees, the suppliers, dealers and other stakeholders.

And oftentimes, I hear President Toyoda talk about Toyota being a company that focuses on capitalism for public interest.

But for capitalism for public interest to spread more broadly in the world, rules might have to be changed, that is to say the favorable treatment of our long-term holders of shares or the tax incentives or tax breaks for research and development expenditures.

With respect to the change of rules, to preserve the manufacturing here in Japan and make it even stronger, do you have any intention of urging and conducting lobbying activities for change for the rules?

Well, allow me to take this opportunity to respond to that question before Mr. -- our President.

Any change of rules in any country, be it in the United States or in Japan, the industry itself, the government and various ministries must have a good communication.

And I think there are different forum having such communication.

In Japan, in the case of automotive industry, the Japan Automobile Manufacturing Association (sic) [Japan Automobile Manufacturers Association] is playing a central role in requesting the review and revision of a too heavy on taxation on automobiles, including body size-based taxation.

And also the central government is considering tax incentives of research and development or potential division of a corporate income tax system.

So through those forum, the industry has been organizing on voice and to lobby to the government administration, and that in itself is very important.

This is not just an egotistic initiatives so that manufacturer can enjoy greater profit, but rather, to have customers being able to buy those things at affordable prices, that might call for the tax incentives or change of rules to that end as well.

So we intend to continue making those efforts as well.

To achieve for capitalism for public interest to spread broadly, and you asked about whether we have any request on that, before asking for any change in the rule, Toyota itself must start taking initiative so that Toyota itself will become the company that is truly needed by the community and by the country.

If Toyota is not considered as a company truly necessary for that country or community, simply coming up with a request will not do its job.

And therefore, together with Toyota working -- together with Toyota, we want to achieve a committee and want to achieve development and prosperity of a country.

We want people to regard to it as such a company, but we have not yet reached that level.

So for communities and for countries to think that Toyota is a such company and making them want to work together, we want to continue to make efforts in any country or any community that we have invested.

I may be speaking too long, but in various countries outside of Japan, we are getting opportunity to have discussion or meeting with the leaders of those countries.

And when I have such a pleasure of such meeting, I always say that I appreciate your people.

That is to say I'm very grateful for the people of that particular country, and I will always say that when I meet with the leaders because your people believes in continuous improvement, believing that situation will be better today than yesterday and tomorrow will be better than today and are willing to work with us to make it better every day.

And we are aiming at making such efforts together with the local community, and we are grateful for such people in each country.

The people joining our company will be above a certain age, so they must have received education at school or education at each homes, and these are something that each government can do.

So in any country we are allowed to do business, we continue to say -- voice such appreciation and thanks.

And I feel that gratefulness in any country in which we are allowed to operate.

And we intend to make every effort so that Toyota becomes a company that is really considered to be a necessary company for that country or community, and that would result in the realization of capitalism for public interest.

So we intend to make continued efforts through that end.

And I hope we'll be able to enjoy support coming from you as well.

Thank you.

Now ladies and gentlemen, we would like to conclude this financial result investment with this.

Thank you very much for joining us despite your occupied schedules.

Thank you.