豐田汽車 (TM) 2021 Q2 法說會逐字稿

Ladies and gentlemen, thank you very much for joining us despite your occupied schedules. We really appreciate your participation. We would like to start fiscal year 2021 second quarter financial performance announcement of Toyota Motor Corporation.

In order to directly convey to you the financial results, we have invited some stakeholders who are present here today. And this is distributed online to the media representatives.

First of all, let me introduce the participants from TMC's side for the Part 1, Kenta Kon, Chief Financial Officer and Operating Officer; Masayoshi Shirayanagi, Chief Officer for External Affairs and Corporate Communications.

Without further ado, Mr. Kon is going to share with you the overview of the financial results.

Hello, everyone. Thank you for joining us today. I am Kenta Kon. First and foremost, we would like to convey our deepest sympathy to those who have been suffering from COVID-19 and those who have been affected by the continued spread of the virus. We also would like to express our heartfelt appreciation to our customers around the world who chose us as well as our stakeholders, shareholders, dealers and suppliers who support us.

Now I would like to discuss Toyota's financial results for the first half of the fiscal year ending March 2021. First, consolidated vehicle sales for the first half ended September 2020 was at 3,086,000 units, which was 66.3% of the consolidated vehicle sales for the first half of the previous fiscal year. Toyota and Lexus brand vehicle sales was at 4,011,000 units, which was 81.0% of such sales for the first half of the previous fiscal year. Although vehicle sales for the first quarter, when the impact of lockdown measures implemented in many countries was severe, amounted to 69% of that of the quarter of the previous fiscal year, vehicle sales for the second quarter recovered to 93.1% of that of the previous year. Once again, we would like to express our sincere gratitude to our customers around the world who chose us and all of our stakeholders, including our sales outlets and suppliers who have made an effort to deliver as many vehicles that our customers want as possible.

Consolidated financial results for the first half of this fiscal year were sales revenue of JPY 11,375.2 billion, operating income of JPY 519.9 billion, pretax income of JPY 728.8 billion and net income of JPY 629.3 billion.

I would like to explain the factors which impacted operating income year-on-year. First, the effect of foreign exchange rate decreased operating income by JPY 120 billion. Second, cost reduction efforts increased operating income by JPY 50 billion. Third, the effects of marketing activities decreased operating income by JPY 970 billion largely due to the decrease in sales volume caused by the spread of COVID-19. Finally, a reduction in expenses increased operating income by JPY 115 billion.

As a result, excluding the overall impact of foreign exchange rate, swap valuation gains and losses and other factors, operating income decreased by JPY 805 billion year-on-year. As for operating income for each region, although operating income decreased year-on-year in all regions largely due to the decrease in sales volumes caused by the spread of COVID-19, we succeeded in securing operating income in all regions.

Next, let me explain our consolidated subsidiaries and equity method affiliates in China as well as our financial services business. As for our China business, operating income of consolidated subsidiaries increased by JPY 34.2 billion year-on-year to JPY 112.4 billion, thanks largely to marketing efforts. Our share of profit of investment accounted for by equity method was up JPY 15.5 billion year-on-year to JPY 79 billion, thanks largely to marketing efforts. Regarding financial services, operating income excluding swap valuation gains and losses for the fiscal year was broadly flat year-on-year at JPY 211.2 billion.

Next, I would like to explain our return to shareholders. In this interim period, although the automotive industry as a whole was in a downturn due to the spread of COVID-19, we were able to record a profit for the first half of this fiscal year with the support of our stakeholders, including our shareholders. Considering these factors, we plan to make an interim ordinary dividend of JPY 100 per common share. In addition, we would like to thank our shareholders for their continuous support and have decided to add a special dividend of JPY 5 for a total of JPY 105 per common share.

As for share repurchases, we have decided not to repurchase our common stock as a form of interim shareholder return. Although our profitability remains trying and impact of the continued spread of COVID-19 continues to be unpredictable, we remain committed to accelerating our efforts to sow the seeds for the future through investment in growth for transformation and actions for SDGs.

Now let us move on to discuss the outlook for the full fiscal year ending March 2021. With regards to our consolidated vehicle sales, we have increased our forecast from the time of our quarter -- first quarter results by 300,000 units to 7.5 million units. Regional sales breakdown is as stated in the presentation.

As for Toyota and Lexus brand vehicle sales, we anticipate that vehicle sales will increase by 300,000 units compared to our forecast from the time of our Q1 results to 8.6 million units. Regarding the recovery of Toyota and Lexus brand vehicle sales, we anticipate that sales will recover to previous year levels, mainly approximately 100% in October to December and approximately 105% in January to March 2021.

Next, let me explain the full year consolidated financial performance. We've adopted ForEx rate assumptions for October onwards of JPY 105 per dollar and JPY 120 per euro, which makes the full year assumptions JPY 106 per dollar and JPY 121 per euro. Based on this, our forecasts for full year consolidated financial performances are sales revenue of JPY 26 trillion, operating income of JPY 1,300 billion, pretax income of JPY 1,760 billion and net income of JPY 1,420 billion.

Now I'd like to explain the factors that will impact operating income year-on-year comparing to our forecast at the beginning of the fiscal year. Operating income is now expected to be JPY 1,300 billion, up JPY 800 billion from the previous forecast at the beginning of the fiscal year. The detailed analysis is as stated in the presentation.

Please see Slide 15, which compares the latest operating income forecast for this fiscal year with the result of the previous fiscal year. Although we were able to report a profit, the first half of this financial year has just completed, and the environment surrounding us remains highly uncertain considering the risk of a second and a third wave of COVID-19. In the second half of this financial year, while continuously making efforts together with all our stakeholders, including cost reduction efforts at all levels and efforts at manufacturing sites and sales outlets, we remain committed to continuing to steadily sow seeds for the future and to accelerating our transformation into a mobility company.

This concludes my presentation. Thank you for your attention.

(Operator Instructions) Now Mr. Katori of Yomiuri Newspaper, please. (Operator Instructions)

Katori of Yomiuri Newspaper. First of all, with respect to the financial results you have just announced, I would like to ask your appraisal and assessment. Especially, you made an upward result -- revision. So what is the most important factor that contributed to that? What is your view on that? And at the same time, some European countries have locked down the countries, and COVID-19 is spreading once again in the United States. So toward the second half, what is your assessment of the likely risk in the second half? That's my first question.

And second question relates to the production. When you had this announcement in May, you already had impact on your production plants. And you also talked that because demand was affected. However, as we look back, the recovery since then seems to be going on quite smoothly. So for the past half year, how have you been able to coordinate your supply chain? If you have been able to do that successfully, what were the keys for that? Those are my 2 questions.

Thank you for your question. First of all, with respect to my assessment and appraisal of the financial results, first of all, the financial results between April and September, it covers 6-month period, the first 3-month period and the second 3-month period. So dividing into these 2 3-month period, the first quarter and second quarter showed different situations.

I wish I could show you the PowerPoint slide showing the quarterly financial results. Could you show the quarterly financial results on the screen, please? Thank you. In the first half, the operating income, JPY 506 billion. What you see on the screen relates to 3-month period in the second half. The operating income was JPY 506 billion. So if we divide this as April-September period, the latter half, that is July-September period, compared with the first 3 months shows significant recovery. And the marginal decrease in operating income compared with the first 3-month period has shrunk significantly. And on the quarterly basis, the operating income of JPY 500 billion was generated, which owes a great deal to the efforts made by individuals and that achieved the recovery that we are now seeing in the figure of operating income.

And the fact that we've been able to achieve the recovery to this extent was also mentioned when the financial results were announced in -- previously, we show the projection of 8 million units and JPY 500 billion. But we were not quite sure because things were so uncertain. Despite that and although this is just the half year place where the first half was completed, but the fact that we were able to generate positive profit owes a great deal to every effort made by dealers and suppliers to deliver as many vehicles as possible. And it really owes the hard work of those people, and that allowed us to keep our plans running. And by us keep the plants running also allowed many related industries or suppliers to keep on their operations. And therefore, the entire automotive industry has been supporting this recovery. And I really felt that in the real field.

So that's what I felt in the first half year period. And as I said, this shows only the results of the first half or half year period. But as I look back in specific cases, since the global financial crisis, for the past 11 years, we've consistently engaged ourselves in various initiatives and activities. And those efforts created the foundation for what we see today. I strongly feel about that.

For example, the financial institutions really supported us and cooperated with us. We were able to take on loans from financial institutions, and we were able to secure solidly the financial resources we need. At the time of the global financial crisis, we had JPY 3 trillion. But today, with the support of financial institutions, it has been raised to JPY 9 trillion or JPY 10 trillion.

And in conducting activities and business during this fiscal year, those support meant a great deal to us. At the beginning of the fiscal year, we really didn't know what could happen. In charge of financial and accounting activities of the company, I wasn't quite sure how the things will evolve. But the top executives, especially our President Toyoda as the top executive, remained very calm and very stable. And that allowed us to make decision whenever that needed to be made on the spot. So that helped us a great deal, and I appreciate that a great deal.

With respect to the second half, as Mr. Katori mentioned in his question, we see lockdown in place, and the COVID-19 virus is spreading. And we will continue to remain vigilant on those evolution and developments. And as I said, we only have actual results for the half year period. It's not that we have a clear view of the next half year. So I will continue to watch very carefully the impact of COVID-19.

In terms of the status of production, right now, at this moment, for example, in North America or Europe, the production in April was almost 0. However, at this point, right now, we have seen significant recovery. For example, in North America in September, the actual result was, compared with previous year, 108% of the previous year's level. And in Europe, it's 102% of the previous year's level. And in Japan, the recovery has been made to the extent of production reaching 104% of the previous year's level.

So in the sense, the suppliers and supporters are working very hard. They have been kept extremely busy. They have a huge workload because of the strong recovery. So while preventing the risk of COVID-19 spreading, working closely together with the suppliers, we would like to keep this production momentum. That's my response. Thank you.

Thank you, Mr. Katori. We'd like to go on to the next question. From Asahi Newspapers, Chiba-san, please. (Operator Instructions)

This is Chiba speaking. This is Chiba from Asahi Newspapers. Do you hear me?

Yes, we hear you fine.

Question, please. Well, I might be asking you on the details, but for the factors that increased operating income, for asterisk #2, the others area for then the sales and marketing, there is quite a large -- more than JPY 100 billion, JPY 110 billion. And asterisk #3, for the increase or decrease in expense and expense reduction efforts, this is also plus JPY 115 billion -- JPY 130 billion, quite a big number. And also asterisk #4, valuation gains and losses from swaps, et cetera, is JPY 45.8 billion. So I think there are some accumulated from the April to June period. But can you tell me the breakdown of these? And in addition to that, for July to September term, is there any characteristic special factors for the second quarter on the positive side and the negative side? What kind of special factors were there in the second quarter?

Thank you for your question. So for the contents, starting with -- on the effects of marketing activities. So for the increase/decrease -- increase others, JPY 110 billion, the breakdown, there's 2 -- mainly 2 factors here.

And the first will be for the sales expenses. This has reduced. And particularly in North America, the incentives has gone down in order to -- since we have been effectively utilizing our marketing expenses. So therefore, incentives per unit has gone down. And also, there was a drop in the total incentives because of the drops in the total volume. So this has had an effect on the positive side. And now for the other negative side, this is a global factor. But for the supply parts, the income from supply parts had reduced somewhat. And these 2 factors in a net has an effect of JPY 110 billion.

And the second for expenses, it is among the JPY 130 billion. A large part of it will be the general expenses, so like business expenses and also entertainment fees, meeting expenses, event expenses. In our case, for example, consumables for the office works, office supplies. So including those factors, this term, this quarter, we have been able to reduce significantly. And for the business expenses, business travel expenses, of course, it is difficult to move -- travel freely. But just looking at nonconsolidated TMC, there's about several billions of reduction in the business travel expenses.

And going into the details for the consumables and the office supplies compared to last year, we have been using only about half of supplies. And also the research and investigations are -- compared to the peak, it's about 1/3 compared to the peak. So for example, we are doing research in-house with our in-house resources. So those are some efforts that we have been making to reduce the expenses. That has a significant impact included in this JPY 130 billion effect.

And the final part for the swap valuation gains and losses. So this is accumulation of various factors, so the ForEx swap cost -- expenses and also for the securities. And many of the details have been accumulated in these numbers of the gains/losses from swaps, et cetera.

And also, my question was about the 3 months -- special factors for the 3 months from July to September.

Sorry for that, I forget -- excuse me. And especially for looking at July-September items, if there was a special factor, actually, there was not. There was no special factors. So looking at the operating income from July to September, no temporary or onetime income or loss. There was no significant item here.

Thank you, Mr. Chiba. Let us move on to the next question. From Daily Industrial Newspaper, Mr. [Nagatsuka], please. (Operator Instructions)

Can you hear me?

Yes, we can hear you, Mr. [Nagatsuka].

[Nagatsuka] of Daily Industrial Newspaper. In terms of CapEx for the current fiscal year on the full year projection, it is JPY 1,400 billion. Compared with the outlook shown at the beginning of the fiscal year, there is addition of JPY 50 billion. Could you explain the reason for that addition or increase for CapEx?

Thank you. In terms of outlook for CapEx, it has been increased from JPY 1,350 billion to JPY 1,400 billion. What's the reason for this JPY 50 billion increase? There is no major factor behind that. The yen was lower than we had anticipated at the beginning, and therefore, there was the difference caused by this translation difference. And also in different projects, there has been some increase in projected expenses in certain regions. And in other areas, there has been some decrease in those projected investments. But there has not been any major change that resulted in those fluctuations, just the accumulation of small factors. And this is the most up-to-date figure that we have announced today.

Mr. [Nagatsuka], thank you for your question. Now let us move on to the next question. From Chunichi Newspapers, Mr. Osada (sic) [Ms. Osada], please. (Operator Instructions)

This is Osada speaking from Chunichi Newspapers. It's a detailed question. For the 6 months accumulated results in the interim results, #3, labor costs -- excuse me, not labor cost. For the effort made to reduce the expenses, so for the R&D, there was a plus JPY 20 billion. So specifically, what are you talking about here?

Thank you for your question. Here also, it's not a significant item that's included in here. But for the R&D expenses, especially right now, we are focusing on the CASE areas. So we are now shifting the conventional R&D activities to the CASE areas. For about 40%, it will be in the so-called advanced technology research areas. So the expense -- R&D expenses will be in this advanced R&D field. And especially for prototype expenses, those items have been continued to make improvements. And effect on net, there will be, annual basis, a JPY 20 billion effect. That is, I think, how this number should be understood. So that is all from my side.

Thank you, Ms. Osada. Allow me to move on to the next question, please. From NHK, Mr. [Noguchi], please. (Operator Instructions)

[Noguchi] of NHK. Can you hear me?

Yes, we hear you well.

Relating to the outlook of the future period, as was referred to in the earlier question, to a certain extent, going forward, the uncertainties remains very high. The U.S. presidential election has not yet been called. Depending upon the outcome of that election, the environmental regulations in automobiles, policies likely to be implemented in environmental areas might come out differently. So what is your assessment? Or what is your take on that at this moment? And in relation to the outlook of the second half, what are expected likely impact on your second half results?

Thank you. With respect to the second half of our year, as far as the outcome of presidential election is concerned, the final results are not yet called yet. But no matter what the outcome may be in the United States, we have been operating our business for many, many years for a long period of time. We employ many employees, including the dealers and suppliers and also the local community in which we are allowed to operate. We are working with them very closely in the United States. And through those, we want to be a better corporate citizen, and we remain committed to being that. That stance will not change by enhancing our competitiveness. By becoming even more competitive, we will continue to work harder to become a better corporate citizen.

In terms of the outlook for the second half, we are not expecting any substantial impact stemming from how the presidential election turns out to be.

Mr. [Noguchi], thank you for your question. Now going on to the next question. Kigawa-san from Toyokeizai. (Operator Instructions)

This is Kigawa speaking. Can you hear me?

Yes, we hear you.

I wanted to ask a question about the U.S. -- regarding the U.S. So you talked about the sales incentives, and you said that there is positive impact from the reduction of incentives in operating income level. Compared with the previous quarter, it is -- we see a positive impact on the operating income. And for the inventory level for U.S., auto data shows that it's about 40 days. So in the past, it was around 60 days. I think compared to that, it's quite reduced. And incentives, it's probably the level is about the same year-on-year. So it's flat. So I think you can say that you have a healthy condition in selling vehicles.

And Toyota shares, it seems that it is increasing. Therefore, that -- you can -- probably can say that it's not just in the recovery period, but you're having a good performance. So why do you think that in the U.S., you're having a good performance?

And also for the outlook for the inventory level, maybe the dealer side is not having enough inventory. So on a time line, when do you believe that they will return to the regular level? So from suppliers, we hear that you have quite a tight inventory. And so what will be the outlook? How do you see the second half?

Thank you for your question. For North America, yes, if you can see, the per region situation for the segment between July to September, the results are here. It's on Page 19, probably in the back of the package. And for North America, just looking at second quarter, we have been increasing the profit, operating income. And the -- with breakdown here, of course, the automobile business is contributing plus the financial business.

And so one by one, to answer your questions, for inventories, yes, it is still in quite a tight situation. So according to the model, the situation will differ but mainly the light pickups. And also, light SUVs will be those that does not have enough in inventory.

So when we ask the members in North America, we say that based on the inventory level for the incentives, they will be different according to the outlet of the dealer and different according to the region we're talking about in the United States. So the incentives are being adjusted accordingly and try to work in detail as possible. And we believe that will be most effective in dealing with the situation.

And for the reason why we are having a good performance here is right now, we're putting a lot of efforts in trying to increase the inventory level. But when you think -- look at the new products, the new models, it's -- we have been able to continuously supply the new models into the channel. So several years ago, the SUVs, we were said that we were quite behind and late in introducing SUV models. But now SUVs are being introduced to the U.S. market, and it's being taken quite well. That's what we believe the reason is.

And for the inventory level, there's a lot of effort put by receiving the cooperation from suppliers to continue production and try to come to the level that we think is appropriate. So by the beginning of the term, we think that we will be able to recover to the most appropriate level.

Just one additional question. So incentives from other side, do you think that without -- even without so much incentives, cars will sell. Is my understanding correct? We don't have to make too much effort in forcibly pushing up incentives?

Well, looking at the current situation, I think it's just a result of that -- as a result, we can say that we do not need so much incentives.

Thank you very much, Kigawa-san. Let's move on to the next question. From Chubu Economic Journal, Mr. [Iwasaki], please. (Operator Instructions)

[Iwasaki] of Chubu Economic Journal. Can you hear me?

Yes, we can.

In terms of suppliers located in Central Japan or Chubu area and not limited to Chubu area but throughout Japan in terms of suppliers, as the production recovers, in terms of a supply chain, do you have any concerns? Or in terms of cash management, the suppliers, is it -- am I right in understanding that they have subsided, and there is no further concern? As we see a rather sharp recovery, what sort of attention should be paid to suppliers going forward? How are you going to work together with suppliers or cooperate with the suppliers? That's the first question.

Second question relates to the effect of cost reduction in the first half. You achieved JPY 50 billion, the benefit on that. That may reflect the impact of production reduction. And especially in the first half, you worked on the price change of parts and components, so that may be a factor. But moving forward in the second half in terms of cost reduction efforts, how are you going to achieve higher cost reduction? Working with and together with the suppliers, what sort of specific activities are you going to engage yourselves in?

Thank you. In terms of concerns or concern about cash management or financial availability, do we have none? We need to remain very vigilant in terms of the development from that front. With suppliers, we are working very close together and our procurement department for each supplier that we are working with, hearing out their issues and their conditions. So that's how we are doing. And this year, our procurement department are having very close communication with the suppliers more often than in the past and more closely than in the past. And by doing so, such information can be obtained from suppliers so that we can take necessary responses as needed.

In terms of cost improvement efforts, we announced JPY 50 billion in the first half. In the first half, usually, we talk about JPY 300 billion of cost reduction benefits. That's for the full year. And in terms of the first half, usually, it should be around JPY 150 billion. That's the normal situation. So the normal situation generates JPY 150 billion, whereas we actually achieved JPY 50 billion. But this JPY 50 billion includes JPY 20 billion in materials price. On the cost basis, we did have the benefits of reducing cost or saving cost by JPY 70 billion.

During this period, the volume, especially in the first part of -- first half between April, May and June, the production volume was very small. And partly due to that, the efforts were made to improve productivity, to save cost. And our support plans have been accumulating those cost reduction efforts. But because of the smaller volume, the benefits of that was less visible.

In the second half, in terms of the full year outlook, we are expecting slightly below JPY 200 billion. That's our high level in terms of our target. So in the second half, we would like to accumulate in more and more in terms of cost saved. Thank you.

Thank you, Mr. [Iwasaki]. There's still more question, but the scheduled time is coming closer, so we'll just take one last question. From Asahi Newspapers, Kamisawa-san, please. (Operator Instructions)

I'm from Asahi Newspapers. My name is Kamisawa. So there was earlier another question, but for the reason why you have good performance in the United States is also my question. In the United States, they're having a large impact from COVID. Number of infections is also increasing. So among -- in this environment, why is it that Toyota is able to have a good performance?

And also for your outlook going forward, probably it's difficult to forecast. However, even with this wide spread of COVID, you're able to maintain this level of sales. So does it mean that because we're -- it's not in a panic, you're able to have a forecast thinking from a stable perspective? So can you tell me a little bit more about your forecast going forward?

Thank you for your question. Well, thanks to everyone's support and cooperation, we -- for the reason why we are able to continue our sales is what I have explained previously. So it is -- one is because we are able to supply the products, and also the dealers, the outlets are looking very in detail to adjust the incentives. And those efforts are bringing out the results.

As you have said, as Kamisawa-san has said, the infection risk is heightening. And so absentee rate is actually increasing slightly. That is our understanding. Therefore, it's difficult to have a steady view for the next term, the next half. It's not still in that kind of a situation. We will be watching every month, and monthly, we will be making efforts to build up our volume. And that effort and that attitude will not change. That will not change for a while. So that is my understanding. Thank you.

Thank you, Mr. Kamisawa. So with this, we would like to end our first part of the second quarter financial results press conference. Thank you very much for your attendance. After this, we will take a 10-minute break, and from 1:40, we will begin with Part 2. Thank you.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]