Honda Motor Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 9, 2023

Key Takeaways

  • Despite a JPY 243.1 billion year-on-year decline to JPY 696.5 billion operating profit, Honda delivered a robust 7.2% operating margin and generated JPY 732.9 billion free cash flow in H1 FY2024.
  • Honda upgraded its FY2024 guidance, boosting operating profit by JPY 200 billion to JPY 1.2 trillion, net profit by JPY 130 billion to JPY 930 billion, raising the full-year dividend to ¥174 and pursuing up to JPY 200 billion in share buybacks.
  • North America auto sales surged as semiconductor supplies normalized, while China and other Asian markets underperformed, prompting a downward revision to unit forecasts in those regions.
  • Warranty and non-production expenses rose, creating a JPY 214.3 billion headwind in H1, though pricing actions and lower raw material costs partially offset these pressures.
  • Honda and GM ceased joint BEV platform development over strategic differences; Honda will launch its own EVs (Acura CDX, Honda Prologue) in early 2024 and aims for 2 million EV sales by 2030.
AI Generated. May Contain Errors.
Earnings Conference Call
Honda Motor Q2 2024
00:00 / 00:00

There are 2 speakers on the call.

Operator

I thank you very much for taking time out of your busy schedule to attend our briefing today. We would now like to start Honda Motor Company Limited's financial results briefing for Q2 of fiscal year 2024. First of all, allow me to introduce the attendees today. Mr. Shinji Aoyama, Director, And Mr.

Operator

Eiji Fujimura, Executive Officer, Chief Financial Officer. Good afternoon, everyone. Mr. Aoyama will first present an overview of the financial results of first for the results and the forecast. Over to you.

Speaker 1

Thank you very much for your usual understanding on Honda's business activities. I will explain the financial results of the Q2 of our FY 2024 and its full year forecast. Let me touch upon the highlight of the results. Regarding the cumulative results of the until Q2 FY 2024, we had high profits in Motorcycle Businesses in addition to the significant improvements Profitability in automotive businesses, where any production volume had recovered mainly in North America and delivered competitive products To customers, the operating profit decreased by JPY 243,100,000,000 to JPY 696 JPY500,000,000 and operating profit margin was 7.2%. Free cash flow of the operating companies, excluding that of the financial businesses, We reached 732,900,000,000 yen way exceeding the level last year on year.

Speaker 1

In terms of the business forecast Of the FY 2024, although tough market environment exists in China and Asia, we will up revise the previous forecast of Sales revenue, operating profit and the profit for the period, reflecting additionally strengthened profitable structures as well as the foreign currency impact. For shareholders' returns, we plan to increase the dividend by 24 yen from the highest ever dividend of the 150 yen until the share split To 174 yen we announced share buybacks at the financial press conference on May 11, 2023, And the amount of the share buybacks as of October 31 was at 163,500,000,000 yen for the upper limit About JPY 200,000,000,000 Let me explain about our automobile businesses in the main markets. In the United States, demands are solid. Semiconductors have been secured and productions have recovered. Thus, With the highly competitive new models that were launched last year, the result marked significantly higher year on year.

Speaker 1

In China, because of the impacts by Expanding the new energy vehicle market and intensifying our price competition, the results ended below last year. In terms of the sales outlook for the FY 2024, We anticipate incremental unit sales in Japan. Nevertheless, tough market environment in China would continue for some time now, so we would like to now revise the previous forecast. However, overall, we will achieve higher results year on year. Speaking of our actions for electrification, we announced The launch of new EVs, Acura CDX and Honda Prologue early 2024.

Speaker 1

In North America, we agreed with BMW and Ford to establish a new company, Charge In order to provide energy services that will contribute to stable powered grid network by utilizing EVs. In Japan, we concluded a number of other understanding with EBITDA basic cooperation in order to explore commercialization Next, let me talk about the motorcycle businesses. In the first half of the Fiscal year, our All Motorcycle business performed higher year on year due to incremental unit sales, thanks to the solid demand in Indonesia and Europe. During 3 months of Q2, we had more unit sales due to solid demands in Indonesia and Brazil. However, overall businesses fell short at the same time last Because of the unit sales decline due to economic slowdown and so on in Vietnam and China.

Speaker 1

Regarding sales expectations for FY 20 Speaking of our actions for electrification, in the Japan Mobility Show the other day, we exhibited a SCE concept, which includes 2 sets of the Honda Mobile Power Pack E for replacement batteries. Next, this is the outline of the first half of FY 2024. Despite impacts Despite around expenses, thanks to incremental unit sales and the pricing that reflects improved commercial values, The operating profit marked at 696,500,000,000 yen up by JPY 243,100,000,000 year on year. Profit attributable to the owner of the parent during the first half, it was JPY 6 16,300,000,000 yen up by 2 177,700,000,000 yen This is the forecast of the consolidated business performance of FY 2024, despite a tough minded environment in China and Asia as well as the increase of warranty expenses that occurred in the first half, reflecting the fortified earnings And ForEx impact, we optimized the operating profit expectations to 1,200,000,000,000 yen up by 200,000,000,000 yen Profit for the period attributable to the owners of the parent is expected to be €930,000,000,000 up by 130,000,000,000 Foreign currency assumption is set at JPY 140 for a dollar in the second half as well as for the full year.

Speaker 1

Expectations of net sales appeal are shown on the slide. Interim dividend for FY 'twenty four It's expected to be JPY 7.87 per share. And the dividend for the full year will be JPY 174, up by JPY JPY24 from the previous forecast of JPY 150 that was based on the criteria before the share splitting. Next, Mr. Fujimura will explain details of the financial results and forecast.

Operator

Okay. Then allow me to start the explanation. To begin with, Honda Group's unit sales for the first half of fiscal year 2024. In Motorcycle Operations, unit sales grew year on year, mainly in Europe, to 9,262,000 units. Automobile sales came to 1,000,000 934,000 units, mainly due to growth in North America.

Operator

And in Power Products Operations, unit sales came to 1,820 1,000 units mainly due to the decline in North America. Next, I would like to explain the factor analysis of pretax profit for first half year compared to the same period last year. Operating profit grew by 200 JPY 43,100,000,000 compared to the same period last year. To give you a factor analysis of the operating profit, Impact from sales was an increase of 2 100 and 19,200,000,000 yen due to unit Sales growth in automobiles. Selling price and cost factors was an increase of 205 point €7,000,000,000 due to effect of pricing in line with the enhanced product value and lower prices of precious metals and other raw materials.

Operator

Expenses gave us a negative impact of 214,300,000,000 yen Due to an increase in warranty expenses and other expenditures, R and D expenses led to profit decline of 30,000,000,000 yen And currency effect resulted in a positive impact of €62,400,000,000 Pretax profit led to an increase of, 363,400,000,000 yen resulting in resulting from Evaluation gains of foreign currency denominated bonds and interests received. Next, to explain the sales revenues and operating profit by business segment. Operating profit was JPY 253,300,000,000 for motorcycles JPY 301 point €3,000,000,000 for Automobiles 137,000,000,000 for operating profit from Financial Services and 4 point yen 8,000,000,000 for Power Products Business and Other Operations. Next, I will cover the cash flow situation. Free cash flow of the operating entities, excluding financial operations, for the first half of fiscal year 'twenty four came to 732,900,000,000 yen and the end of term balance of net cash at the end of first half Came to 3,000,000,000,000,000 yen Next, I would like to talk about the forecast for fiscal year 2024.

Operator

Firstly, speaking of Honda Group's unit sales, Compared to the previous forecast, in motorcycle operations, considering the decline mainly in Asia, Forecast is for 18,000,081,000 units in automobiles, 4,100,000 units, considering the decline mainly in Asia and in Power Products, 3,850,000 units in view of the decline, mainly in North America. Next, I would like to explain the factor analysis of pretax profit compared to the actual results from last year. First, operating profit is forecast at JPY 419,200,000,000 up from last year's results. To explain the contributing factors, impact from sales is forecast at positive JPY 371,600,000,000 due to growth in unit sales of automobiles. Selling price and cost impact is Positive 394,000,000,000 yen due to effect from our pricing in line with enhanced product value As well as lower raw material prices, expenses impact is Expected to be negative of a 321,400,000,000 yen due to warranty related expenses and increase in selling expenses, R and D expense impact is negative 51,100,000,000 yen and our currency effect It's forecasted positive 26,000,000,000 yen Pretax profit is forecast at JPY 515,400,000,000 higher, considering the decline of JPY 42,400,000,000 equity in earnings of affiliates due to decline in automobile unit sales in China and gains of €138,600,000,000 from higher interest received.

Operator

Next, I will explain the contributing factors in comparison with the previous forecast. Operating profit It's forecast at up JPY 200,000,000,000 compared to the previous forecast. To give you the breakdown, Impact from sales is a negative of €69,000,000,000 due to unit sales decline. Impact from selling price and cost is a positive of our JPY 129,000,000,000 due to effective pricing in line with enhanced product value and lower prices of precious metals and other raw materials. Impact from expenses is a negative on of 100 and JPY 63,000,000,000 due to increased warranty expenses.

Operator

Impact from R and D expenses is Positive of 9,000,000,000 yen and currency effect is expected at 294,000,000 yen For pretax profit, our forecast is up 210,000,000,000 yen Considering the decline in equity and earnings of affiliates of JPY 110,000,000 due to decline in automobile unit sales in China and increase of JPY 120,000,000,000 from higher interest received. Lastly, the forecast for capital expenditures, depreciation and amortization and R and D expenditures for fiscal year 'twenty four is as shown. This completes my explanation. Thank you very much for your attention.

Speaker 1

Thank you very much for your attention. Now I'd like to take the questions from the floor. And we have already provided the Zoom network for the questions Thank you for your cooperation. So first question from Yomiuri Shimbun Newspaper, Mr. Nakamura, please.

Speaker 1

Can you hear me? Yes, please? Nakamura from Yumegi Newspaper. I have 2 questions. First one is our semiconductor procurement situations, please.

Speaker 1

In Japan, China, North America, In the different regions, what is the status of the semiconductor procurement? And what is the outlook for the future about semiconductor? Second question is the sales reduction decline in China. What do you think is the reason for that? And Do you have any idea to recover the sales after the Q3 onward, please?

Speaker 1

Thank you for the question. So let's start with the semiconductor procurement. On the whole, recently, we have made great Improvements on that this fiscal year, specifically in the second half, we have no problems, almost no problems today. In the first half, we had a little bit of the issues remaining. However, as of now, we have no such problems in China, Japan and United States.

Speaker 1

The differences in the regions, actually, there's none at all. No regional differences last year, last fiscal year. We started a direct conversation with the semiconductor suppliers. And for most of the [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Semiconductors, we have our alternative sources and so on. And thanks to those efforts, we have made good improvements recently.

Speaker 1

And then last So procurement in North America so that we can support the production and sales in North America, And that was actually what happened as well. And for this fiscal year, in China, Market is a little bit slowing down. Our businesses there is slowing a little bit, and we now Decide to use the semiconductor parts for the Japanese market instead. With that, we And going forward, In this spring, TSMC and we had a decision to have a strategic collaboration, And we also have other collaborative relationship with the other semiconductor suppliers that we now have a software defined And demands for the semiconductors will be higher going forward, so that what we like to do is to be ready And I think second question is sales decline in China. And there are 2 factors behind here.

Speaker 1

And one is, As you know, tax deduction measures, like for NAV, new energy vehicles, With that, the NAV sales is expanding in China, and Honda has ICE or have hybrid. Those are our model line up there. Because of that, we have some difficult situation. However, Though it is on the bit of a decline, in the ICE market, it is very specific market of ICE, in fact, Like B category SUV, we are not winning We by other companies, we have some struggles there, but we are turning to the above Focus more. And from 2024, we are going to launch 4 models of BEV so that we can catch up with the market.

Speaker 1

Thank you very much.

Operator

Thank you very much, Mr. Nakamura. The next question It's from Mr. Noguchi from NHK, please. This is Noguchi from NHK.

Operator

Yes, we can hear you all right. For the results financial results For the first half, I believe they look very good in terms of numbers. So I'd like to ask for your ideas on wage raise. It might be a little bit earlier to ask about this, but I'd like to ask you about your thoughts on raising salary wages. One question

Speaker 1

is okay? One question is

Operator

okay for yes, I'll just have that one question. Yes, thank you. Okay. About raising our wages, wage hike, We need to, of course, think about this in terms of the global context. But for example, if you look at the States, U.

Operator

S. Market, the UAW issue was there. And then we ourselves, of course, We'd like to take appropriate actions. If you think about the wages in Japan, Last fiscal year sorry, this the salary base up the regular wage hike, We did it at the beginning of this fiscal year. But for next fiscal year as well, we would like to take proactive Actions are considering the government's guideline as well.

Operator

And then we would like to we'll think proactively toward raising wages possibly. You have anything to add, Mr. Fujimura? [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Well, as mentioned, if you think about the Japan [SPEAKER

Speaker 1

UNIDENTIFIED COMPANY REPRESENTATIVE:] I believe you must

Operator

have asked about the situation in Japan. But if you think about the recent inflation that is happening also in Japan, We need to consider that. And also because our business performance has been growing, and then of course, Going forward, we will see new business where we will go through This transformation to electrification of business, electrification of vehicles, so that would be our second transformation, which support which is supported by human resources. That's been our CEO's idea. So for this year, fiscal year's salary raise And then going forward as well, we would like to have very earnest discussions.

Operator

We have had earnest discussions between labor and management, and that's why we are here. And then so for going forward, we like to continue this trend, But still, the spring offensive timing is still far ahead. So we will continue our discussion with the union. So we will and then we will think about investing into human resources or human assets.

Speaker 1

Thank you very much, Mr. Noguchi. Next question from Nihon Keijai Shimbu, Mr. Okinawa, please. Communication in the Newspaper, Okinawa.

Speaker 1

Thank you very much. I have two questions. First one, The app revision of the forecast has good results, and recent China is now down revised instead. And in terms of the sales revenue, For instance, factory restructuring or the other measures and so on. Do you have any idea about that?

Speaker 1

And second question, maybe we can start with question 1. First question, in China, we have our production capacity, 1.49 1,000,000 car production capacity, that is what we have. As we announced before, we have 2 joint venture entities over there, [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] And we have 120,000 unit capacity bev specific production companies in 2 places. And then that means we will have a 3,400,000,000 yen 1,100, JPY 73,000,000,000 or so. And we have, of course, discussions with the JV Companies For the ice production, so area specifically, so that we can try to reduce the fixed cost of that ice production, Speaking of the restructuring plans and so forth for the factories and also incentives, as of now, ICE, hybrid, those are our main business models, and we need to kind of support sales by Using incentives in this forecast we are sharing today, especially in the First half, we are going to support current level of the incentives to continue to support the current ICE businesses.

Speaker 1

And the U. S, the economy is good in its Sales rising. However, you have a little bit of a down revision. And what about we have delinquencies of those Repayments, loans and what do you expect the economy in the second half onward, including the yen depreciation? A part of the question will be supported by Fusil Bresson.

Speaker 1

And in terms of the interest rate hike, Of course, it's like an incentive kind of thing. American Honda Finance The company has a business, and the American Honda has the business in relation to the incentives. But till now, we have a credit score Assessment and the customers we have, have a good credit assessment To start with and then because of that, we do not have a big impact as of now. And trading values of the cars Index shows a bit of a downtrend of the prices of the used cars. However, the level is still higher than the conventional used Not as much as it would impact on the statement of the finance today.

Speaker 1

Then also, the residual values of the used cars, It does not have any impact on the P and L as of now. And maybe my colleague can support a bit. I have nothing to add, numbers maybe. After COVID, In the United States, we have support to the families and so on, subsidies to them. And relative to delinquencies, the bad debts is actually a The risk level, that is very low at the moment, and the delinquency level is a little bit rising today.

Speaker 1

However, the bad debt Rate is also rising a little bit. However, still, it is 0.5% of the EBITDA Levels. And in a way, this is the situation where the situation is returning back to the [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Pre COVID level, and it is a kind of course, a loss sort of orientation to us. However, in a way, there's a normalization, too. During the COVID period, finance businesses, we had JPY 300,000,000 or JPY 400,000,000,000 And it was like a reversal of the loss cost or something.

Speaker 1

However, for that amount, for that About JPY 250,000,000,000 operating profit actually generated from the finance businesses. And 2%, 3% of the credit of the finance, that is the kind of the business use of finance. But What I can say is that it is being normalized. And residual value losses In relation to the used car prices, and we have a setting of the residual price level, And it is still on the positive side. That positive range is a little bit squeezed.

Speaker 1

However, we are now getting back To the normalization mode and for the residual value part, it will take a little bit more time to have the total normalization. So we have those plans and we factor in the financial business implication. However, nothing really of a concern. Thank you.

Operator

Thank you very much, Mr. Okinaga. The next question is from Toyo Keizai. Mr. Yokoyama, please?

Operator

This is Yopayama from Toyo Keizai. Thank you. Yes, we can hear you. I have two questions as well. The first is about the financial results.

Operator

So if you look at the first half and the second half, it looks like the second half is going to see lower Operating profit. So I just want to see how you're viewing the numbers, the performance. So you downward revised for North America, And then China is getting sluggish. So I just want to see how you view this. And about the upward revision, so compared to the previous year, If you exclude the foreign currency effect, I guess your profit is going to get less.

Operator

So in terms of real, real performance, Let me know how you stand. 2nd question is concerning this GM GM, sorry. You said that you will discontinue development of EV, together with GM. So I'm just wondering what that kind of impact that would have on the strategy and then any countermeasure you have and in your mind. Thank you.

Operator

Okay. Thank you for your questions. So about the details of the numbers, Mr. Fujimura will provide some additional But if we look at the first half and the second half, I think this is probably is happening every year, but Second half is slightly we tend to look at the second half somewhat conservatively. But at the same time, As a fact, we cannot in terms of expenditures, we tend to have a, well, bit of a bias on the second half.

Operator

If you compare those two halves, that's true. And then as you commented already, in North America, the downward revision in North America, because regardless of semiconductors in the first half, we didn't have a good supply situation in the first half. So maybe that was slightly over 20,000 units. So it's a little bit over, and that happened in the first half. And so that's been incorporated into the first half.

Operator

And then the sales and production and sales in the second half, if you look at the capacity in North America, it's almost at full capacity. So the some of the parts shortage we had in the first half at the in the first half at the supplier, We cannot really recover that in the second half, and that's why it looks like that. If you asked about the real performance, so you said, exclude the currency effect In our explanation, actually, this one compared with the Let's say, comparing with the last year or the same period last year, the currency effect is very limited. The ones the presentation you've seen, I'm sure you've seen it, the currency effect is only 26,000,000,000 So that is against the last year last period. And then particularly, if you look at the operating profit, It's a 53.7 percent increase.

Operator

A lot of it is coming from automobile sales and production and sales expansion. And also, we were able to leave the sluggishness from the shortage of semiconductor. So because of that and then, of course, we had some temporary warranty cost, But we have been able to get to almost to RRS of 5%. So we were at 4.7%. So This is only we had some trans just temporary Warranty expenses, but we were able to show good expansion of automobiles now that the shortage of semiconductor has ended.

Operator

So I guess that's the answer to your first question. And then in terms of our assessment, so we are trying to get aim for 7% or higher ROS On 2026 fiscal year or later, and then this is a 6%. This is 1,200,000,000,000 yen is 6%, but I think We are making progress in line with our plans. And about the second question, the terminating the joint development with BEV, together with GM, of course, there is impact to the strategy. However, we will launch it from Honda's global BEV And mainly North America, starting from fiscal year 2026, we want to maximize the use of this platform.

Operator

And then so I think we can avert any impact from this termination of this joint development. Any numbers you want to add to this? Okay. So the gap between second half and first half. Before that, I would like to explain to you how the numbers for the first half were put together.

Operator

As Mr. Aoyama just explained, The volume expanded in automobiles in North America, in particular. That was conspicuous. That was in the range of, +0000 units. So the I think this unit sales contributed greatly to operating profit.

Operator

For motorcycles, almost it was 60,000 units. So it was just a bit of an increase. However, the Vietnam, which is our most highest profit generating Market, even though they were in negative, Brazil, Thailand showed good growth. And then that was Of course, we used to say that if we stumble in Vietnam, it hurts a bit. But I think with other markets contributing, it has evened out a lot for motorcycles.

Operator

So that we have been able to earn some good profit In automobile as well, so we got EUR 760,000,000,000, so 6%, 7.2% ROS. A bit of this progress was the warranty expenses for we had a 56 sorry, 56,000,000,000 automobiles, And then we had a 56, another one, for Automobile. So total of close to 120,000,000,000 yen for warranty claims. So that was a provision. So we inconvenienced our customers a lot.

Operator

But I think if we eliminate This I think we should have been able to attain ORS of close to 8% for the first half. And I guess that first half, I think, we should be able to take away 700,000,000,000. We take away from 1,200,000,000,000 yen so that will be 500,000,000,000 yen So the volume will be higher. So even if you consider incentive, it would be a bit of a EUR 120,000,000,000 this provision, 1,000,000,000 provision. And then the provision for the warranty, that would be that doesn't happen with the first half.

Operator

It was for the 2nd half, so JPY 100,000,000,000. So that would be JPY 220,000,000,000, but as a total, that comes down by JPY 220,000,000,000. So there's a bit of a difference between, like a JPY 400,000,000,000 between first and then second half. But if we look at the currency, of course, the yen dollar rate is the same, but with the other currencies versus the dollar, they are getting Better. So we consider that into the second half.

Operator

And then also, this was mentioned separately, But to the Yachiyo industry, we are doing a TOB. We'll complete the TOB in second half against the Yachiyo industry. And then the same thing as Honda Lock last year. We will have a bit of an impairment loss for this 2nd half as a temporary charge. So with the yes, Jio impaired loss on The currency, it will be like second half will be lower by €100,000,000,000 or so.

Operator

And then So we still have a the performance bit of a difference is 300,000,000,000. This will be Majority will be the expenses and also to the supplier because they have suffered from inflation. So for Japan and in the States, for some of the suppliers, we do provide Some we are allowing them to raise the cost a little bit to survive through this. So that was a bit of a, well, disturbing noises, so you might have found it difficult to all put it together, but that's how our situation is.

Speaker 1

Thank you very much, Mr. Koyama. Next question? From Asahi Shimbun newspaper, Mr. Wakai, please.

Speaker 1

Well, he has exited from the network. Next person then from Nikanjidosha, Shinbu. Mr. Mizutori, please. I have two questions.

Speaker 1

First one is numbers to confirm. From April to September, OP waterfall over last year and also forecast For the full year from last time, you have ups and downs for the operating profits and the impact by the prices. What is the breakdown about it? And also for the suppliers, you may have a price pass on Transfer of those incremental crisis? That's the question 1.

Speaker 1

And second one is We have EV demands being a bit slow down, and I can I see that in Ford and other companies, and they seem to be squeezing a bit on the investments on the equipment? But you say that you're going to be ready to produce 2,000,000 barrels and so on in 2,030 or so. And I understand you have no change to those plans for the future, but do you have any idea to kind of And then decided to slow down a little bit, for instance, because of the those demands, Mr. Oyama. So I'd Like to start with the second question first.

Speaker 1

So I have no idea to decelerate our speed of the businesses. However, I wouldn't deny the business is slowing or softening. And especially in the U. S. Market, The demands is a little bit soft now.

Speaker 1

And as compared to the passenger speed, the growth speed is a little bit slowing down. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] And we really watch carefully the market trend, and that is what we are doing usually, watching out. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] And in 2030, 40% of the advanced countries or 2,000,000 bps, that is our Plan and 20%, 35%, 80%. We have no idea to change those plans. And in terms of the speed of the businesses, About 3 joint venture and so on, the new factories in North America, we have those ideas.

Speaker 1

And of course, the next things [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] You might as well to try to form the ecosystem, finally, and we'd like to steadily push forward those plans. And the second question will be addressed by Fujimura san. So first half, operating profits And our previous forecast about it, and the JPY 1,000,000,000 for the full year, and we don't disclose the first half portion of that. But I just share with you the image of the results and focus. And the JPY 700,000,000,000 that was the results.

Speaker 1

And as compared to the budget level, in terms of the absolute level value level, we have about a plus JPY 10,000,000,000 And then a breakdown inside is we have our yen depreciation. Now we have JPY 140 instead of JPY 125,000,000,000 and we have JPY 125,000,000,000 impact by that. And the warranty, we have about $115,000,000,000 plus. And excluding everything else, [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] I just almost offsetting everything around here. And practically speaking, in the North America, the next number volume, The suppliers, some suppliers couldn't catch up with the incremental production of the volume, and that is a loss of the 20,000 and also Slowing down economy in China and Vietnam.

Speaker 1

We have a negative situation of the unit sales of the motorcycles, We have those decline of the units volumes and therefore the motorcycles, As I said earlier, we have Japan, Europe, U. S, Brazil, we have the recovery to cover that, and we have about 40,000,000 40,000,000 sales 40 Thousand sales, and we have a JPY 50,000,000,000 negative. And we had a cost reduction and price Optimization and raw material prices now you think are most stable today. And other expenses are also squeezed, too. And all in all, we are observing those JPY 50,000,000,000 and that offsets and plus 10,000,000,000, the net with the depreciation of yen, so that is how that is kind of structured for the first half.

Operator

Thank you for the questions, Mr. Mizutori. I'd like to ask Mr. Kawasaki from Jiji Tsushin. Can you hear us, Mr.

Operator

Kawasaki? Oh, okay. Okay. This is Kawasaki. I hope you can hear me.

Operator

Yes, your voice is coming through. I have two questions. First one Looking at the different OEMs, many have shown record high. So looking at your sales Volume and then operating profit, net profit, if you have any record high, [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] That's what I'd like to know. That's something it's my first question.

Operator

And the other question is, in the States, you have the GM cruise, the

Speaker 1

[SPEAKER UNIDENTIFIED COMPANY

Operator

REPRESENTATIVE:] Autonomous vehicle. I believe in the States, you have some, well, Stop suspension of operation, does that have any impact to your plans to start Automated Vehicle Driving in Japan. Okay. For the first question, Mr. Fujimura will answer that one a little bit later.

Operator

To answer your second question about the states, the cruise suspension of that, the GM Cruise Activity. Their activity itself is nothing I can comment on. However, for us to do in Japan for as we announced, With GM Cruise, General Motors and Honda, we're forming Joint venture and then starting our commercial operation of a taxi from beginning of 2026, But there has been no change to that plan at all so far. However, having said that, In the States, the situation in the States would need to be monitored closely, and then we need to discuss them closely with Cruise and General Motors as well. But so far, our plan has not changed well, including all the relation with the relevant authorities as well.

Operator

That's what we would like to do. Okay. Okay. So you asked about the record high. So to give you the numbers from our answers from first half, Operating profit, pretax profit and net profit, we've on all of those, we have shown the highest.

Operator

And then of the 20 1,000,000,000,000 and then $1,000,000,000,000 and $200,000,000,000 in profit. That's a record higher and the same as pretax profit as well. That's for the full year forecast. Thank you.

Speaker 1

Thank you, Mr. Kawasaki. From the Reuters, Lusink Daniel, please. Mr. Daniel Lusink.

Speaker 1

Earlier, it's kind of related to earlier question. The U. S. Cruise automated driving, actually, They had to stop these services by the crews for some time. Do you think you really owe the crews?

Speaker 1

And if you need them really, you probably may have an idea for further investment in cruise, Like a cruise in the difficulty of a like a business management, maybe you can support financially to invest in cruise if Needed. Do you have such idea in case? So for this question, whether or not we if [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] We have that idea. As of now, we do not have such a practical specific idea. But of course, if there are changes of the business environments And conditions change and so on.

Speaker 1

If anything happens to Cruise, who we have a collaboration With, of course, there is room for consideration. We will listen to them. We will make appropriate decision as needed. And as of now, we have for your question, of course, of whether or not we have that idea today, I should say no, we don't have any specific, idea for the investment as of today.

Operator

Thank you very much for your question. The next question comes from Nikkei Business. Mr. Iyama, please. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] I hope you can hear me.

Operator

Yes, I can hear you. Thank you. This is related to your earlier question, But the low price, A bev, together with GM, Why did you reach this decision? If you could tell us the background how you reached this decision, that would be helpful. And another thing is about Capital expenditures, I believe you've increased it a little bit.

Operator

So if you can tell us a little bit more about it. Okay. Thank you. Why we decided to suspend [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Development joint

Speaker 1

development with GM.

Operator

Well, since we entered into agreement, we have done a lot of different studies. And as a result of that, both parties reached the decision that it will be better for both parties win win for both parties if we don't do this together. That was the simple conclusion that we reached. So if you ask why, we discussed and discussed. And we decided that looking at the current market And then looking at the potential or our approach to the reasonably priced bev, we had differences about our in our thoughts.

Operator

Okay. About the additional capital expenditures, compared to the previous Forecast, we've increased. I guess that's what you're asking about, but this is because we've done some currency conversion. So compared to the last time, we raised it by plus 40,000,000,000 yen plus. So of course, we used to assume 1.25 yen not 1.25 yen to 1 dollar but now we change it to 1.40 yen So for investment outside Japan, we converted back into yen.

Operator

So this that's why the substance has not changed. So Please, when you look at the chart showing the depreciation and R and D cost and capital expenditure, please look at it that way. Thank you.

Speaker 1

Next question, Nikkei Asia. Tatkei san, please. Takei from Nikkei Agia. Thank you. And I have a question about the motorcycle businesses.

Speaker 1

One is the sales focus in Vietnam. In Asia, you said it is down revised because of the Asia China and Vietnam. And Could you elaborate on that, please? What is the what is happening in those countries that made you decide to revise your forecast? And according to your document, you have main fiber markets information that, for instance, If you have any notable situations of other countries, too, please share with us market trend And second question is electrification, and there were some Sure.

Speaker 1

It's not really catching up with electrification needs. And in the Motorcycle businesses, in emerging markets, What is the situation of electrification there? And to deploy So for the question 1, in Vietnam, This year, around the springtime, the macro economy Around exports business is soured. Because of that, the market on the whole in Vietnam is shrinking quite sharply. And actually, the situation had hit the bottom already.

Speaker 1

And maybe into the Q4 this fiscal year, we would expect some rebound recovery. And the market in Vietnam So I think it's sort of intensified in the South of Vietnam where the export business is the main business they rely on. And Because of that business is of export dropped, we have this situation. In China, the ICE Motorcycle looks with me. It is declining more than our expectations and incentives Against competitors, that is in place, but we couldn't achieve enough share in the market.

Speaker 1

Because of that, we revised it. But the motorcycle businesses, we have the decline of the business in China, Vietnam. However, we have already And then other notable events or trend? Maybe someone else talked about that before, but We have advanced developed countries, Japan, U. S, Europe and Brazil.

Speaker 1

Together, we are getting more profits there. And motorcycle businesses were kind of mainly coming from the Asian countries, but now Those plus developed countries are letting us the business season. That is kind of the A particular trend we are aware of and for the electrification of the motorcycles. Already in China, there is Clear, the emerging market of electrified motorcycles in China, that's in place. But in the net Next 1 to 3 years, the India will be the more Kind of notable motorcycle electrification markets.

Speaker 1

And For the fiscal year 20,207 or 20 8, we are going to try to hit 1,000,000 of those vehicles. And in 2,030, 3,500,000 or above, That is the number of units we are aiming at, too. And earlier this fiscal year, we now have this New organization focusing on the electrification of power products, motorcycles, so on. And we have dedicated resources there for electrification to deploy those ideas. And then next We already announced it though, AM1A, Mobile Power Pack A based, mobile type vehicle To be deployed in Indonesia and mobile power pack e based other vehicles will be launched And we will announce later on about specific news about that later.

Operator

Thank you very much, Ms. Taki. Sorry, but due to time limitation, we'd like to make The last this next question, I'll ask. Mr. Ikeda from Sankei Newspaper.

Operator

This is Ikeda from Sankei Newspaper. How to read this? How to interpret this? It's 4.7% right now, so that's a big improvement. But is this just simply contributed by the sales volume growth?

Operator

Or Is it because of the vehicle mix that you are selling or so that your most Profitable models sold best or something like that? And then also, for the second half and later, The operating profit ratio, if we look at it from the standard industry standard, I don't think it's sufficient. But for your design and development and car manufacturing and the new models that you'll be launching into the future, What are your vision? What is your vision for the profitability of automobiles? That's my first question.

Operator

The second question is, as mentioned already, for the Chinese business, Do you have any structural reform? Of course, I guess you would need to do something about your ICE business, but What kind of time line are you thinking of for changing your business? Is that something you're going to start within this fiscal year? Is it that kind of short term? Or is it going to be something for later that you will be spending more time to do something?

Operator

And then you need to reduce your fixed costs. So maybe some of the fixed equipment might have to be disposed of or You might have to do some adjustments to human resources. Would that have an impact on your business performance? If you could tell me about those ideas to the extent you can, that would be helpful. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Okay.

Operator

Thank you very much for your questions. There's a 4.7% The operating ratio, it's not that I'm satisfied, but we had some temporary warranty costs. So if we exclude that, I think we are above 5%, I believe. And then for 2027, we wanted to bring it to over 7%. And then so we wanted to have it higher than 5% already this fiscal year.

Operator

So in that sense, I think We are getting to the level that we're getting close to the level we're trying to get. Of course, the volumes sales volume contributed, but we have been doing something particularly for the North American market that we wanted to have a lean manufacturing and management. So by starting from model year 'twenty one, Civic And then Accord and CRV, those midsized vehicles' cost structure, [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:]

Speaker 1

They have improved.

Operator

And then also, we have been able to do a good pricing in line with the product value. So the combination of those 2 led us to this current profit ratio. And then going forward, actually, it's [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] If you ask us if we had a very profitable vehicle models, the product mix don't change really. We have a C segment, this CR V and Civic. And then we have D sedan Accord.

Operator

That's the our best selling volume cars. So that hasn't changed. However, in each of the models, we have been able to raise our marginal profit ratio. That's our situation. But as you've said, if you look at the across the industry, [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] I am aware that it's nothing really to be proud of.

Operator

Okay. Next about the Chinese China business structure reform. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] We would like to start something at an early stage. We are keenly aware of that. However, having said that, we have a joint venture partner, so We need to discuss and then thoroughly persistently discuss with the joint venture partners to come up with some plans for a structural reform.

Speaker 1

[SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] I don't have anything I can tell you specifically. Anything you want to add?

Operator

[SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] No, I don't have anything to add here. [SPEAKER UNIDENTIFIED

Speaker 1

COMPANY REPRESENTATIVE:] Okay.

Operator

Thank you very much, Mr. Ikeda. Okay. So with this, we'd like to complete our financial results briefing session. About the financial results material, those are listed on the website.

Operator

Thank you very much for your attention today.

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