Honda Motor Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 11, 2023

There are 3 speakers on the call.

Operator

I thank you very much for taking time out of your busy schedule to attend our press conference. We would now like to start Honda Motor Company's press conference for financial results for fiscal year to March 2023. Though COVID-nineteen's category has been changed to Class advise, we have decided to continue to hold this briefing online as well. First of all, allow me to introduce the attendees today. We have Mr.

Operator

Shinji Aoyama, Director, Executive Vice President and Representative Executive Officer, Chief Operating Officer. This is Aoyama. Good to see you. And then we also have Mr. Eiji Fujimura, Executive Officer see Chief Financial Officer.

Operator

This is Fujimura. Good to see you, everybody. Then now Mr. Aoyama will first present an overview of the financial results of financial year to March 2023 stand forecast for FY 'twenty four, and then Mr. Fujimura will present the details.

Operator

Over to you, Mr. Aoyama.

Speaker 1

Good afternoon, everyone. I'm Aoyama. I'm the Executive Vice President start in April. Thank you very much for your participation today despite your business schedule. So let me explain the financial results of the FY 2023 and a summarize

Speaker 2

a summary of FY 2024 forecast.

Speaker 1

Starting with the highlight of the financial results, I will explain the progress of the profitability structures and its According to the FY 2023 results, we sold 3,690,000 cars, though the previous expectations share our financial results. Operating profit was 839,300,000,000 yen whereas the previous forecast was 870,000,000,000 yen The efforts on fixed cost reduction, pricing that reflects improved cost values of the product and so on helped us strengthen our operational structures. As a result, say we maintained the operating profit margin of about 5%, which is the level of the previous forecast. As for the FY 2024 forecast, we will further improve the operational structures that we have built up until now, and we will strengthen supply chains such as the stippled procurement of the will improve operating ratio of the iFactories. And we will plan to sell 4,350,000 cars with expect net operating profit of 1,000,000,000,000 yen which will be the best profit ever.

Speaker 1

Cash generated will be invested to provide the resource for electrification going forward and we'll stay engaged in shareholder return programs. In specific, in FY 2024, we plan to increase the dividends to JPY 150 per share, which will be the highest ever. In addition, in the Board of Directors meeting today, we have made a decision for share buybacks for the amount of 200,000,000 yen Toward FY 2026, we will continue to reinforce our operational structures altogether in Unity, aiming to achieve the operating profit margin above 7%. Let me continue to explain the Automobile Business' situations in main markets. In FY20 23, there had been a major impact of COVID-nineteen pandemic in China and the supply shortages of semiconductors until our 3rd quarter share with you the details of the year before.

Speaker 1

During the 3 months of our Q4, supply situations of the semiconductors gradually improved. Thus, the unit sales resulted better year on year in the United States. In China, the tax reduction measures ended, which caused a negative impact on the unit sales. Thus, the results dropped significantly lower year on year. In terms of the sales of FR 2024, although the outlook in China is rather clear, share the details on the global market, we can enjoy the favorable motor cycles that continued from last year, and we'll aim to expand our unit sales based on the resumption of the supplies in the market, thank the improved operating ratio of the forecast.

Speaker 1

Regarding our actions for electrification, we set our discussions with FOSCO for a comprehensive start to ship in order for achieving capital neutrality. In the Shanghai Motor Show in China, we exhibited the world premiere of the 2nd set of the EN series install EN P2 prototype and EN S2 prototype as well as the 3rd set of the concept model, EN SUBShoe. Next, moving on to the motorcycle business situations. For the FY 2023, the unit sales increased year on year in the main markets. During 3 months of Q4, the unit sales had dropped year on year in India and Vietnam.

Speaker 1

However, in Indonesia, although we had supply shortages of Semiconductors, we replaced the multi offerings and utilized the alternative parts, which then helped significant decrease of our net sales. The total result is better than the last year, year on year. As for the unit sales of May for 2024, we plan to achieve higher results year on year based on decreasing unit sales in India and Indonesia. Let's look at the overview of the consolidated financial results of April 2023 in addition to the reduction in unit sales and the production of the port bills due to the impact by semiconductor shortages and COVID-nineteen pandemic in China. We had incremental production cost caused by the soaring growth material prices and inflationary impact.

Speaker 1

Nevertheless, thanks to pricing scheme that reflects commercial values of the products, increase in unit sales above the cycles. And therefore, in currency exchange impact, we achieved the operating profit of JPY 839,300,000,000 yen. Share the profit for the year attributable to the owner of the parent was JPY 695,200,000,000. Status of unit sales, PL, described here. With regard to the forecast of our consolidated performance of FY 2024, all the incremental production costs and the inflationary impact We have been working on the pricing scheme reflecting commercial values of the products and further strengthening share the operational structures plus the increase of the production and unit sales of our port wheels, with altogether, we plan to hit 1,000,000,000,000 yen operating profit that will be the highest ever.

Speaker 1

Share the profit for the year attributable to the owner of the parent is planned at JPY 800,000,000,000. Assumed exchange rate is JPY 125 for the full year basis. You can see the unit sales and the PL plans on the slide. Let me explain about the dividend. Annual dividend for the FY 'twenty three is JPY 100 and use per share, and the year end dividend is per share.

Speaker 1

As per the expected annual dividend for FY 2024, we will add 30 yen to the amount of the FY 2023. Thus, it will be see yen per share, the highest dividend so far. In the Board of Directors meeting today, we made a decision of share buybacks speak to our shareholders for the purpose of improving the capital efficiency of executing our flexible capital policy and so on, we will buy back take our shares up to the total amount of the 200,000,000,000 yen of acquisition values.

Operator

Next, Mr. Fujimura, CFO, will explain the details of the financial results and forecast. Allow me to start the explanation. To begin with Honda Group's unit sales for the fiscal year 2023, In Motorcycle Operations, unit sales grew year on year, particularly in Asia, to 18,757,000 units. Automobile sales came to 3,687,000,000 units, mainly due to decline in China and in North America.

Operator

See in Power Products Operations, unit sales came to 5,645,000 units, mainly due to decline in North America. Next, I'd like to explain the factor analysis of the pretax profit for the 4 quarters compared to the previous fiscal year. Pretax profit was 938,100,000,000 yen which was lower by JPY 131,900,000,000 compared to the previous fiscal year. Operating profit was JPY 8389 point JPY 3,000,000,000, which is lower by JPY 31,800,000,000 on the year. To give you a factor analysis of the operating profit, see the impact from sales.

Operator

Though there was an increase in motorcycle unit sales, declines in automobile sales volume And lower profit and financial operations led to income decline of 100 and 9,100,000,000 yen Selling price and cost factors. While there was effect from pricing in line with the product value due to surging material prices as well as the effect from inflation, it resulted in a decline in profit by 27,400,000,000 yen Expenses. Due to increase in quality related expenses and selling expenditures, this gave us a negative impact of 132,500,000,000 yen share with you the details on

Speaker 2

the financial results. R and

Operator

D expenses led to profit decline of 58,500,000,000 yen and currency effect resulted see positive impact of JPY 295,900,000,000. Next, to explain the sales revenues in operating profit by business segment. For motorcycles, operating profit was 488,700,000,000 yen, a record high. Share Automobiles operations profit was JPY 42,000,000,000 Operating profit from Financial Services were JPY 285,800,000,000 discuss our financial results. And for Power Products Business and Other Businesses, operating profit came to JPY 22,800,000,000.

Operator

Next, I will explain the cash flow. Say free cash flow of our operating entities for fiscal year 2023 came to JPY 685,800,000,000 understand the end of term balance of net cash came to JPY 2,750,800,000,000. Next, I'd like to talk about the consolidated financial forecast for fiscal year 2024. Firstly, speaking of Honda Group's unit sales compare to the previous fiscal year. In Motorcycle Business, considering the growth mainly in Asia, forecasted for 19,100 and see 1,000 units.

Operator

In automobiles, we are putting at 4,350,000 units considering the growth mainly in North America. See and in Power Products, our 4,750,000 units in view of the declines in North America. Next, I'd like to explain the factual analysis of pretax profit compared to the actual results from last year. Say pre tax profit is forecast at JPY 1,185,000,000,000, up 246 point 8,000,000,000 yen from the previous year's results. Operating profit is forecast at 1,000,000,000,000 yen share our financial results with you

Speaker 2

today, up JPY 160,600,000,000

Operator

from last year's results. To explain the factors behind operating income, impact from sales is forecast at positive JPY 440,600,000,000 due to growth in unit sales of automobiles end our motorcycles. Selling price and cost impact is positive, JPY 265,000,000,000 due to effect confirm our ongoing pricing in line with product value, though there has been some impact from inflation as well. Expenses impact is expected to be negative JPY 217,000,000,000 due to increases in selling expenses. R and D expense impact is negative 60,000,000,000 yen and currency effect is forecast at negative of 268 point £1,000,000,000 Lastly, our forecast for capital expenditure, depreciation and amortization and R and D expenditures Thank you very much for your attention.

Operator

Then now we'd like to proceed to our the Q and A session. We would like to take questions through Zoom, which have been which you have been informed in advance. And due to limited time, we would like to limit it to up to 2 questions per person. We ask for your cooperation. Now if you have any questions, please use the raise your hand button to let us know.

Speaker 1

To start with our first question from NHK. Mr. Toma, please go ahead with your question. Toma from NHK. Can you hear me?

Speaker 1

Start Yes, we can. Thank you for your question, please. So I have two questions. One is the Chinese businesses That is dropping quite a bit. That is my impression.

Speaker 1

But for that, what is your analysis and the cause conclude that. And for the recovery plans going forward, what is your expectations this year in terms of the unit share the volumes and your plans for the production for the full year for 2024 forecast. And the second question is about the semiconductor. The supply is on the improvement now gradually, but this time or this year, Including semiconductor supply areas, I assume that you're going to recover the production volume, including Semiconductor supply recovery. And when do you expect to have that picked up?

Speaker 1

When do you think it will be normalized? Thank you very much, Mr. Toma, for your question. Aoyama is going to answer your question. Ask for the first question.

Speaker 1

In the Q4, the business is getting down in China in the 4th quarter and the forecast going forward. And in our January March period, Q4. Actually, up until the Q3 of last year, the purchase tax, that is the acquisition tax of purchasing a car. That particular measures ended in December last steer. Together with that, we had a negative impact In response to that measure being ended, that is the air market situation there.

Speaker 1

And also to get share the details of our environmental regulations. In order to make the air sales out from the inventories completely. There are some discounts being done. And then toward the End of the year time period of the year's Setting out plans of the products in stock, the consumers expected more discount And then people waited to buy cars for some time. Because of that, the demand dropped.

Speaker 1

See the situation and such reaction situation will improve now. And also last state we had a lockdown COVID-nineteen, which also had a negative impact on the businesses. But for the FY 'twenty four Honda going forward, We will have the full model change, new model to introduce in the market from Honda, which share we expect 1,400,000 cars to sell according to the plans in China. That is what we think as of now about NAVs and new energy vehicles, portions will increase going forward gradually. So as of now, we expect onethree of the demands will be share our new energy vehicle, we suppose.

Speaker 1

And we are selling our ice and our haves vehicles as a main product to sell as of yet, but we need to make a good utilization of the intensives and so forth so that we can continue to sell and keep the presence in China. And in terms of the Semiconductor, towards the end of the fiscal year or in the second half of the year specifically, the supplies of the semiconductors will improve finally, and we still have the of 400 and 4,350,000 unit sales forecast. And it is not going to be the abrupt share a recovery, but it is going to be a gradual recovery from the mid of the year till the end second half of the year. And say full recovery is expected to be found in the fiscal year 2025. Thank you very much.

Operator

Thank you very much, Mr. Toma. We'd like to proceed to the next question. Mr. Kondo from Asahi Newspaper, please.

Operator

My name is Kondo from Asahi Shimbu Newspaper. Good to see you. Okay. Thank you. I would also like to ask one question about Chinese market and a different ask a question for the second one.

Operator

Right now, Mr. Aoyama explained the situation that the NEV, NEV percentages getting higher and also the ICE vehicles shrinking down and then there are some pricing competition. So that for the time being, probably the feasibility economics of the business in China, I want to I would like to know how you view the Chinese market in terms of market feasibility. My second question is you are going to going for the selling price selling price hikes say that we should contribute to the profit of our JPY 1,000,000,000,000 for the first time. So in what see that you announce the price hike for the N box and series.

Operator

So please let us know what your price hike strategies are. Okay. Thank you very much, Mr. Kondo, for your questions. Okay.

Operator

First, about the profitability for Chinese business. NAV is really coming up. And then so Honda has announced this EN series. So that's something we will continue to strengthen. Share the second wave will come on the 1st of 2024.

Operator

And the SUV called Shoe, see that will come at the end of 2024. That's what we talked about. So therefore, in terms of fiscal year 2024, I believe as NAV expands, we will not really have any NAV products available for the time being. So we would like to continue to maintain our presence. So we might consider using the incentive and then try to maintain 1,400,000 unit sales.

Operator

So if you think about FY 2024, yes, in terms of our business feasibility, it will deteriorate, will be challenging for us. And then the other question about the price hikes For North America and then for Asia and then also Europe as well, for those markets or regions, we are seeing a lot of increasing on the manufacturing and procurement cost. So we have been reflecting those cost hikes increases to the price hikes. So Mr. Fujimura will give you more detailed specific numbers.

Operator

But when it comes to the Japanese domestic market, well, yes, we did raise our prices. However, when it comes to prices, we believe we still do have pricing in line with our product value. So we want to go through another review. So I cannot give you any specific numbers right now, but we will continue to consider further price hikes. Ask Mr.

Operator

Fujimura if you have anything to add. Okay. About price hikes. And then of course,

Speaker 2

what

Operator

we need to do first is to try to reduce our cost, trying to absorb cost hikes price hikes. However, with the raw material procurement cost and with the inflation, our cost has been going up a lot. Show over 2 years, we have like a JPY 600,000,000,000 cost increases over the past 2 years. Start when it comes to price hikes or when it comes to our pricing strategy, we have been able to recover like about JPY 540,000,000,000 so about 90% of the cost increases, but we say 90%. But in Asian markets, we have been able to recover almost see 100% in Asia in motorcycle market.

Operator

But speaking of automobile market, still we have not been able to recover all the see cost increases. And of course, in North America, there has been a lot of cost increase, which contributes a lot. Start for Japan because we have been trying to gain understanding from our customers see and improve our services and products values, and that's what we have been doing our best at. And then in this fiscal year, now the cost. If you can look at this graph here, we I believe the number was shown this discuss our benefits from cost increases.

Operator

When we show the chart, that drives up to 1,000,000,000,000 yen So we have been addressing the issue of cost increase towards our suppliers. So that issue still exists. However, we have been seeing good benefits at least as far as raw materials go. And then also, we are doing better at our pricing strategy. So that this box, I believe this has after a few years, has gotten to be in the positive impact.

Operator

That's what I can say for now. Thank you very much. Thank you

Speaker 1

very much, Mr. Kondo. Next from Nikkei see Shinro newspaper, Mr. Tanabe. Speak to Tanabe from Nikkei.

Speaker 1

I have two questions. First one regarding R and D cost start JPY 980,000,000,000 planned this year, and this is the largest highest ever I think. And Please tell me why it is increasing. Maybe that includes electrification. As far as you could tell us, please explain.

Speaker 1

And You're going to invest on the electrification and the softwares of next year and other companies saying about additional investment comment on the electrification. And do you have any plans to change that expenses plan? And in the past fiscal year, automobile businesses January through March, you had operating losses impact. And what is the reasons for that? Please share with us.

Speaker 1

Thank you very much. Tanabe san. So away, I must be clear to respond to your question as much as I can. And then my colleague, Mr. Fazimullah, will give us further explanation.

Speaker 1

So R and D expenses, JPY 980,000,000,000. That is the largest start by and of course, battery EV R and D cost is on the increase. That is the main part of these expenses. And also ICE and HAB as well, which will be also to be developed share the next generation ones, the R and D expenses that includes those conventional IC CV plus battery EV development now coming to the full fledged effort. So that is why.

Speaker 1

And then I said there are 5,000,000,000,000 yen in 10 years. As of today, we do not have any new plans now. But I think in April last steer a shared review the number like that. However, we have been updating the numbers like that every now and then. And Actually, the trend is going up more to invest.

Speaker 1

And sometime later, we can share with you more. Please wait for that. Enter automobile businesses operating losses in January through March. Finally, the annual rate sales Was JPY 3,690,000 and then we had JPY 160,000 or less share sales finally. And in terms of the operating profit, regarding that, out of 160,000 share about CHF 110,000 losses in China and the remain remaining the negative situations for the consolidated business figures, but those 50,000 Our part is going to be is actually causing an impact on the gross margin numbers.

Speaker 1

I have nothing much to add to this, but in the Q4, We usually have this kind of a trend every year, but it is a kind of a step like changes of the expenses. R and D expenses tend to occur actually we have a quality related cost included in that portion. In this fiscal year, the quality cost, actually, that is rather low ratio to the sales turnover. It was 0.9% level of the total turnover. But in this Our 4th quarter, it was up to 1.7% of the total turnover because of the quality related campaigns, which are like recalls.

Speaker 1

So it doesn't mean that we had new incidences happening, but we estimated The earning number of the vehicles are in scope for that. And then we had to have the reserve Allowances for that. And in fact, we have about 5% level of R and D to the turnover. That start as usual one, but now this year, we had a 6.4% instead. And it is about U.

Speaker 1

S. Situation in the area of the cost. With the suppliers, we've been working together negotiating for the cost just related issues with them. And then we finally came to the agreement after a year. And then we are going to return back to share the information on the other side

Speaker 2

of the business. Thank you. Thank you. Thank

Speaker 1

you. Thank you. And that is why for the automobile businesses, I like that. Thank you.

Operator

Mr. Tanabe, thank you very much. We'd like to take the next question from a weekly Toyo Keizai, Mr. Yokoyama, please. Okay.

Operator

This is Yokoyama from Toyo Keizai. Yes, we can hear you. Okay. Thank you. I have two questions as well.

Operator

First one is concerning Automobile Business. 0.4%. Mr. Aoyama, how do you view this? How do you evaluate this?

Operator

And then also this fiscal year, quantities and numbers will improve, I believe. But where would be the focal point in your automobile business for you to earn make better earnings. That's my first question. Second question is concerning supplier support. Other OEMs, they are some of them, they are taking care of the electricity bills or pay expenses see in line with the production, but I believe Mr.

Operator

Aoyama mentioned it briefly, but what kind of range of support If you are giving this fiscal year, that's what I'd like to know. Thank you. Okay. Thank you very much for your questions, Mr. Yokoyama.

Operator

Okay. So for 99 business year, yes, well, this 0.4%. I'm not satisfied at all.

Speaker 1

But when

Operator

it comes to issues, so as Mr. Fujimura explained, recently, there have been many factors that have been pushing up the cost. And then so how much of that we can reflect that, the cost increases in either in the form of cost reduction or price hikes. So to what extent we can recover? We don't know.

Operator

I mean, are we really doing enough? Maybe not enough. So we need to do a little bit more. And then also, this can be well, comes down to the semiconductor, but because the volume is below what we aimed for. So for the previous year, that was the biggest factor that we could not meet see volume that we were aiming for.

Operator

So we want to reach this 4,350,000 units right now. So that's what we're aiming for. When it comes to issues and focus, so as you've seen in these numbers, share in North America, we want to grow our volume, particularly in North America, as you're seeing here. So the total if you look at the total market trend, we need to monitor closely how that develops. Is it going to go into recession due to inflation?

Operator

We need to monitor how that trends share our results into the future. That's something we really need to follow closely. That's what we believe for North America. For supplier support, to what degree the support is given. That will be answered by Mr.

Operator

Fujimura. But Well, just taking on the electricity cost, that's only part of it. And then we had some impact from the semiconductor shortage. And then, of course, there will be some excessive fixed costs and all that. That would be another big item for the suppliers as well.

Operator

So Mr. Fujimura we'll provide some additional information including some specific numbers. Okay. Thank you very much for the questions. Concerning the supplier support, supply to suppliers, particularly in the past fiscal year, due to the inflation and the logistics cost and then also particularly the energy utilities cost, particularly stress the labor cost after one after another.

Operator

Our suppliers have had a lot of factors that increased their cost as well. Show on a one to one basis with each individual supplier in different regions. We have engaged in discussions and made some decisions. So last year, globally, we made about 100,000,000 share yen cost increase support. So for that cost, without really reducing this cost, we want to we believe that the cost level will continue at that level.

Operator

But as I said, per region, because of say the pressure from inflation is working started to come into effect in North America by region. Sorry, for this business here, I cannot tell you the detailed numbers because it's summed up to individual negotiations. But share last year business year, we saw main cost increases in North America last business year. And then in Japan sorry, for Japan, we have incorporated a bit of budget to support.

Speaker 2

Share with you the details on the financial results. And in

Operator

North America, there was some cost increase, and then we have accepted the part prices in line with the part cost. And also we had some volume expansion. And also in order to ensure stable production, that's which we aim to do. To some extent, those suppliers who are be very capable and then who have the room for expansion. We have been working together closely with the suppliers to work out some cost reduction measures.

Operator

So we have been engaging and then we will be engaging in those discussions. The same applies to Asia as well. With several suppliers, we have decided to work on cost reduction discuss together. So this is just an image, but this is how we are including our ideas and work together into a budget for this 100th business year. Thank you.

Speaker 1

Thank you, Mr. Okoyama. Next question from Yumiuri newspaper, Mr. Nakamura, please. Can you hear me?

Speaker 1

Yes. Anna Kamura from Yobei UDI Newspaper. I have two questions. Earlier, there was a mention to it about Chinese, the discount situation. So it is like a discounted competition.

Speaker 1

And how long do you think it will continue? In extreme cases, other companies offer another car if one buy a car. And what is the extent of the discount in practice today? And also second question is about We would now like to share the forecast of operating profit, the highest ever operating profit in the fiscal year 2024. Are there any other ever highest numbers expected.

Speaker 1

Thank you for your question, Mr. Nakamura. So for the question 1, I'll address And second question will be supported by my colleague. And then in terms of the discount, how long it will continue? It is difficult to foresee how long it will continue, practically speaking, because the discount at this time share with you the response to the environmental measures, the Kuni speak the country 6 or state 6b1 and that is to ban certain types of models by a certain close by a certain time.

Speaker 1

So after the end of our 6th June, it is end it. And then from the July 1, we need to sell the air product that satisfies State see type of regulations. Other cars have to be sold out by the end of June because of that. And then It was actually the deadline was end of December, the switchover And then it was postponed until the end of June recently, and it is still very difficult to tell how long it will continue because of such changes. And Honda's perspective, we will not do extreme discounts such as buy 1 and then give you another car or extra discounts.

Speaker 1

We are not going to do it. And for us, in the second half this year, we plan to launch share new models. And it will refresh the models, Ultracare, and we'd like to make sure that those fresh New models will be sold in the market. For Timuras and please. I do not have the data with me right here.

Speaker 1

However, I mentioned a bit earlier in my share the presentation about the motorcycle operating profit of JPY 480,000,000,000 or above. The operating profit in that segment, that is going to be the highest ever motorcycles. And in terms of the net profit,

Operator

Before,

Speaker 1

There was a tax system change under the Trump administration. And then There was release of some of the tax debt, and then it kind of push up the numbers a little bit higher transively. And including that, it might exchange. However, still I believe it is going to be the record highs. I will get back to you with the precise numbers later on.

Speaker 1

But in terms of the sales to Nova revenue, It is also related to the air exchange rate, about 18,000,000,000,000 yen that is actually trending upwards. Thank you.

Operator

Thank you very much, Mr. Nakamura. Next, we'd like to take the question from Mr. Oribe from sorry, the Daily Automotive Newspaper, sorry. Yes.

Operator

This is Oribe from Daily I have two questions as well. First of all, about the factors for pushing up the operating profit. I believe that one comes from selling prices. But can we get more a little bit details about the negative factors like the raw materials impact? Discuss like the raw materials impact.

Operator

So I believe there are some questions asked about support to supplier how much of that is included in here. And then sorry that I'm getting into different details, but So you are expecting JPY 120 to a dollar for JPY 24. But probably this is more accurate. But when you do the if there is any background story you can share in consideration of the ForEx exchange rate as well. Okay.

Operator

So about the thank you very much. So your first question relates to the past results as well as for outlook? Both. Both, please. Yes.

Operator

Share both of the financial results and the outlook. About the outlook, I think I can answer that. I believe this is a there's about JPY 50,000,000,000 increase in the material increase, I believe Mr. Fujimura sorry, raw material cost down see a reduction so Mr. Fujimura can give you the details.

Operator

Okay. Then starting with the financial results. So the and the selling cost, if you can show those boxes showing the factors, it was we had a JPY 12,700,000,000 minus. So what this is sorry, this minus JPY 27,400,000,000 So the negative was about, sorry, JPY 180,000,000,000 or so. And then we have the logistics and labor discuss and those are included in there.

Operator

So those we actually did a pricing that negated, cancel those factors enough. And then we have this 330,000,000,000 yen. For the outlook, we have a + 265,000,000,000 yen. Then so this includes see positive effect from raw materials of JPY 50,000,000,000 and then also minus JPY 40,000,000,000. So the difference will be the cost increase, and then that's a bit of net offset results the selling price and the cost increase.

Operator

But as mentioned earlier, discuss our cost factors. Sorry, this is something that we negotiate individually. So I cannot talk or really talk about it. But anyway, offset, there is about JPY 250,000,000,000 or so JPY 2 JPY 60,000,000,000 to JPY 50,000,000,000 or so. So about the exchange rate, just to give you the background, Because the interest rate hikes in the States might settle down in the second half, that's what we are expecting.

Operator

And then maybe JPY 1.30 to a dollar during the first half and JPY 1.20 during the second half. So that's what we that's where we our 125 average came through. That concludes my answer. Thank you.

Speaker 1

Thank you, Mr. Oribe. And next question from Jiji Press, Mr. Toyoda. Toyoda speaking from Jiji Press.

Speaker 1

Can you hear me? Yes. I have a question regarding the past fiscal year, the details of the The charts and downs of the profits and its reasons behind. And the chart says that 56.5 for quality. And as you said, it is related to the recalls in the United States.

Speaker 1

And in the same box, you have a 60,000,000,000 yen in the same box. And next one, 800,000,000 So forth, that is a negative impact. And what is the breakdown inside of the box? And second question, in the United States market financial instability. So both are now happening today, but what is your macro Thank you, Mr.

Speaker 1

Thank you, Ms. Toyoda, for your question. So the operating profit from the past year, quality related one is connect it to the recall cost in the United States. That is your question, but actually, it is not limited to the U. S.

Speaker 1

Globally, there are other regions also connected to it. Main part is the U. S. But As a fact, however, other regions or countries are connected to the recall as well. But in terms of the numbers, Mr.

Speaker 1

Zimura is going to answer. But in terms of the U. S. Market and financial instability, outlook of the economy and its impact on the automobile businesses according to your question. And I would say that Margit itself is quite solid as of now recently.

Speaker 1

And for 2023, Toward the end of that fiscal year, the U. S. OEMs actually resuming their stock levels And then in 2020 FY, in the middle of the COVID pandemic, is your compared situation Into that, the stock level in the market is not that high as of yet. It's not that much of the recovery, but also the market Of the midterm perspective, it is a little bit coming to be weak perhaps in the midterm perspective. However, as of now, It is trending quite solidly, I should say.

Speaker 1

And then this is more of the macroeconomic perspective, including a stable financial situation, but that part should be The area where we should pay close attention to, we shouldn't have a judgment on that. And prior Technically speaking, this year, we will have the fresh product out. The Fresh products will be there, so it is a good situation for us. And in the industry like that, I'd like to make sure that we would sell those fresh new products in the market in the coming year. Thank you for your question.

Speaker 1

And then you see that other share the full year of the year. I'm sorry that we couldn't give you a good explanation for that. In terms of the gross margin, 864, 86,400,000,000. In the 2nd quarter,

Operator

share with you

Speaker 1

the details. A part of the subsidiaries, entities had recognized the impairment of the fixed to asset that is up as much as 200,000,000 yen or so. And also, we had an impact of the reduced unit sales that is included in the breakdown of the air units of sold and Chinese ones actually are in a different box. About 304,000 40,000 units were down. We reduced the amount in the China.

Speaker 1

And we had the KG parts, profits for Honda, and we had a royalty Payment less made from Chinese joint ventures, and we have a consolidated subsidiaries in China where they had reduced profit level, too. So as of those impairments of the subsidiaries, We have impact by the reduced volume situation in China that is in that and also 80,000,000,000 yen expenses Excuse me, a JPY 60,000,000,000 expenses. So largest part out of that is the impact by the inflation of various countries. And most of that is actually for that reason. And then practically, maybe new models are starting up And then we do spend some advertisement, of course, for the new models.

Speaker 1

But still, we try to maintain share our lane structures that we achieved so far.

Operator

Thank you very much Mr. Toyoda. Next, Mr. Hiroko from News6. This is Hiraoka from News Fix.

Operator

Can you hear me? Yes. So as a total as your company, how do you generate the cash that goes into investment? Going forward in your Automobiles business, you will be spending a lot of R and D and also capital expenditure, which will increase. This will be reflected in the depreciation.

Operator

Probably in NEV, probably the raw material price still probably stay high. So I'm thinking just as a maybe this is an issue for the auto all discuss our automotive, automotive companies. So how does how do you gain the cash? So for you, maybe motorcycle business is good and profitable. You can earn cash there.

Operator

Show you can probably pull a lot of investment in automobile. Let me know if that's really a strength you feel. The second question start talking about the automotive sorry, PBR across all Japanese companies tend to be low, speak rather below 1. And then there were voices saying what give us the account be accountable for this. In your case, in the medium- to long term

Speaker 2

share with

Operator

you a perspective. How do you propose to increase PBR? Okay. Thank you very much for your questions, Mr. Hiroka.

Operator

I will leave all the details to Mr. Fujioka, but Fujimura. But so are we first of all, to answer if you're earning cash from a motorcycle business. Okay. Even for battery sorry, even for motorcycles, we need to convert to battery electrified them in the future.

Operator

But there is a bit of a time start lag between motorcycles and automobiles. So in medium term perspective, I think we are for the I think it's all fair to say that we can earn cash to put into automobiles. So for BEV, You said the raw materials prices are really staying high. But when it comes to raw materials, you were talking about the batteries and sales. I guess that's what you are talking about.

Operator

But this is something you cannot really say that the cost is staying up high across the board. You can't say that. It is something I mean because it's a market, it moves up and down. So I wouldn't really say the material cost does not hit only an individual company. So we hope to be for those see that moves up and down in terms of prices, cost, we would like to accommodate ourselves.

Operator

At the Shanghai Motor Show as well, there are some relatively low priced battery EVs coming out. We see that for sure. So we would continue to monitor the situation for EV. For the PBR, the second question, This is one of the critical issues in our management operations, of course. So basically, last year, with the reporting, this is something we touched upon a little bit, the capital cost.

Operator

We want to stay keenly aware and then we will continue to consider introducing ROIC. But when it comes to the specific KPI, we'd like to set up a road map, and we'll communicate what our KPIs will be for going forward.

Speaker 1

Okay. Then

Operator

well, just additional, I don't know if this submit additional information for you. But as you've pointed out, the cash from that we earned from a motorcycle operation is considerable. But for automobiles, even though the operating margin Due to the fixed cost because the operating time is only 80% or less. So we hope to be able to earn 0.3% or higher. So even though that's the situation in terms of earning in automobiles, but for operating cash flow within the operating, we the depreciation that we can we are able to get this back.

Operator

But also, the equity earnings, the maybe 20% see the net profit comes from that. And then of course, dividend from there is contributing as well. And then in addition, there are some investment related to ICE. We need to wisely manage in our operations. But as you've been pointed out as you've pointed out, going forward, we will be making a lot of investment in cement in BEV.

Operator

Is that what you expected? But what we are thinking of is that we need to maintain the current level of the investment. But just as a shift, we want to shift away from ICE to spend more spend R and D and investment for the new areas. So that's what we are thinking of. So we want to have a comprehensive control.

Operator

And then we would probably keep in mind this cash generation capability from automobile operations as well. Discuss what we'll continue to do. Thank you very much, Mr. Hiroko.

Speaker 1

Because of the interest of time, the next question is going to be the last one from Nikkei Newspaper. Mr. Uyehara, please. Wihara from Nikkei Newspaper. Can you hear me?

Speaker 1

Yes. Thank you. I have two questions. 1, about United States. The interest rate hikes and also the Economy have a risk for the depression, but what is your judgment about the outlook?

Speaker 1

As of now, Do you have a how do you see the situation for businesses and also the cash finance? Share what is the impact on your the refinancing situation of cash support and then also the outlook for China, a mid term perspective, specifically Mr. Uehara, did you complete your question? Yes. Thank you.

Speaker 1

Thank you for your question, Mr. Uehara. So in this year, see the economy's impact on the sales. So in terms of the finance businesses, We have a basic revenues of our financing operations, and we have so called penetration. How much we should acquire from that?

Speaker 1

That is one part. Whereas we have some the rate of delinquencies and the bad dates send allowances, reserves for that should we go about it. And also, the lease businesses, share the residual values of the lease fleet vehicles, let's say. And so called net take that net charge off quite severely because of the inflation and economic show the fleet vehicles residual values.

Speaker 2

In the

Speaker 1

previous 2 years We had a shortage of the supplies. And because of that, the trade in markets, used car market was quite booming in a way. But in terms of the residual values of those cars, actually in the past 2 years. It was quite favorable to us. However, in the upcoming fiscal year 2024, that is not going to stay positive, leave, and that is our assumptions now.

Speaker 1

And for the China situation, The FY 2024, it will stay with a bit of the difficulty in share with you the next question.

Speaker 2

I'm sorry, but

Speaker 1

after FY 'twenty five, we are going to strengthen the EN series with battery vehicles and so forth share more and more to add. And then for our businesses along from the FY 'twenty five onwards, we will expand the battery EV vehicles more along with the revenues to enjoy as well. Thank you. And In terms of their details, in fact, in the last few years, as Mr. Share businesses for like we had losses of the those residual value related to used car runs and solve the bad debt.

Speaker 1

Thanks. And in fact, the used car prices were very high. And also, the government provided support for the individual consumers. And after the pandemic, there was not much of the lost cost, And we had about 360,000,000,000 to 380,000,000,000 yen also. And then it I won't like that until now.

Speaker 1

But in fact, the cost as such is actually abnormal in the last 2 years. So I think we should say that we are coming to back to the normalized status as we speak now. It's coming back like that. However, still the used car prices are still high. So the losses due to the residual value still exist.

Speaker 1

And in fact, after that is over, it will be turning to the at profit level. But Actually, when the lease period is over, the customers' cars will be returned back to us, and then we'll in the market of used cars again. And we used to have 60,000 cars like that before pandemic. And now we have About 200, 300 cars, that kind of level. And in terms of the bad debts, We had we have about 0.3% of the bad debt impact.

Speaker 1

And we've been doing see assessment of the credit score like 70%, 80% of EBIT score, AB score, and we try to be prudent in terms of the customers like that. And we try to control the asset side of the error chart. And when we had a financial crisis, we had a similar situation about procurement. The idea is how diverse how well we can diversify the procurement. And we shouldn't be optimistic, of course, say that we will try like that, and we will stay operating with the procurement, and we have a policy as such.

Speaker 1

Thank you very much. Thank you, Mr. Rehara.

Operator

Okay. Then with this, we'd like to finish our financial results press conference. The press release information, share the materials for financial results are listed on our website. Thank you very much for participation.

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Earnings Conference Call
Honda Motor Q4 2023
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