Earnings Call: Q1 2022

Aug 4, 2021

Thank you for sparing your time to join us here at the Honda Motor Company FY 2022 First Quarter Financial Results Press Conference. We now like to officially begin the conference. My name is Okamoto from Corporate Communications. I'll be serving as the moderator. Allow me to introduce to you the executives represented: Director, Executive Vice President, Seiji Kuraishi. How do you do? I'm Kuraishi. The Director Senior Vice Managing Director, Kohei Takeuchi. I'm Takeuchi. How do you do? And I'd like to call on Mr. Kuraishi to present the Q1 financial results, please. So let me explain the 1st quarter results of the FY 2022 as well as the summary of the full year outlook. First, regarding the unit sales of Honda Group in the Q1 of FY 20 22. The volume sales outperformed year on year in all business segments due to the recovery of the demands from the last 3.879000000 units sold. Automobile Business is 998,000 units and Life Creation Business is 1.7 8 MIMI units were sold. I'll explain about the main market situations next. The total market in Japan has outperformed same period last year because the demands recovered from the last year decline Due to the COVID-nineteen pandemic, Honda 2 had impact by semiconductor supply shortage and so on. However, we Formed last year unit sales with the effective launch of the new bezel launched in April. M Series had reached 3,000,000 cumulative unit sales in Japan since its launch. The total market in FY 2022 still remains uncertain going forward Due to concerns about resurging COVID-nineteen, Honda revised the forecast from last time. Taking advantage of the new bezel and new model Civic that will be launched in this autumn, Total market in the U. S. Has surpassed the level same period last Tia. Thanks to increasing vaccinations for COVID-nineteen and effective economic stimulus measures, which greatly have recovered demands. Light truck models propelled all business in Honda, which have updated the monthly sales record in 3 months Exceeding the market growth. New Model Civic launched in June is receiving favorable acceptance by Sumas. We expect the total market by FY 2022 to keep a solid demand. However, impact of semiconductor supply shortage and so on still will remain. HALDO has revised the last forecast, Though, we will endeavor to minimize the impact of supply shortage of the chips and to catch up with the production. The total market in China has seen the demand recovery owing to the effective measures for economic stimulation by the moment. However, the market underperformed year on year due to the impact of the semiconductor supply shortage and so on. In spite of such supply shortage of chips, Honda achieved better than the marketed growth with incremental sales of XRB and SOAR. Regarding the total market of calendar year 2022, we expect the demand to stay steady with the residual impact of semiconductor strategies. Honda has revised the last forecast. We will plan to expand our unit sales by new model launch and EV lineup improvements with Veeze PHEV premiered in Shanghai Motor Show in April. Moving on to the motorcycle business. The total market has outperformed year on year with once dropped demand due to the COVID-nineteen now are up RECOVERED. Honda has performed better year on year in all of the markets. However, in India and in Malaysia, We suspended the production activities for a while because of the resurgent pandemic. Speaking of the total market of FY 2022, because of the COVID-nineteen infections rising up again mainly in Asia, the future is uncertain. Founder have revised the last forecast mainly for India. Next, a summary of the financial results of the Q1 FY 2022. Despite impact by supply shortage of semiconductors, soaring raw material prices and so on, As compared to the significant impact by the COVID-nineteen in the same period last year, our unit sales increased. And as the initiatives we have pursued to solidify the existing businesses being effective, the operating profit has increased by JPY 356,900,000,000 to mark JPY 243,200,000,000. The profit for the period attributable to the owners of the parent for the Q1 increased by JPY 303,300,000,000 hitting JPY 222,500,000,000 with incremental investment profit from the equity based liabilities. This slide shows the sales unit as well as the PLs. Next, with regard to the FY 2020 our outlook. We plan to increase both sales revenues and the profits over FY 2021 results Based on the increase in sales units and effective initiatives to solidify existing business and so on. From the last year forecast, unit sales our revised, reflecting the latest semiconductor supply plans in addition to the impact of COVID-nineteen resurgence are mainly in Asia. Those impacts will be absorbed by additional suppression of SGMA's, cost reduction effects and so on. And we revised the operating profit guidance to add 120,000,000,000 yen to hit JPY 780,000,000,000 Regarding the profit for the period attributable to the owners of the parents. With incremental operating profit and so on, we up revised the guidance to add JPY 80,000,000,000 to hit at JPY 670,000,000,000. This slide shows the unit sales and P and Ls. Speaking of the dividends and share buybacks, annual dividends for infra 2022 stays Same as we announced last time. In the Board of Directors meeting convened today, we made a decision for share buybacks. For the purpose of improved capital efficiency, execution of the flexible capital strategies and so on, We plan to buy back our common stocks up to 18,000,000 shares or the maximum sum of JPY 70,000,000,000 Of the acquisition prices for the acquisition period between August 5 December 31, 2021. Next, Mr. Takeuchi will present you the details of the results. Let me begin. First, the FY 2022 Q1 3 month financial results. Regarding Honda Group unit sales. Motorcycles increased in Indonesia, India, amongst others. Automobiles dropped in China while increased in the United States. Life Creation Increase in the United States. Next, income statement. Due to increase across the board in all business segments, sales revenue increased from the same quarter last year to JPY 3,583,800,000,000. Operating profit was JPY 243,200,000,000 due to increased sales revenue and model mix. A share of profit of investments accounted for using the equity method JPY 55,900,000,000 due to profit increase in Japan and Indonesia. And next is a change in profit before income taxes. Profit before income taxes in the Q1 was JPY 311,300,000,000, up JPY 384,700,000,000 from the same quarter last year. Due to profit increase attributable to increased sales revenue and model mix as well as currency effects. Operating profit reached JPY 243 point 2,000,000,000 yen up 356,900,000,000 yen from the same quarter last year. And moving on to results by business segment. Motorcycle business. Due to increase in profit JPY 80,600,000,000. Next, Automobile and Financial Services for Automobile. Both combined, operating profit is estimated to be JPY 159,200,000,000. Automobile Business. Due to profit increase attributable to increased sales revenue and model mix, operating profit was JPY 70,600,000,000. Financial Services Business. Due to increase in used vehicle prices, amongst others, operating profit reached JPY 92,200,000,000. Life Creation Business and Others. Operating loss was 300,000,000 yen of which aircraft and aircraft engines JPY 8,300,000,000 And next is cash flows the Non Financial Services in FY 2022 Q1. Due to temporary increase in inventory, cash flow was minus JPY 99,500,000,000. Cash and cash equivalents at the end of the Q1 was JPY 2,297,800,000,000. Moving on to FY 'twenty two, consolidated financial forecast. First, Aker Honda Group unit sales. Motorcycles. Due to the research in COVID-nineteen infection in mainly Asia, we are forecasting unit sales to be 17,400,000 units. Automobiles, given the research in COVID-nineteen infection, we reviewed our semiconductor supply plan And the FY 'twenty two forecast is now 4,850,000 units. Line Creation, mainly expected to increase by 400,000 units in Europe and North America. Our revised forecast is 6,300,000 units. Next, FY 2022 consolidated financial And change in profit before tax. Profit before tax is 1,000,000,000,000 yen up JPY 85,800,000,000 from last fiscal year. Operating profit despite the provision for credit losses and SG and A increase, Thanks to profit increase attributable to increased sales revenue and model mix, operating profit is up JPY 119,700,000,000. Share profit of investments accounted for using the equity method due to TOBO 3 United Companies in the last fiscal year, resulting in a onetime impact of 56,800,000,000 yen Profit is down 52,700,000,000 yen Compared to the forecast announced last May, despite profit drop attributable to decline in unit sales and which is resulting in change in sales revenue and model mix. And due to further cost reduction, cost control efforts and currency effects, profit before tax is forecast to be up 130,000,000,000 yen Lastly, FY 'twenty two forecast, capital expenditure, depreciation and R and D is as shown. And this concludes my presentation. Thank you. Thank you very much for your attention. So now I'd like to move on to the questions and answers part of the session today. We have already Thank you for your cooperation. So please press the raise hand button on the Zoom assistant, please, if you have questions. Question from NHK Mr. Tsuboi, please. Mr. Tsuboi? Hello? Can you hear me? Yes. Zeboi from NHT. Thank you very much for your presentation today. I have two questions. One is semiconductor Plus, in Southeast Asian countries, the pandemic is resurging again. That's a concern. But After the Q2 onwards, what is the prospect of the radially production plans? And second question, And so when do you think the shortage of the semiconductor and components problems continue? In the long run, what is your at Thank you for your question. So after the Q2 onwards, our prospect is, for Nations Procurers and also the Government Economic Stimulus Measures. Thanks to those things, apart from some areas or regions, and of course, the impact by the COVID-nineteen last year was quite significant. But basically, the sales itself has grown quite significantly. The market is good. And the semiconductor situation going forward and the COVID-nineteen still unclear, uncertain going forward in both terms. However, the sales is going to stay steady going forward. That's our prospect. And in terms of the those parts influence or impact, In the beginning of the fiscal year, when we had the announcement, we talked about our focus of the FY 2022. With the unclear semiconductor supplies, we had thought that there could be an impact on the 100,000 unit production. However, in the second half, we said that we will try to catch up with the production as much as we can looking at the situations in order to minimize the impact on our production. So when we put together our budget, we didn't include the impact by the semiconductor shortages. We stayed our unit sales prospector. It will be 5,000,000 instead at that time in the beginning of the year. But globally, we tried to minimize them. However, in the Q1 period. The situation is contained within our expectations. However, Renesas Recovery is a little bit slow. And also, in Asia, lockdown of the cities are going on. Because of that, based on the latest business situations. We put up those full year forecast. The latest one now is down revised to 4,850,000 units, 150,000 MAS. And of course, the BOIs, the variance of concerns and semiconductor shortages, there are many factors impacting On the businesses going forward, still uncertain, I should say. However, we will watch out the market situations, and we will try to it. We are better than the last year unit sales this year. And in order to have a stable pad supplies, we are speaking to the several companies and suppliers and sites so that we can get supplies from more than one places. And also, we will try to Keep appropriate level of the stocks inventories for different parts and components so that the impact on the production is minimized. But in the long run, we need to harmonize those parts and components and generalize the use of those parts and more stable supplies by multiple suppliers. But of course, we cannot avoid impact by the lockdown. As of now, in Asian countries, there are some lockdown situations for the pandemic is every Because of that, the production is squeezed. And in other words, we can Hughes divert those components of parts which are not needed in those lockdown sites to other countries like China or Japan. This way, we can adjust the production situations globally. This way, we can try to minimize the impact on the manufacturing stages. Thank you very much for your question. Thank you. Thank you. The next question please. Next is from Yomi Rishimba Newspaper. Mr. Katagiri, please. Mr. Katagiri, you are muted, I think. I'm Katagiri from Yomiuri Shimbu Newspaper. Can you hear me? Thank you. I have two questions. First, for this quarter. China compared to the United States, the domestic unit sales seems to be low. And this is is this due to the shortage of semiconductors? Or are there any other reasons for this? Can you give an explanation for the reason? The second, about the forecast. About the motorcycle unit sales, it's down and yet your profit forecast is up. Sir, can you explain this? And the cost reduction or cost reduction effort, I think that you're expecting more effect. But can you explain what specific effects you are anticipating for this cost reduction effort. Mr. Katakiri, thank you very much. Well, first about the domestic sales. The domestic sales. The economic activities are recovering and the demand compared to last year when we had the severe impact of the pandemic, I think it is recovering to what we have seen before, the pandemic. Meanwhile, talking about Honda, due to the shortage of semiconductors, there's a drop in production volume. And especially for us in the global market, in our global business, we are allocating our semiconductors here in Japan for the April May impact for us was big. And meanwhile, other companies, the April May impact was not that big. And because of this, for the Q1 especially, Honda appears to be low in volume. But in July, other companies are starting to suffer from the shortage. And therefore, the new vessel mainly and the N Series, the demand is very strong. And we believe that in the second half and once the supply of semiconductors recover, we can achieve the unit sales equal to other competitors and much better than last year. And about the forecast and the reason why we are forecasting a drop in unit sales, as I've already explained in our budget. Originally, we did not include the impact of the semiconductor shortage. But this time, Due to a number of new factors, we had to review the unit sales. Especially in the second half, we were planning to offset and recover. But from the second quarter and onwards, so We believe that there will be greater impact than we expected in terms of the unit sales. Depending on the region, we have to produce overcapacity. And therefore, we believe that it's difficult to recover by the end of this fiscal year, and this has been factored in this time. As for the motorcycles, I think it's mostly India. But again, in the Q1, including the lockdown. And due to the spread of the coronavirus infection, there was a drop. But now in July, India, the pandemic situation has improved significantly. And currently, though there was a drop, we are expecting to increase sales, and that is what we are forecasting for now. The cost reduction effect? Yes. Mr. Takeuchi will respond. Well, cost reduction, well, it covers a lot of things. But from 2, 3 years ago, as a company, We have been trying to reduce costs in all areas possible in daily production activities. So we have tried to make efficient production. In the Q1 also, we have seen an improvement. And therefore, we will continue to have this impact of the cost reduction going into the Q2 and after. And I think it's an accumulation of small efforts that we are seeing a big result. Thank you. What specifically are you doing to reduce the cost? Which costs are going down? And about the unit sales, I believe that the unit sales is expected to drop, but the profit as sales revenue is expected to increase. As for the cost reduction, well, according to our current cost structure, we are purchasing about 80% of Kumbunis from outside, and 20% is made in house. But we want to make efficient production, and therefore, we are examining what needs to be changed and also how we can reduce our cost to produce the same number of units. We are looking into the cycle time, how to reduce the cycle time and the man hours, etcetera. So it's accumulation of all these small efforts that we are seeing a reduction in our cost. Thank you. Thank you very much, Mr. Katagiri. Next one from Nick Porquejai Shinbun Mr. Abe, please. Abe from Nikkei Shimbun Newspaper. Thank you. So semiconductor shortage. So impact on the EBIT sales is as much as 150,000. However, operating profit and also the sales revenues. How much impact are you getting on those 2 sales and operating profit because of the semiconductor shortage. And I know that the future is uncertain in that regard STIHL. But by the end of this fiscal year, what is your prospect of Impact negative impact by the shortage of the semiconductor. How much impact did you in my thanks for that? And also the raw materials cost increase, including the semiconductors, its impact. How much impact do you Expect for this fiscal year. And any confirmations for that, please? Thank you for the question. So the expectation of the semiconductor shortage impact, 4,850,000 units That we announced this year actually is the number based on the adjustment with our semiconductor Liars as of now, and that is the number that we are adjusting and now understand that this will be as much as we total level. Therefore, we cannot say much in the end. However, as I said, the global production adjustment will be done so that we will keep our target of 4,850,000 yen EBIT production for the year. And I'll talk about this impact on sales revenue for the automobiles, 150,000, that's the impact. And as of which, 9,900,000 Impacted on the OP, the rest that includes 60,000 for China. And volume mix its volume mix area that is including those impact, and our expectation is 400. That's the impact from that. And in the beginning of the fiscal year, as compared to the last one, the raw materials such as the precious metals our soaring prices going up. About JPY 250,000,000,000 cost increase now is included in the expectations for this year for the raw materials cost increase. Precious metal increase of the prices. Actually, they are a little slower than the total situation of that. Aluminum, the Steel's Platinum. There's expected cost increase of those. And offsetting with that, JPY 250,000,000,000 upward. Change will be expected for that. Thank you. Mizutori, please. Mr. Mizutori? Yes. Mizutori from Nikanjidosho Shimbun Newspaper. Yes. Thank you. I have two questions. The first, about the U. S. Well, the incentives are going down, and I think this is resulting in good, better results. But in the Q1 FY 'twenty two, do you have any numbers about the incentive. And about China, in the Q1, I think that the retail volume unit sales is increasing. But yesterday, the Wuhan factory operation was suspended. And well, in Asia, you are seeing this. But what about the outlook for just China only for this fiscal year. Let me respond in regards to your question regarding China. About China, We are seeing that the new models being introduced. And we believe, overall, as a market, the business. It will be better than last fiscal year. The results will be better than last year. But I said because of the components shortage and also the various uncertainty related to this industry. We have to pay attention to these developments. As for Honda, there is this impact of the semiconductor shortage, but the new models and also the lineup strengthening our lineup of EVs and others. We think that because our brand and also our Models have been well received. And I think that in the first quarter, it has been record high. We want to enhance the strength of our brand and also expand the lineup of our EV cars. And Honda Connect will be evolved and so that we will be providing products which are filled with fun features. As for Wuhan, from August 3, the factory has suspended operation. But This is because of the development area where our factory is located. There was a cluster at the supplier there, and therefore, we had to suspend the operation. And we are consulting with the local government at Wuhan, and We don't think that this will continue for a long time. And as for our impact, already we have the shortage of semiconductors. We have to adjust the production even without this. And well, we don't know how long this situation will continue, But we believe that in principle, the impact will not be that big. And we are targeting towards sales more than last year. So our target remains the same. About the incentive, please? Yes. Allow me to explain about the incentives. Well, yes, in the Q1, the incentives on a cash basis. Well, on Autodata, it includes the dealers' incentives. So but looking at the incentives as we define it in the Q1, I think it was much lower than the previous year. And therefore, I think it's very low, the incentives. But still, the incentives towards the inventory and because of the accounting, They have to adjust the inventory and also keep down the incentives. And therefore, this fiscal year, the outlook compared to last year, I think it's about the incentive is about 10% lower than this previous year. Thank you. Next question. Asahi Shimbun Newspaper. Mr. Kamiyama, please. Kamiyama from Asahi Shimbunist Paper. Can you hear me? Yes, Two questions. One is semiconductor shortage. As what's being touched upon in the Q1. How many are in its of the productions impacted by the semiconductor shortage in the Q1. And then you may not be able to tell, But how long will that situation continue? That's the question 1. And second question, in the Southeast, Asian countries locked down, maybe because of the impact. And what is going on at the dealers, distributors over there? What is going on because of the lockdown in Southeast Asian Countries. So the Impacted by the semiconductor supply shortage now in the Q1. But until when will that continue? We will try to catch up in the second half this year. And we have reduced 150,000 in the first place and in the second quarter. I think we thought the impact will be resolved In the Q2 at first, however, because of the pandemic in the Asia countries and also dealers there, Plus, productions lost in some places and those impact is actually being carried over to the second quarter. And in the second half in principle, I believe we can catch up with that. We can recover that in the Q2. And the impact of the lockdown in Southeast Asia countries, At the moment, larger impact are seen in Indonesia, in Thailand and in Vietnam and in Malaysia. And dealers, of course, have different situations in place, different areas. I wouldn't say all of the dealer distribution Activities are stopped. That was really a variable from one place to another. Basically, those zeroes are still active by selling the products as usual. Thank you. Next question please. Automotive revenues, Mr. Hans, please. I'm wondering if you can tell us a little bit about the inventory situation in the United States. It must be very tight. The numbers say it's very tight compared to last year. How is that impacting incentives? Are you able to lower incentives because you have such low inventory? And what adjustments are you making To make sure that you can get more cars to dealers to increase those inventory levels. In other words, how are you trying to boost inventories in new ways? First of all, the inventory situation. For the industry on the whole, the inventory level is quite low. And regarding Honda as well, Because of the shortage of components, mainly in semiconductors, there's impact on air production. And in regards of Honda, the industry average is 25 days. Honda is currently 23 days, I understand. And therefore, compared to the normal situation, there is a very low level of inventory. And given this tight inventory situation, the cars which are due to be delivered to the dealers. We are trying to increase the inventory cycle and make it faster so that we can deliver more. Well, the United States, the people well, they buy it and they take home the car with them on that very day. So we need to deliver these new cars to the dealers as early as possible. But through digitization and other efficiency measures, and we have been doing this in the past as well. But using these new methods, we want to try to Adjust the Inventory. But in regards to the United States, thinking about the business style there, Unless there's an inventory at the dealers, it will be a very tough situation. So normally, we will try to reduce the inventory. Online. And including the online sales, we have to think about how we can try to sell despite tight inventory. About the incentives, let's begin with Honda. Industry is 2,700, and our average is 2,100. So in regards to Honda, I don't think that there has been such a significant drop in incentives, but Depending on the product, there are some differences. Thank you. Thank you. Next question. Weekly Toyo Teizai Mr. Toyo Teizai Yokoyama, Can you hear me? Yes. Thank you. I have two questions. One is about the Mobile Businesses operating profit. In the Q1, 3.1%. Last year, for EBITDA, it was 1%, therefore, with improvement. And what are the factors behind for that improvement? And question 2 is about European Businesses. European Commission that by 2,030, we are hybrid and those cars of those types are banned. And what's the plan for that? Sprint and Clamps is being used? And what is your positioning of European businesses, you say? And if we have any plans for the European businesses going forward, Please share with me. Okay. The operating profit for Locomobiles, as you said earlier. Last year, operating profit margin that was 3.1% at At Honda at pretty high now because of the North American markets and other areas where there are more numbers of units volume sold. And also, there were negative impact as well because of the selling raw materials and also the cost reduction efforts And also the price excuse me, the commercial value of the aircraft vehicles, that also is impacting. And So I think mainly it is because of the unit sales, the value number going up and that is impacting on that number, plus cost reduction efforts being fruitful finally. And then as for the European businesses, Electrification Businesses. In Europe, by 2022, We would like to make main products 100 percent electrified, and that is planned and our activities now. And When we say EVs, that includes HAV as well. Therefore, because of the announcement presently, actually, we need to look into the specific In context of that, now specifically with regard to what they want to do with the environment, tariffs, however, In 2050, we are trying to achieve a carbon neutrality. However, in response to the announcement We'd like to accelerate our electrification activities for our products. Thank you. Thank you very much. Next question will be the last question. Last question is Nikankogyo Shimbun Newspaper, Paper, Egami san. Mr. Egami? Ms. Egami, please. Yes. My name is Egami from Nikan Kogyo Shinbu Newspaper. Can you hear me? Yes. Well, you have been talking about the semiconductor shortage and also the lockdown and the pandemic spread in Southeast Asia. But in the mid- to long run, Well, you have been making various efforts like cost reduction and supply chain review. So do you have any plans that you can disclose for the mid- to long term. And the second question about capital investment. Well, you say that there is no major change, but due to the external environmental changes, Is there anything that you might change in terms of the substance of capital investment, About the supply chain, as I earlier mentioned, in the long run, in order to have a stable supply, stable procurement, we need to have more sources of semiconductors and consider how we should be holding our inventory. So there are a number of things that we are currently studying. The supply chain review needs to be done, I think, as a result all these factors. And about the capital investment, the Capital Investment. Well, it does include a number of things, and There are the renewal of existing equipment and new equipment. The External environment has been changing, and though the amount remains the same, if we have to accelerate our electrification efforts. I think what we'll be investing in will change. But currently, we have nothing that we can announce here today. Thank you. Thank you very much. Now this concludes our