Ladies and gentlemen, we thank you for joining us here at Honda Motor Co., Ltd.'s FY 2021 first quarter financial results announcement. I'll be serving as the emcee. My name is Watanabe from Corporate Communications. Allow me to introduce the members on stage. Executive Vice President, Representative Director, Seiji Kuraishi. How do you do? Senior Managing Director, Kohei Takeuchi. How do you do? As for today's announcement, due to COVID-19 pandemic, there are no audience inside this room. Instead, we are live streaming this session. We seek your understanding. I'd like to call upon Executive Vice President Kuraishi to talk about the FY 2021 first quarter financial results, please.
Allow me to begin my presentation. From the end of FY 2020, the COVID-19 pandemic has brought about global change, impacting people's lifestyle in many ways.
Honda also, in response to the lockdown and other restrictions and halt in economic activities, had to stop its production and marketing activities in many countries throughout the first quarter. In automobile operations, as of the end of April, when we saw a significant impact of the pandemic, we had suspended production in 12 out of 17 countries. Currently, all factories, plants have resumed operation, and we are working to quickly supply products to the market from the second quarter and beyond. The stagnant global economy has resulted in a major drop in demand. Business environment is extremely difficult, yet Honda will make all-out effort to overcome this crisis and will aim for further growth. Let me move on to explaining about FY 2021 first quarter results and the outline of the outlook we have for the whole fiscal year.
FY 2021 first quarter Honda Group's unit sales saw a drop in demand globally. This, combined with temporary suspension of production and marketing activities, resulted in a decline across all business segments. Motorcycle, 1,855,000 units, automobile, 792,000 units, Life Creation, 1,083,000 units. I'll next talk about our major markets. First, Japan. The industry demand was badly hit by the pandemic. In addition, there was a rush purchase prior to last year's consumption tax hike, resulting in a significant year-on-year decline for the quarter. Honda also saw a major decline in the cumulative three months results, though the new Fit sales were high. N-BOX series ranked top in the new car unit sales category in the first half of the year. FY 2021 results for the Japanese market is expected to dip below last fiscal year due to the impact of COVID-19.
The market slowdown is expected to bring down Honda's unit sales below last fiscal year. However, current sales are recovering, and with the new Fit and N-BOX and other key models, plus the effect of new model introduction, we will aim to expand sales. The U.S. industry demand is showing a significant downturn from last fiscal year due to the new coronavirus pandemic. The fleet market is especially hard hit. Honda, likewise, saw a downturn from the same quarter last year, but we secured top position in unit sales for the three cumulative month sales in the passenger market. Honda is recovering at a faster pace than the market. The U.S. market this fiscal year is forecast to finish below last fiscal year due to the research in the number of infections from mid-June and the major uncertainty ahead.
Given the market conditions, Honda is also estimating a year-on-year decline, but we will continue to offer attractive products like the CR-V hybrid launched last March. Next, China. Though we see the impact of the pandemic, economic activities have resumed, along with a number of government pump-priming measures, and the Chinese market has outperformed the first quarter of last year. As for Honda, though the launch of Breeze and Civic brought about good results, the supply shortage caused by temporary suspension of production had a negative impact, and retail sales was down from last fiscal year first quarter, though wholesales was up from the first quarter last year. In calendar year 2020, the overall Chinese market, though the market shrank during the first three months, in the second half, sales are expected to recover to a level equal to that of last year.
Leveraging the new model launch effect and full factory operation, plus supply recovery to the market, Honda is planning to outperform last fiscal year's unit sales. Moving on to motorcycles. The industry demand experienced a major downturn from first quarter of last fiscal year due to the pandemic. Asia was especially hard hit. Regarding Honda, though sales were good in China and the United States, due mostly to production and marketing suspension in Asia and Brazil, unit sales was much lower than the same quarter last year. Currently, due to lifting of restrictions in the largest market, i.e., Asia, and thanks to the resumption of production and marketing activities, along with stimulus packages, global wholesale is 38% year-on-year. Retail is 52% year-on-year. The recovery level is slightly above the market average.
This fiscal year, the overall market is expected to finish below last fiscal year due to the continuing impact of the pandemic in major markets such as India and Indonesia. Regarding Honda, though we are likely to see a drop in mainly our major markets of India and Indonesia, Vietnam and Thailand have currently recovered to last year's level, while China and the United States are above last fiscal year. Honda will work to expand its market share by continuing to launch attractive products so as to maintain its world number one position. Next, summary of FY 2021 first quarter results. Despite significant drop in demand attributable to the pandemic, combined with production and marketing suspension in many countries, thanks to Honda's company-wide cost saving efficiency measures, operating loss was JPY 113.6 billion.
There was a contribution from the share of profit of investments accounted for using the equity method, loss before income tax was JPY 73.4 billion. Compared to last fiscal year, profit dropped JPY 363.2 billion. If we were to exclude the pandemic impact amount of around JPY 440 billion, as well as the currency effects of JPY 10.8 billion, the numbers improve, resulting in a profit of approximately JPY 88 billion. Unit sales and financial results are as shown. Next, FY 2021 forecast. Amidst uncertainty deriving from the COVID-19 pandemic, Honda will make every effort to improve profitability. The forecasted operating profit is JPY 200 billion. Contribution from the share profit of investments accounted for using the equity method will bring the planned profit before income tax to JPY 365 billion. This is a drop of JPY 424.9 billion year-on-year.
If we were to exclude the COVID-19 impact difference from last fiscal year amounting to approximately JPY 500 billion and currency effects of JPY 80 billion, profit would be approximately JPY 150 billion higher than last year. Honda will continue to make effort to make steady business structure improvement and bring about improvement in earnings structure. The unit sales and financial results are as shown. Next, regarding dividend. The dividend for this current first quarter is JPY 11 per common share. The annual dividend for FY 2021 is forecast to be JPY 44 per common share. This is a drop of JPY 68 annually, but payout ratio is 46%, at par with last fiscal year. Next, I'd like to call upon CFO, Senior Managing Director Kohei Takeuchi, to give you the details.
Let me start. Regarding a financial summary of the first quarter, three months, the group unit sales of the motorcycle business increased in China and so on, and fell in India and Indonesia and so on. That of our automobile business increased in China and so on, and it fell in the U.S., Japan, and in India. With regard to the profit and loss situations, the sales revenue was JPY 2.1237 trillion due to the decline in all business segments. We had a reduction in SG&A costs and so on. Because of the revenue decline associated with the volume and model mix, we resulted in the operating losses of JPY 113.6 billion. Let me explain the factors behind ups and downs of the profit before tax.
Despite the decrease of the SG&A or the effect of the cost reduction efforts, because of the impact of the COVID-19 on the decline of the unit sales and so on, profit before tax fell by JPY 363.2 billion from last year. If we exclude the impact by COVID-19, around JPY 440 billion, and the negative impact of the foreign exchanges, JPY 10.8 billion, that are included in the profit before tax, we would have about JPY 88 billion higher profit year-on-year. The pandemic impact also is found in the volume and model mix factors, SG&As, and in equity income. Let me move on to our performance by business segments. In motorcycle businesses, unit sales declined. With reduced SG&A and R&D expenses, we managed to have operating profit of JPY 11.2 billion. In automobile businesses, SG&A expenses reduced.
Due to unit sales decline in the U.S. and Japan, we resulted in operating loss of JPY 195.8 billion. In financial services businesses, due to the credit loss provisions booked differently, the operating profit was JPY 71.5 billion. In the life creation others business segments, we had operating losses of JPY 0.5 billion due to reduced SG&A and R&D expenses. These segments includes operating loss of JPY 7.1 billion for the aircraft and aircraft engines. With regard to the cash flows of our businesses during first quarter FY 2021, it turned to be the negative of JPY 442.2 billion. Cash and cash equivalents at the end of the first quarter period was JPY 2.2509 trillion. The net cash amounts to JPY 1.4195 trillion, which equals to 1.4 months worth of our sales revenue, as we estimate.
As of now, there are no major concerns in terms of the liquidity on hand. We will try to restrict cash spending, such as investments and expenses across operations worldwide, whilst obtaining financing as necessary in order to ensure our liquidity on hand going forward. As for the consolidated forecast for our FY 2021, we expect the group unit sales of the motorcycle business to be 14.8 million units. Automobiles, 4.5 million units. 5.31 million units for life creation businesses. This is the forecast of FY 2021 consolidated business performance. Let me explain the factors for ups and downs of the profit before tax. We will push forward our efforts to improve revenues by reducing costs and SG&A, and so on.
Profit before tax will be down by JPY 424.9 billion year-on-year due to the impact of the foreign exchanges, as well as the profit squeeze associated with the volume and the model mix. The COVID-19 impact on PBT for the last fiscal year was about JPY 165 billion. We anticipate that it will diminish toward the end of this fiscal year. We estimate it around JPY 665 billion finally. If we exclude COVID-19 impact of JPY 500 billion, its variance from last year, and the negative impact of the foreign exchanges of JPY 80 billion, we would have about JPY 150 billion profit increase year-on-year according to our estimate. The COVID-19 impacts are included in volume and model mix, SG&A, and equity income, respectively. This shows our expectations of CapEx, depreciation, amortization, as well as the R&D expenditures in FY 2021.
Thank you very much indeed for your attention.
Thank you.
Thank you very much. This concludes our presentation for the first quarter financial results, FY 2021. We will start entertaining the questions from the media participants. We have already announced the web meeting system to the media participants prior to this meeting, and we will accept the questions through that system. We will resume our session at 3:40 P.M. Please wait for a while.
Now I'd like to proceed to Q&A. We have arranged for a media-dedicated web conference system. Please raise your hand and wait until you're recognized. Those who want to ask the question, please switch on your Teams microphone. While you're asking your question, please mute your YouTube Live. The first question is from Nikkei Shimbun, Mr. Hanada. Hanada-sama, mic on.
I'm Hanada from Nikkei Shimbun. Can you hear me?
Yes, we can. Hello, can you hear me?
I have two questions. First is about the investment for this fiscal year. Well, capital investment, R&D expenditure, you've already given me the total amount, but can you explain more about how you are going to try to nuance the investment? For example, telework, security, it might be that you have to increase your IT budget, and also R&D CASE investment might have to be increased.
Due to the COVID-19, you might have to cut down some of the investments you're planning for this fiscal year. About the future outlook of your motorcycle business. In your report, you said that in India and Indonesia, due to the pandemic, and also due to the expected prolonged economic downturn, how are you estimating the future demand for motorcycle? There are other factors, such as environmental regulations and competitors in India. How are you going to try to improve your profitability given all these conditions?
Thank you very much, Mr. Hanada. This is a summary of the question. The first question was in regards to capital investment, R&D expenditure for this fiscal year. How are you going to try to nuance your budget? The second is in regards to motorcycle business. Given the situation in India and Indonesia, how do you see the recovery of the motorcycle business? Please.
First, about investment, R&D expenditure. We, in order to further grow our business, we believe that we need to continue to invest. This will remain unchanged. Meanwhile, due to the COVID-19 pandemic, the work style is going to change. We have to try to build the environment for telework and strengthen our security. We need to invest in ICT, and at the same time, work on CASE for the future. We need to invest in particularly these areas. As we've been saying, we have to solidify our existing business and also prepare new businesses for the future. Given the changes taking place due to COVID-19, we have to accommodate these changes.
In regards to investment, R&D expenditure, it might be that we will have to review our plan. We want to keep this to a minimum. Also, we want to collaborate with others so as to make efficient our R&D and expedite our business speed. Next, about the motorcycle business. Globally, motorcycles are, in our major markets of Asia, India, Indonesia, badly hit due to the COVID-19 pandemic. We have yet to see the situation be contained. We do not want to engage in discount race. Instead, we want to continue with the measures that we've already put in place, enhance our presence in these markets. Once the market recovers, we want to make more efficient our business. Meanwhile, in Vietnam and Thailand, where we have high profitability, we have already seen the situation normalize.
We want to keep an eye on the developments in different countries, areas, and respond in line with the local situation. That's all. Thank you.
Next question. From NHK, Mr. Ooe, please start your question. Please turn on your microphone on the Teams system.
My name is Ooe from NHK. Can you hear me? Yes, it's fine. Thank you. I have two questions. First one, automobiles full year sales expectations, 4.5 million units, 6.5% down. In major market, in China, it is going to be higher than last year, but not in the U.S. and Japan. What is the details of the ups and downs of those figures, and preconditions? What is the key for you to have the recovery of the market and what is your outlook on the market now? The second question, if I continue, your forecast of the revenue full year is going to be JPY 200 billion profit. Would that be driven by the motorcycle businesses, like in the first quarter?
How can you say that you can ensure the profit for the full year expectations? Thank you.
The question is the forecast of automobiles, 4.5 million units, that is 6% down from last year. What is the increase or decrease from last year in China? What is the key for the recovery? Those are the questions. The second question is, the revenue forecast full year, JPY 200 billion, operating profit for the full year expected. Will that be driven by the motorcycle businesses like the first quarter? What is the factor behind profit expectations?
Let's start with the automobile forecast, and then Seiji Kuraishi-san will follow me later about profit. Our forecast of automobiles, businesses, we look at the infection situations, pandemic situations, and the sales situations in different places now, and the things are uncertain still today.
As of now, major market for automobiles are China, that's ours, and the U.S. and Japan as well. Those are our major markets for automobiles for us, those are the recovering market as of today. Major ones are China. The Chinese government have decided to extend the preference policy for the cars of those kinds and also the number of plates. They are also well supported so that we can now see those reduction being less and less today. It was 39,000,000 before, but it is going up. At [WD-HIC and JHIC], in both of the facilities we have marked the record highest production so far. For instance, Guangzhou of 125%, 40,000, and at [Hong Fu] , 60,000 units production and so on. That's also the record. We are seeing the recovery now.
We have a plan to launch new models. I think in this calendar year, we will try to hit the same level last year and a higher level next year. In China, in April, because of the COVID-19, many dealers had restricted activities in their plant. We had a lockdown situations from the end of March through the early May. All of the plants were shut down, and we had more than 50% less activities the first quarter. However, now we have resumed operations, and then now we have come to the level of 80% of last year level. From end of May and so on, we are now seeing the COVID-19 situations coming up again, and there are some restrictions in the different provinces because of that.
We need to keep an eye on the pandemic situation so that we can regulate our resumption of the plant operations. In Japan, immediate period, I would say it is recovery trend. Looking at the COVID-19 impact on the economy, we expect the level below last year to be, for instance, 4.5 million units. Actually, it's supported mainly by U.S., Japan, and Asia, though the number of the units are not many. In India, Indonesia, for instance, we don't see the COVID-19 impact, not certainly yet in those countries, so we have to keep an eye on those smaller countries as well. Anyway, we need to keep an eye on the pandemic situations, at the same time, to try to do activities to ensure ourselves in different markets.
Thank you. First quarter, we had JPY 11 million negative, and then we had JPY 200 billion, too.
That's appropriate to expect. I think in the first quarter in sales, we have 60% fewer unit sales. However, even that, we have a structure to ensure the same level of the profit. The second quarter onward, if the COVID-19 impact diminishes, I think we can drive the profit. For the automobiles, we have a 40% less unit sales to expect because of that negative situations. Even that, from the second quarter onward, we expect some recovery, which will help the profit as well. Because of the asset situations, actually, some of the segments are categorized as the finance services. That is to help the consumers to be able to buy the cars easily based on the captive finance mechanism. Those are the financial services based profits, which will be the part of the profits in the second quarter.
A JPY 20 b illion expectation is to include all of that. Of course, the motorcycles are strong, but automobiles recovery will be included in our expectations of JPY 200 billion. Thank you.
Next question, please. Asahi Shimbun newspaper, Kamizawa-san, please.
How do you do? About the impact of COVID-19 pandemic. As a premise, the impact of the second wave, what is the assumption that you're making in terms of the second wave impact? In addition. Well, SG&A, there is an add-on. Can you talk about the reason why you think SG&A is a positive, including teleworking? Now, about Q1. The operating profit compared to motorcycles, automobiles are in a very tough situation. What's the current situation, and in order to improve this, what measures are you taking that is to improve the operating margin of the automobile business?
Well, in regards to your first question, it was about the COVID-19 impact. What is the assumption you're making for the impact of the second wave? You say that SG&A was a positive, but what are the positive factors? The second, about the automobile operating margin is being challenged. Why is that? What are the initiatives you're trying to take to improve this? Please.
About the second wave. Well, it's very hard for us to predict what will happen. In the budget, we have assumed that we will observe what is happening in the different regions, and based on that, assume what will be happening. In regards to China, I think that we will see the results to be equal to or better than last fiscal year. U.S., 80%-90% recovery is the assumption that we made for the budget compilation.
Japan, also, we are assuming a 90% recovery, more or less. These are the preconditions for the budget. Asia. Asia, the COVID-19 situation is very hard to read, and therefore we have to look at what is happening now and try to be on the safe side in forecasting the unit sales. It's very hard for us to predict what will happen regarding COVID-19, but the biggest impact we saw in the first quarter was due to the lockdown. Production marketing was totally suspended, and that was the most difficult thing that we had to cope with. We saw, as a result, the drop in sales and unit sales. In this lifestyle with the coronavirus, we have to think about what will happen. If the current situation were to continue, we think that the situation will not get that worse.
It will, at the same time, take time to recover to what we saw in the past. That is the premise based on which we compiled our budget.
About the automobile profit and how we have made the SG&A positive. Within SG&A, in line with the unit sales, the money changes, how much we spend changes. With the drop in unit sales, we have seen some of the costs go down. The money that we were spending on production and R&D was spent to try to make a recovery from the COVID-19. As a result of all these steps that we tried to take, we have seen a reduction in cost. About the initiatives taken to improve automobile profit, nothing really is going to change drastically, but instead, we are going to try to continue to improve production efficiency. We will try to improve R&D efficiency. All these things that we've been doing in the past will continue to be implemented. From April, automobile operations, our organization has been strengthened.
R&D also has been strengthened. It's only six months or so, and therefore, speed-wise, because of the impact partially of COVID-19, we understood that we need to reform, change things, and so this has been a driver to try to bring about change. Therefore, by doing the things we've been doing in the past, we believe for sure that we'll be able to improve. Thank you.
Thank you. Next question from Toyo Keizai. Mr. Kishimoto, please.
My name is Kishimoto from Toyo Keizai. Can you hear me? Thank you. First question about motorcycle businesses. In India and in Indonesia, emerging markets motorcycle businesses in the light of COVID-19 and infectious situations, there may be a greater concern about the recovery of the sales. How do you see that situation? Second question. As of now, you're pushing forward the reorganization of the production structures for the automobiles and for the improvement of the profit. Are there any impact on that schedule by the COVID-19?
Thank you for your question. The repeat of the question. There may be a concern about sales recovery due to the COVID-19 in the emerging market for the motorcycle businesses. How do we see the situation? That's the first question. Second question about automobile production system and its restructuring. Are there any impact by the pandemic in terms of the schedule?
For the motorcycle businesses in India and in Indonesia, there are sales slowing down because of some factors. One is COVID-19 infection are still going on, not resumed at all. Also, specifically in India and in Indonesia, their financial system is such that the government, for instance, have the term for the financial returns being delayed by the government schemes. Because of that, there are some serious delays about those payments. Quite a few customers for motorcycles may use the financing schemes. In some cases, those customers are not able to get finance enough to buy the motorcycles. Coronaviruses, it is difficult to predict. However, looking at the worldwide situations now, there will be recovery, the containment, some time.
In the financial scheme areas, we are trying to come up with the financing scheme that suitable for the emerging markets going forward that will help the recovery someday. In India, for instance, as I said, OEMs, other companies also offer the discount, and we are a top manufacturer of the motorcycles, and we don't want to be.
Involved in the discounting competition. Rather than that, we like to offer new financing schemes for them in order to maximize the sales over there. On one hand, Vietnam, Thailand, those are quite good countries with good profits, and there are less impact of COVID-19 on those countries. Therefore, if you look at the ASEAN areas on a whole, it may take time, but it will recover some time. To be honest, we don't want to be too hasty trying to get recovery over there. In terms of the automobile manufacturing structures, Sayama in Japan and HUM Turkey, HUM of the European area, those plants have been a part of the restructuring of the automobile production system, and there will be no major changes to them. No schedule changes, too.
Next question. Imamura-san from Sankei Shimbun.
Can you hear me? My name is Imamura from Sankei Shimbun. In regards to the tie-up with China's CATL, can you explain about the aim? Are you going to hold a stake in CATL? Are you going to mutually hold stakes? No. What is the reason why you've entered into this strategic alliance? In regards to China, the political situation is changing, and though this is a different sector, the United States, they are taking strict measures against companies which are using Chinese products. I think that the approach to China is being questioned. In the mid to long term, how are you going to approach the Chinese market?
Thank you very much. About your first question, we made the announcement the other day that we are going to have a capital tie-up with China's CATL, and it's only Honda that is investing in CATL. It's not a mutual investment. What is the reason for this was the first question, and second is in regards to this Chinese political situation. Things are changing politically in China and, therefore, in Honda, in the mid to long term, how are you going to approach the Chinese market? Please answer these questions.
About CATL, the relationship with CATL. Well, we originally, in China, had a long relationship in terms of battery supply. CATL has a high level of technology and competitiveness and is the top supplier of battery. They're the largest battery supplier for us, and therefore, I think that they're an important partner for the electrification of Honda.
We regard CATL as such a strong partner. That is the reason why we decided to invest in CATL. In promoting electrification, we want to create synergy with CATL, and that is the reason why we decided on this tie-up. In many ways, we want to continue to collaborate with CATL, so as to promote electrification and try to achieve our electrification goal. We believe that CATL is a very strong partner to make this happen. Next, about the political situation in China. Well, I worked in China in the past. Back then, it was not U.S., China, but Japan, China had a lot of problems. This is not something that's just started today.
In the past, China has been and will be the largest market in the world. It's a growing market. Therefore, we will work with China, just as we've been doing in the past. I think that there will be a number of things happening in the future. We want to keep an eye on what is happening and act on a timely basis. Currently, when I was in China. Because we had soured bilateral relations compared to now, it was difficult for Honda to do business in China. Nowadays, politically speaking, Japan and China are in a very good situation. Therefore, I think that compared to the past, at least so far, at this point in time, things are heading towards a good direction for Japan.
Including the political situation, things change day in, day out, and we have to act on a timely basis. I think that's important in doing business in China. That is all. Thank you.
Because of the interest of time, the next question is going to be the last one. Mr. Shimosato from Yomiuri Newspaper, please.
Shimosato from Yomiuri Newspaper. Change of the topic in a way. Because of the COVID-19, now people are paying attention more to the internet-based sales. Do you have any idea or any engagement of those areas as per different regions?
Region-based internet sales. That was the question, what we do today and our policy going forward. That was the question. In the respective regions, we have a variety of the actions in place. For instance, in the U.S., from last year, the internet-based sales have been put up.
We now have a model to push. In April this year, because of the lockout situations, customers were not able to come to the dealer shop. Because of that, we had quite good internet-based sales. It increased, and we'd like to put more efforts on that, too. Same story in China. Internet-based sales will expand going forward, and we will be getting ready for that as well. In Japan, some dealers have that system in place. However, as Honda, we haven't started really about our internet-based sales system in Japan, but we will consider that because of the coronavirus situations of the day. Thank you.
Thank you very much. I apologize for the limitation of time and for the questions we are not able to answer today. We will get back to you later by our Corporate Communications Department. Now, we would like to conclude our press conference for the financial results. Data and information are available on the honda website. Thank you very much indeed for your participation.