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Honda Motor (NYSE: HMC)
Q2 2024 Earnings Call
Nov 09, 2023, 2:00 a.m. ET


Prepared Remarks Questions and Answers Call Participants

Prepared Remarks:

Unknown speaker

Thank you very much for taking time out of your busy schedule to attend our briefing today. We would now like to start Honda Motor Company Ltd.’s financial results briefing for second quarter of fiscal year 2024. First of all, allow me to introduce the attendees today. Mr.

Shinji Aoyama, director, executive vice president, and representative executive officer, and chief operating officer.

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Shinji AoyamaDirector, Executive Vice President, and Representative Executive Officer

Good to see you, everyone.

Unknown speaker

And Mr. Eiji Fujimura, executive officer, chief financial officer.

Eiji FujimuraExecutive Officer, Chief Executive Officer

Good afternoon, everyone.

Unknown speaker

Mr. Aoyama will first present an overview of the financial results of the first half of financial year 2024 and full year forecast. Then, Mr. Fujimura will present the details for the results and the forecast.

Over to you.

Shinji AoyamaDirector, Executive Vice President, and Representative Executive Officer

Thank you very much for your usual understanding on Honda’s business activities. I will explain the financial results of the second quarter of our FY 2024 and its full year forecast. Let me touch upon the highlights of the results. Regarding the cumulative results of the year until second quarter FY 2024, we had high profits in motorcycle businesses, in addition to the significant improvement of our profitability in automotive businesses where production volume had recovered mainly in North America and delivered a competitive product to customers.

Operating profit increased by JPY 243.1 billion to JPY 696.5 billion, and operating profit margin was 7.2%. Free cash flow of the operating companies, excluding that of the financial businesses, reached JPY 732.9 billion, exceeding the level last year on year. In terms of the business forecast of the FY 2024, although tough market environment exists in China and Asia, we will revise the previous forecast of sales revenue, operating profits, and the profit for the period, reflecting additionally strengthened profitable structures, as well as the foreign currency impact. For shareholders returns, we plan to increase the dividend by JPY 24 from the highest ever dividend of the JPY 150, until the share split to JPY 174.

We announced share buybacks at the financial press conference on May 11th, 2023, and the amount of the share buybacks as of October 31st was at JPY 163.5 billion for the upper limit of JPY 200 billion. Let me explain about automobile businesses in the main markets. In the United States, demands are solid. Semiconductors have been secured and productions have recovered.

Thus, with the highly competitive new models that were launched last year, the result marked significantly higher year on year. In China, because of the impacts by expanding new energy vehicle market and intensifying price competition, the results ended below last year. In terms of a sales outlook for the FY 2024, we anticipate incremental unit sales in Japan. Nevertheless, tough market environment in China would continue for some time now, so we would like to revise the previous forecast.

However, overall, we will achieve higher results year on year. Speaking of our actions for electrification, we announced the launch of a new EVs, Acura ZDX and Honda Prologue early 2024. In North America, we agreed with BMW and Ford to establish a new company, ChargeScape, in order to provide energy services that will contribute to a stable powered grid network by utilizing EVs. In Japan, we concluded a memorandum of understanding with the Mitsubishi Corporation in order to explore commercialization of energy management businesses.

Next, let me talk about the motorcycle businesses. In the first half of the fiscal year, overall motorcycle business performed higher year on year due to incremental unit sales. Thanks to the solid demands in Indonesia and Europe. During three months of the second quarter, we had more unit sales due to solid demand in Indonesia and Brazil.

However, overall businesses fell short of the same time last year because of the unit sales decline due to economic slowdown and so on in Vietnam and China. Regarding sales expectations for FY 2024, reflecting decline in Vietnam and China, we will revise [Inaudible]. On the whole, the business will be at the equivalent level year on year. Speaking of our actions for electrifications in the Japan Mobility Show the other day, we exhibited our SC e: Concept, which employs two sets of the Honda Mobile Power Pack e: for replacement of batteries.

Next, this is the outline of the first half of FY 2024. Despite impacts around expenses, thanks to incremental unit sales and the pricing that reflects, improved their commercial values. The operating profit marked at JPY 696.5 billion, up by JPY 243.1 billion year on year. Profit attributable to the owners of the parent.

During the first half, it was JPY 616.3 billion, up by 277.7 billion. This is the focus of the consolidated business performance of 2024. Despite a tough market environment in China and elsewhere, as well as decrease of warranty expenses that occurred in the first half, reflecting the fortified earnings structure and forex impact, we have revised the operating profit expectations to JPY 1.2 trillion, up by JPY 200 billion. Profit for the period attributable to the owners of the parent is expected to be JPY 930 billion, up by JPY 130 billion.

Foreign currency assumption is set at $144 in the second half, as well as for the full year. Expectations of unit sales [Inaudible] are shown on the slide. Interim dividend for FY ’24 is expected to be at JPY 787 per share, and the dividend for the full year will be JPY 174, up by JPY 24 from the previous forecast of JPY 150. That was based on the criteria before the share splitting.

Next, Mr. Fujiwara will explain details of the financial results and forecast.

Eiji FujimuraExecutive Officer, Chief Executive Officer

OK then. Allow me to start the explanation to begin with, Honda Group’s unit sales for the first half of fiscal year 2024. In motorcycle operations, unit sales grew year on year, mainly in Europe, to 9,262,000 units. Automobile sales came to 1,934,000 units, mainly due to growth in North America.

And in power products operations, unit sales came to 1,826,000 units, mainly due to the decline in North America. Next, I would like to explain the factor analysis of pre-tax profit for first half year compared to the same period last year. Operating profit grew by JPY 243.1 billion compared to the same period last year. To give you a factor analysis of the operating profit, impact from sales was an increase of JPY 219.2 billion due to unit sales growth in automobiles, selling price and cost factors, was an increase of JPY 205.7 billion due to the effect of pricing in line with the enhanced product value and lower prices of precious metals and other raw materials.

Expenses gave us a negative impact of JPY 214.3 billion, due to an increase in warranty expenses and other expenditures. R&D expenses led to profit decline of JPY 30 billion, and currency effect resulted in a positive impact of JPY 62.4 billion. Pretax profit led to an increase of JPY 363.4 billion, resulting from evaluation gains of foreign currency denominated bonds and interest received. Next, to explain the sales revenues and operating profit by business segment.

Operating profit was JPY 253.3 billion for motorcycles, JPY 301.3 billion for automobiles, JPY 137.0 billion for operating profit from financial services, and JPY 4.8 billion for power products business and other operations. Next, I will cover the cash flow situation. Free cash flow of the operating entities, excluding financial operations for the first half of fiscal year ’24 came to JPY 732.9 billion’ and the end of term balance of net cash at the end of the first half came to JPY 3,356.6 billion. Next, I would like to talk about the forecast for fiscal year 2024.

Firstly, speaking of Honda Group’s unit sales compared to the previous forecast. In motorcycle operations, considering the decline mainly in Asia, forecast is for 18,080,000 units. In automobiles, 4.1 million units, considering the decline mainly in Asia. And in power products, 3.85 million units in view of the decline, mainly in North America.

Next, I would like to explain the factor analysis of pre-tax profit compared to the actual results from last year. First, operating profit is forecast at JPY 419.2 billion, up from last year’s results. To explain the contributing factors, impact from sales is forecast at positive JPY 371.6 billion due to growth in unit sales of automobiles. Selling price and cost impact is positive JPY 394.0 billion due to effect from our pricing in line with enhanced product value, as well as lower raw material prices.

Expenses impact is expected to be negative of JPY 321.4 billion due to warranty-related expenses and increase in selling expenses. R&D expense impact is negative JPY 51.1 billion and currency effect is forecasted positive JPY 26.0 billion. Pretax profit is forecast at JPY 515.4 billion higher, considering the decline of JPY 42.4 billion in equity and earnings of affiliates due to decline in automobile unit sales in China, and gains of 138.6 billion from higher interest received. Next, I will explain the contributing factors in comparison with the previous forecast.

Operating profit is forecast at up to JPY 100 billion compared to the previous forecast. So, we’ll give you the breakdown. Impact from sales is a negative of JPY 69.0 billion due to unit sales decline. Impact from selling price and cost is a positive of JPY 129.0 billion due to effective pricing in line with enhanced product value and lower prices of precious metals and other raw materials.

Impact from expenses is a negative JPY 163.0 billion due to increased warranty expenses. Impact from R&D expenses is a positive of JPY 9.0 billion, and currency effect is expected at JPY 294.0 billion. For pre-tax profit. Our forecast is up JPY 210.0 billion, considering the decline in equity and earnings of affiliates of JPY 110.0 billion due to decline in automobile unit sales in China and increase of JPY 120.0 billion from higher interest received.

Lastly, the forecast for capital expenditure is depreciation, amortization, and R&D expenditures for fiscal year ’24 is as shown. This completes my explanation. Thank you very much for your attention.

Unknown speaker

Thank you very much for your attention. Now, I’d like to take the questions from the floor. And we have already provided the Zoom network for the questions from the media. And because of the interest of time, please limit your questions to two questions per one person.

Thank you for your cooperation. [Operator instructions] So, first question from Yomiuri Shimbun newspaper, Mr. Nakamura, please.

Can you hear me?

Yes, please.

Nakamura from Yomiuri newspaper. I have two questions. First one is our semiconductor procurement situation, please, in Japan, China, North America. In the different regions, what is the status of the semiconductor procurement and what is the outlook for the future about semiconductor? Second question is the sales reduction — decline in China.

What do you think is the reason for that? And do you have any idea to recover the sales after the third quarter onward, please?

Thank you for the question. So, let’s start with the semiconductor procurement. On the whole recently, we have made great improvements on that this fiscal year. Specifically in the second half, we have no problems.

Almost no problems today. In the first half, we had a little bit of the issues remaining. However, as of now we have no such problems in China, Japan, and the United States. The differences in the regions, actually, there is none at all, no regional differences.

Last year — last fiscal year, we started direct conversation with the semiconductor suppliers. And for most of the semiconductors, we have an alternative sources and so on. And thanks to those efforts, we have made a good improvements recently. And then last year end, we had our priority of the semiconductor procurement in North America so that we can support the production and sales in North America.

That was actually what happened as well. And for this fiscal year in China, market is a little bit slowing down. Our businesses there is a slowing a little bit. And we now decided to use the semiconductor parts for the Japanese market instead.

With that, we can increase the number of the sales volume in Japan. And going forward in this spring, TSMC and we had the decision to have a strategic collaboration. And we also have other collaborative relationship with the other semiconductor suppliers that we now have a software-defined trend, and demands for the semiconductors will be higher going forward, so that what we like to do is to be ready to catch up with that. And I think second question is a sales decline in China.

And there are two factors behind here. And one is, as you know, tax deduction measures like for NEV, new energy vehicles. With that, the NEV sales is expanding in China and Honda has ICE or have hybrid. There is our model lineup there.

Because of that, we have some difficult situation. However, though it is on the bit of a decline in the ICE market, in a very specific market of ICE, in fact, like a big category SUV, we are not winning. We buy other companies. We have some struggles there, but we are turning to the BEV focus more.

And from 2024, we are going to launch four models of BEV so that we can catch up with the market. Thank you very much.

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

This is Noguchi from NHK.

Yes. We can hear you. All right.

For the results — financial results for the first half, I believe they look very good in terms of numbers. So, I would like to ask for your ideas on wage rates. We might be a little bit earlier to ask about this, but I’d like to ask you about your thoughts on raising salary wages.

One question is OK.

Yes, I just have that one question. Yes. Thank you.

Shinji AoyamaDirector, Executive Vice President, and Representative Executive Officer

OK. About raising our wages — wage hike, we need to, of course, think about this in terms of the global context. But for example, if you look at the States, U.S. market, the UAW issue was there.

And then we ourselves, of course, would like to take appropriate actions. If you think about the wages in Japan last fiscal year — sorry, the salary base of the regular wage hike, we did it at the beginning of this fiscal year. But for next fiscal year as well, we would like to take proactive actions considering the government’s guidelines as well. And then we would like to, well, think proactively toward raising wages possibly.

Anything to add, Mr. Fujimura?

Eiji FujimuraExecutive Officer, Chief Executive Officer

Well, as mentioned, if you think about the Japan — I believe you must have asked about the situation in Japan. But if you think about the recent inflation that is happening also in Japan, we need to consider that. And also, because our business performance has been growing and then, of course, going forward we will see new business. Well, we’ll go through this transformation to electrification business, electrification of vehicles.

So, that would be our second transformation which is supported by human resources. That’s been our per CEO’s idea so, for this year — fiscal year’s salary raise. And then going forward as well, we would like to have very earnest discussions — we have had earnest discussions between labor and management, and that’s where we are here. And then so for — going forward, we like to continue this trend.

But still the spring offensive timing is still far ahead. So, we will continue our discussion with the union. So, we will — and then we will think about investing into human resources or human assets.

Unknown speaker

Thank you very much, Mr. Noguchi. Next question from [Inaudible] Mr. Okinaga, please.

[Inaudible] newspaper, Okinaga. Thank you very much. I have two questions. First one, the revision of the forecast is a good result.

China is now down revised instead. And in terms of the sales revenue, for instance, factory restructuring or the other measures and so on. Do you have any idea about that? And the second question?

Maybe we can start with the question one. First question, in China, we have our production capacity, 1.49 million car production capacity. That is what we have as we launched before. We have a two joint venture entities over there.

And we have 120,000 units of capacity, BEV specific production companies in two places. And then that means we will have 1.173 billion or so. And we have, of course, discussions with the RGB companies for the ICE production area specifically, so that we can try to reduce the fixed cost of the ICE production, speaking of the restructuring plans and so forth for the factories. And also, incentives, as of now, ICE hybrid, those are our main business models, and we need to kind of support ourselves by using incentives in this forecast we are sharing today, especially in the first half, we are going to support a current level of the incentives to continue to support the current ICE businesses.

And the U.S., the economy economy’s good in its sales rising. However, you have a little bit of a down revision.

And what about — we have a delinquencies of those repayments loans. And what do you expect the economy in the second half onward including the yen depreciation?

Shinji AoyamaDirector, Executive Vice President, and Representative Executive Officer

A part of the question will be supported by Fujimura-san. In terms of the interest rate hike, of course, it’s like an incentive kind of thing. American Honda Finance Company has a business, and the American Honda has the business in relation to the incentives. But until now, we have a credit score assessment.

And the customers we have have a good credit assessment to start with. And then because of that we do not have a big impact as of now. And trading values of the cars, index shows a bit of a downtrend of the prices of the used cars. However, the level is still higher than the conventional used car price level and bad debts and so on.

We have some provisions for that. However, it is not as much as it would impact on the statement of the finance today. Then also the residual values of the used cars. It does not have any impact on the P&L as of now.

And maybe my colleague can support a bit.

Eiji FujimuraExecutive Officer, Chief Executive Officer

I have nothing to add.

Shinji AoyamaDirector, Executive Vice President, and Representative Executive Officer

Numbers maybe.

Eiji FujimuraExecutive Officer, Chief Executive Officer

After COVID, in the United States, we have a support to the families and so on. Subsidies to them. And root of the delinquencies, the bad debts is actually at historic level. That is very low at the moment, and delinquency level is a little bit rising today.

However, the bad debt rate is also rising a little bit. However, still, it is a 0.5% of the bad debt levels. And in a way, this is a situation where — the situation is returning back to the pre-COVID level. And it is a kind, of course, loss sort of orientation to us.

However, in a way, it is a normalization, too. During the COVID period, finance businesses, we had a 300 billion or 400 billion. And it was like a reversal of the lost cost or something. However, for that amount, for that part, 250 billion operating profits actually generated from the finance businesses and 2% to 3% of the credits of the finance, that is the kind of the businesses of finance.

But what I can say is that it is being normalized and a residual value losses in relation to the used car prices. And we have a setting of the residual price level. And it is still on the positive side. That positive range is a little bit squeezed.

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

Thank you.

Unknown speaker

Thank you very much, Mr. Okinaga. The next question is from Kogyo Kasai. Mr.

Yokoyama, please.

This is Yokoyama from Kogyo Kasai. Thank you. Yes, we can hear you. I have two questions as well.

The first is about the financial results. So, if you look at the first half and the second half, it looks like the second half is going to see lower operating profit. So, I just want to see how you’re viewing the numbers the performance. So, you downward revised for North America.

And then China is getting sluggish. So, I just want to see how you view this. And about the upward revision. So, compared to the previous year, if you exclude the foreign currency effect, I guess your profit is going to get less.

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

Thank you.

Shinji AoyamaDirector, Executive Vice President, and Representative Executive Officer

OK. Thank you for your questions. So, about the details of the numbers, Mr. Fujimura would provide some additional information.

But if we look at the first half and the second half, I think this is how probably is happening every year. But second half is, slightly, we tend to look at the second half somewhat conservatively, but at the same time, as a fact, we cannot — in terms of expenditures, we tend to have a bit of a bias on second half if you compare those two halves. That’s true. And then as you commented already in North America, the downward revision in the North America, because regardless of semiconductors in the first half, we didn’t have a good supply situation in the first half.

So, maybe that was slightly over 20,000 units or a little bit over. And that happened in the first half. And so that’s been incorporated into the first half. And then the sales and — production and sales in the second half.

If you look at the capacity in North America, it’s almost at full capacity. So, some of the shortage we had in the first half at the supplier, we cannot really recover that and the second half. And that’s why it looks like that. If you asked about the real performance, so you said exclude the currency effect in our explanation actually, this one compared with the — let’s say comparing with the last year or the same period last year, the currency effect is very limited.

The ones, the presentation you’ve seen, I’m sure you’ve seen it. The currency effect is only 26 billion. So, that is against the last year — last period. And then particularly if you look at the operating profit, it’s 53.7% increase.

A lot of it is coming from automobile sales and — production and sales expansion. And also, we were able to leave the sluggishness from the shortage of semiconductor. So, because of that — and then, of course, we had some temporary warranty cost, but we have been able to get to almost ROS of 5%. So, we were at 4.7%.

So, this is only — we had some temporary warranty expenses. But we were able to show a good expansion of automobiles now that the shortage of semiconductor has ended. So, I guess that’s the answer to your first question. And then in terms of our assessment.

So, we are trying to get aim for 7% or higher ROS on 2026 fiscal year or later. And then, this is a 6%. That’s a 1.2 trillion is 6%. But I think we are making progress in line with our plans.

And about the second question, the terminating the joint development with a BEV together with GM. Of course, there is impact to the strategy. However, we will launch it from Honda’s global BEV and mainly in North America starting from ’26 — fiscal year ’26. We want to maximize the use of this platform and then — so I think we can avert any impact from this termination of this joint development.

Any numbers you want to add to this?

Eiji FujimuraExecutive Officer, Chief Executive Officer

OK. So, the gap between second half and first half. Before that, I would like to explain to you how the numbers for the first half were put together. As Mr.

Aoyama just explained, the volume expanded in automobiles in North America in particular. That was conspicuous. That was in the range of a plus 240,000 units. So, I think this unit sales contributed greatly to operating profit.

For motorcycles, almost over 60,000 units. So, it was just a bit of an increase. However, the Vietnam, which is our most — highest profit-generating market, even though they were in negative, Brazil, Thailand saw a good growth. And then that was — of course, we used to say that if we stumble in Vietnam, it hurts a bit.

But I think with other markets contributing, it has even out a lot for motorcycles. So, that we have been able to earn some good profit in automobile as well. So, we got 760 billion. So, 6%, 7.2% ROS.

A bit of a disturbance was a warranty expenses. We had 56 billion automobiles. And then we had 56 — another one for automobiles. So, total of close to JPY 120 billion for warranty claims.

So, that was a provision. So, we inconvenienced our customers a lot. But I think if we eliminate this, I think we should have been able to obtain ORS of close to 8% for the first half. And against that first half, I think we should be able to take away 700 billion — we take away from our JPY 1.2 trillion.

So, that will be JPY 500 billion. So, the volume will be higher. So, even if we considered incentive, it would be a bit of a 120 billion provision. And then the provision for the warranty, that would be — that doesn’t happen with the first half.

It was for the second half. So, 100 billion. So, that would be 220 billion. But as a total, that comes down by JPY 220 billion.

So, there was a bit of a difference between like JPY 400 billion between first and second half. But if you look at the currency, of course, the yen dollar rate is the same, but with the other currencies versus the dollar, they are getting better. So, we consider that into the second half. And then also, this was mentioned separately.

But to the Yachiyo Industry, we are doing a TOB. We will complete the TOB in second half against the Yachiyo Industry. And then the same thing as Honda Lock last year. We will have a bit of an impairment loss for this second half as a temporary charge.

So, with the Yachiyo impair loss at the currency, it will be like — second half will be lower by 100 billion or so. And then — so we still have the performance — bit of a difference is 300 billion. This would be — majority would be the expenses and also to the supplier because they have suffered from inflation. So, for Japan and in the States, for some of the suppliers, we do provide some — we are allowing them to raise the cost a little bit to survive through this.

So, that was a bit of, well, disturbing noises. So, you might have found it difficult to all put it together. But that’s how our situation is.

Unknown speaker

Thank you very much, Mr. Yokoyama. Next question from Asahi Shimbun newspaper. Mr.

Wakai, please. Mr. Wakai? Well, he has exited from the network. Next person, then, from [Inaudible] please.

Mr. Misotori speaking [Inaudible] I have two questions. First one is numbers to confirm. From April to September, OP [Inaudible] over last year and also forecast for the full year from last time.

You have ups and downs for the operating profits and the impact by the prices. What is the breakdown about it? And also, for the suppliers, you may have a price pass on, transfer of those incremental prices. That’s the question, one. And second one is BEV.

We have a heavy demands being a bit slowed down. And I can see that in the Ford and other companies. And they seem to be squeezing a bit on the investments on the equipment. But you say that you’re going to be ready to produce 2 million BEV as well in 2030 or so.

And I understand you have no change to those plans for the future. But do you have any idea to kind of stop and then decide to slow down a little bit, for instance because of those demands [Inaudible]?

Shinji AoyamaDirector, Executive Vice President, and Representative Executive Officer

So, I’d like to start with the second question first. So, I have no idea to decelerate our speed of the businesses. However, I won’t deny the businesses are slowing or softening. And especially in the U.S.

market, the demand is a little bit soft now. And as compared to the [Inaudible] speed, the growth speed is a little bit slowing down. And we really watch carefully the market trend and that is what we are doing usually watching out. And in 20 30, 40% of the advanced countries or 2 million BEV, that is our planned in 20 35, 80%.

We have no idea to change those plans. And in terms of the speed of the businesses, that we joint venture so on, the new factories in North America, we have those ideas. And of course, the next things in mind as well, to try to inform the ecosystem finally. And we like to steadily push forward those plans.

And the second question will be addressed by Fujimura-san.

Eiji FujimuraExecutive Officer, Chief Executive Officer

So, our first half operating profits and our previous forecast about it and the JPY 1 trillion for the full year, and we don’t disclose the first half, a portion of that. But I just share with you the image of the results and forecast and the 700 billion that was the results. And as compared to the budget level, in terms of the absolute level — value level, we have about plus JPY 10 billion level as ended. And then breakdown inside is we have a yen depreciation.

Now, we have JPY 140 instead of JPY 125, and we have JPY 125 billion impact by that and warranty. But we have about JPY 115 billion plus. And excluding everything else, it is almost offsetting everything around here. And practically speaking, in the North America, the number volume at the suppliers — some suppliers couldn’t catch up with the incremental production of the volume.

That is a loss of 20,000 and also slowing down economy in China and Vietnam. We have a negative situation of the unit of sales of the motorcycles, for instance. We have the decline of the units volumes and therefore the motorcycles. As I said earlier, we have Japan, Europe, U.S., Brazil.

We have the recovery to cover that, and we have about 40 million sales — 40,000 sales. And we have a JPY 50 million negative. And we had a cost reduction and the price optimization and raw material prices now, I think, are most stable today, and other expenses are also squeezed too. And other — all in all, we are absorbing those 50 billion.

And that offsets and plus 10 billion the net with the depreciation of yen. So, that is how that is kind of structured for the first half.

Unknown speaker

Thank you for the questions, Mr. Misotori. I would like to ask Mr. Kawasaki from [Inaudible].

Can you hear us, Mr. Kawasaki?

OK. This is Kawasaki. I hope you can hear me.

Yes. Your voice is coming through.

I have two questions. First, one is looking at the different OEMs, many have shown record high. So, looking at your sales volume and then operating profit. Net profit, if you have any record high.

That’s what I’d like to know. That’s my first question. And the other question is in the States, you have the GM Cruise, the autonomous vehicle. I believe in the States you have some — will stop suspension of operation.

Does that have any impact to your plans to start automated vehicle driving in Japan?

Shinji AoyamaDirector, Executive Vice President, and Representative Executive Officer

OK, for the first question, Mr. Fujimura will answer that one a little bit later. To answer your second question about the States — the Cruise or suspension of that, the GM Cruise activity, their activity itself is nothing I can comment on. However, for us to do in Japan, for us, we announced with them GM Cruise — General Motors and Honda, reforming a joint venture and then starting our commercial operation of a taxi from beginning of 2026.

But there has been no change to that plan at all so far. However, having said that, in the States, the situation in the states would need to be monitored closely, and then we need to discuss them closely with our Cruise and General Motors as well. But so far, our plan has not changed well, including all the relation with the relevant authorities as well. That’s what we would like to do.

Eiji FujimuraExecutive Officer, Chief Executive Officer

OK. So, you ask about the record high. So, to give you the numbers from our answers from first half, operating profit, pre-tax profit, and net profit, we — on all of those, we have shown the highest. And then of the 20 trillion and then 1 trillion and 200 billion in profit, that’s a record high and the same as pre-tax profit as well.

That’s for the full year of forecast. Thank you.

Unknown speaker

Thank you, Mr. Kawasaki. From the Reuter, Leussink Daniel, please. Mr.

Daniel Leussink.

Daniel LeussinkThomson Reuters — Correspondent


Unknown speaker

Can you hear us? Hello? Please.

Daniel LeussinkThomson Reuters — Correspondent

It’s kind of related to earlier question. The U.S. Cruise, automated driving. Actually, they had to stop the services by the Cruise for some time.

Do you think you really owed the Cruise? And if you need them, really, you probably maybe — you may have an idea for further investment in Cruise. Like a Cruise in the difficulty of a business management. Maybe you can support financially to invest the Cruise if needed. Do you have a such idea in case?

Unknown speaker

So, for this question, whether or not we — if we have that idea as of now, we do not have such a practical — specific idea. But of course, if there are changes of the business environment and conditions change and so on. If anything happens to Cruise, we have a collaboration with, of course, there’s a room for consideration. We will listen to them.

We will make appropriate a decision as needed. And as of now, we have — for you question, of course, of whether or not we have that idea today, I should say no, we don’t have any specific idea for the investment as of today.

Thank you very much for your question. The next question comes from Nikkei Business, Mr. Iyama, please. I hope you can hear me.

Yes, I can hear you. Thank you. This is related to your earlier question, but the low-price BEV together with GM. Why did you reach this decision? If you could tell us the background how you reach this decision, that will be helpful.

And another thing is about capital expenditures. I believe you’ve increased it a little bit. So, if you can tell us a little bit more about it.

OK. Thank you. Why we decided to suspend development — joint development with GM. Well, since we entered into agreement, we have done a lot of different studies.

And as a result of that, both parties reached the decision that it would be better for both parties, win-win for both parties if we don’t do this together. That was the simple conclusion that we reached. So, if we ask why, we discussed and discussed. And we decided that looking at the current market and then looking at the potential or our approach to the reasonably priced BEV, we had differences in our thoughts.

OK, about the additional capital expenditures, compared to the previous forecast, we’ve increased. I guess that’s what you’re asking about. But this is because we’ve done some currency conversion. So, compared to the last time, we raised it by plus JPY 40 billion plus.

So, of course, we used to assume JPY 125 to a dollar. But now we change it to JPY 140. So, for investment outside Japan, we converted back into yen. So, this — that’s why the substance has not changed.

So, please when you look at the chart showing the depreciation and R&D costs and capital expenditure, please look at it that way. Thank you.

Next question. Nikkei Asia [Inaudible] please.

[Inaudible] from Nikkei Asia. Thank you. And I have a question about the motorcycle businesses. One is a sales forecast in Asia.

You said it is downrevised because of the idea China and Vietnam. And could you elaborate on that please? What is happening in those countries that made you decided to down-revise your forecast? And according to your document, you have main five markets information. If you have any notable situations of other countries, too, please share with us, market or trend today. And second question is electrification.

And there was some exhibit on the mobility show. And in the automobile areas, infrastructure is not really catching up with the electrification needs. And in the motorcycle businesses in the emerging markets. What is the situation of the electrification there? And to deploy the — your electric motorcycle.

What is your plan?

So, for the question one in Vietnam, this year, as we’re in the springtime, the macro economy around export business is soured. Because of that, the market on the whole in Vietnam is shrinking quite sharply. And actually, the situation had hit the bottom already. And maybe in the fourth quarter, this fiscal year, we would expect some rebound recovery.

And the market in Vietnam is sort of intensified in the south of Vietnam, where the export business is the main business they rely on. And because of that, businesses of export dropped. We have the situation in China, the ICE vehicles — ICE motorcycle, excuse me, it is declining more than our expectations and incentives against competitors that is in place, but we couldn’t achieve enough share in the market because of that. We downrevised it.

But the motorcycle businesses, we have the decline of the business in China, Vietnam. However, we have already factored in those decline to have this. 11.8 billion unit sales of our forecast. And then other notable events, a trend maybe someone else talked about that before.

But we have advanced to developed countries Japan, U.S., Europe, and Brazil. Together, we are getting more profits there. And motorcycle businesses were kind of mainly coming from the Asian countries. But now those plus developed countries are getting good businesses, and that is kind of the particular trend we are aware of.

And for the electrification of the motorcycles, already in China, there is clear — the emerging market of electrified motorcycles in China that’s in place. But in the next one, two, three years, India will be the — more kind of notable motorcycle electrification market. And for the fiscal year 2027 or 2028, we are going to try to hit 1 million of those vehicles, and in 2030, 3.5 million or above. That is the number of units we are aiming too.

And earlier this fiscal year, we now have this new organization focusing on the electrification of power products motorcycles, so on. And we have a dedicated resources there for electrification to deploy those ideas. And then next year in 2024, we already announced it the EM1 E, Mobile Power Pack e based, mobility-type vehicle to be deployed in Indonesia and Mobile Power Park e based, other vehicles will be launched. We will announce later on about a specific news about that later.

Thank you very much, Ms. Take. Sorry about — due to time limitation, we’d like to make the last — this next question the last. Mr.

Ikeda from Sankei newspaper.

This is Ikeda from Sankei newspaper. Yes, we can hear you. I have two questions. The first one is about the automobile business, the operating profit ratio, how to read this.

How to interpret this? It’s 4.7% right now. So, that’s a big improvement. But is this just simply contributed by the sales volume growth? Or is it because of the vehicle mix that you are selling so that your most profitable models sold best or something like that? And then also for the second half and later, the operating profit ratio, if you look at it from the industry standard, I don’t think it’s sufficient. But for your design and development and car manufacturing and then new models that should be launching into the future, what are your vision? What is your vision for the profitability of our automobiles? That’s my first question.

The second question is, as mentioned already for the Chinese business. Do you have any structural reform? Of course, I guess you would need to do something about your ICE business. But what kind of timeline are you thinking of for changing your business? Is that something you’re going to start within this fiscal year? Is it that kind of short term, or is it going to be something for later that you will be spending more time to do something, and then you need to reduce your fixed cost? So, maybe some of the fixed equipment might have to be disposed of, or you might have to do some adjustments to human resources. Would that have an impact on your business performance? If you could tell me about those ideas to the extent you can, that would be helpful.

OK. Thank you very much for your questions. There’s a 4.7% of the operating ratio. It’s not that I’m satisfied, but we had some temporary warranty costs.

So, if we exclude that, I think we are above 5% I believe. And then for 2027, we wanted to bring it to over 7%. And then so, we wanted to have it higher than 5% already this fiscal year. So, in that sense, I think we are getting to the level that you — that we’re getting close to the level we’re trying to get.

Of course, the sales volume contributed, but we have been doing something particularly for the North American market that we wanted to have a lean manufacturing and management. So, by starting from model year ’21, Civic and then Accord and CR-V, those midsize vehicles’ cost structure, they have improved. And then also, we have been able to do a good pricing in line with the product value. So, the combination of those two led us to this current profit ratio.

And then going forward, actually, it’s — if you ask us if we had a very profitable vehicle models, you know, the product mix don’t change really. We have a C segment, this CR-V and Civic. And then we have D sedan Accord. That’s our best-selling volume cars.

So, that hasn’t changed. However, in each of the models, we have been able to raise our marginal profit ratio. That’s our situation. But as we’ve said, if you look across the industry, I am aware that it’s nothing really to be proud of.

OK. Next about the Chinese — China business structural reform. We would like to start something at an early stage. We are keenly aware of that.

However, having said that, we have a joint venture partner, so we need to discuss and then thoroughly, persistently, discuss with the joint venture partners to come up with some plans for structural reform. I don’t have anything I can tell you specifically. Anything you want to add?

No, I don’t have anything to add here.

OK. Thank you very much, Mr. Ikeda. OK, so with this, we’d like to complete our financial results briefing session.

About the financial results material, those are listed on the website. Thank you very much for your attention today.

Duration: 0 minutes

Call participants:

Unknown speaker

Shinji AoyamaDirector, Executive Vice President, and Representative Executive Officer

Eiji FujimuraExecutive Officer, Chief Executive Officer

Daniel LeussinkThomson Reuters — Correspondent

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