Thank you for taking time today. I would now like to begin Honda FY 2024 Third Quarter Financial Results Press Conference. First, an introduction of Executives on stage. Executive Officer, CFO, Eiji Fujimura.

Thank you. I am Eiji Fujimura.

Operating Executive Head of Accounting and Finance, Masao Kawaguchi.

Thank you. I'm Kawaguchi.

First, Fujimura will present the FY 2024 Third Quarter Financial Results and FY '24 financial forecast, followed by Kawaguchi's explanation on the details of both. With no further ado, Mr. Fujimura, please.

To start with, first of all, I would like to extend my deepest sympathy to the victims of the very worst Reiwa 6 Noto Peninsula Earthquakes occurred on January 1, as well as to their families, and I wish for a quick recovery and the reconstruction, restoration of the affected areas. I will explain the financial results of the third quarter and forecast of the full year of the FY 2024. Starting with the summary of the results. With regards to the cumulative unit sales into the third quarter of FY 2024, the unit sales of the motorcycles businesses increased mainly in Brazil and Europe, achieving the highest-ever operating profits and operating margins. In the automobile businesses, despite the impact of the warranty expenses, the volume went up mainly in North America, significantly raising the operating profits year-on-year. As a result, operating profits of the whole company marked JPY 1,076.3 billion with the operating profit margin being 7.2%. Regarding the forecast of FY 2024, although some challenging market environment exists in Asia, reflecting additional strength of the earnings structures and the favorable currency impacts, we will revise the previous forecast. For the shareholder returns, in order to improve capital efficiency, we made a decision of our share buybacks in the board of directors meeting today for the amount of JYP 50 billion. Together with the already acquired JYP 200 billion, this term, it will add up to JYP 250 billion in total. Further to the share buybacks, we resolved the cancellation of the treasury stocks as many as 154 million shares. Honda will accelerate our efforts to improve capital efficiencies in order to enhance corporate values. Let me explain the current situation of automobile businesses in the main markets. Due to the solid demand in the United States and the…

Let me begin. At first, the Honda Group FY '24, April to December, nine months unit sales by business area is as follows. Motorcycles, a decline to 13,961 million units compared to the same period last year, mainly due to decrease in Asia. Automobiles, 3,114,000 units led by an increase in North America. Power products business, total sales amounted to 2,548,000 units led by decrease in North America. Next, a change in profit before income tax for nine months and compared to the same period last fiscal year. Firstly, operating profit increased by JPY 342.4 billion. The change factors are as follows: Sales impact. We saw a positive impact on profit of JPY 282.4 billion mainly due to an increase of automobile sales, price, and cost impacts. The pricing that reflects increased products value, a decrease in precious metal prices and other raw material costs had a positive impact of JPY 359.8 billion. Expenses. Increase in warranty expenses plus other factors had a negative impact on profit of JPY 366.6 billion. R&D expenses had a negative impact of JPY 28.5 billion. Currency effects, a positive impact of JPY 95.4 billion. Profit before income taxes, despite a decrease in equity method profit mainly from China due to an increase in operating profit, interest income, and other, profits was increased by JPY 405.1 billion. Next, sales revenue and operating profit by business segment. Operating profit marked a record high of JPY 411.5 billion in motorcycle business. Operating profit for automobile was JPY 460.5 billion, financial services JPY 204.8 billion, power products businesses and others was a negative JPY 400 million. Next, I would like to explain the cash flow situation. The FY 2024, nine-month free cash flow of operating companies, excluding financial, was JPY 926.5 billion. Net cash balance at the third…

Thank you very much for your attention. So, we'd like to now continue on with the questions and answers. As we have announced before, we are going to take questions on the Zoom. And because of the interest of time, please limit your questions to two questions per person. Thank you very much for your cooperation.

The first question from the Asahi Shimbun Newspaper, Mr. Wakai, please.

Wakai speaking from Asahi Shimbun. Can you hear me?

Yes.

I have two questions. Question one is Daihatsu homologation problems. You have many Kei cars by yourself. And what is the impact of sales because of that? And those are fraud in the homologation and development stage. What sort of actions do you take to prevent those compliances? And the second question is the Noto earthquakes, there should be some reduction of a production ongoing today. What is your perspective going forward as a business? How do you address the situations, especially with the suppliers involved?

Thank you very much for your question, Mr. Wakai. Thank you for those two questions. And let's start with the Daihatsu fraud. These are other company matters. And we do not fully understand what actually had happened. Therefore, speaking of the financial status, and also what we do to prevent such things, that's the thing we can explain perhaps. And in terms of the results, Daihatsu may have a less number of the sales and then the sales of those Kei cars, whether that will be added to our sales of budget cars. In fact, we do not have any reflections as such effect of additional sales in our financial results at this time. However, of course, there should be some impact on the sales to a certain extent. However, their cars and our Kei cars are priced differently, different price range. And also, our Kei cars are not really shipped to the general dealers, different sales dealers. Therefore, the impact should be restricted, I believe. And also, in terms of our actions to prevent such fraud. At Honda, we have those homologation testing and we have those homologation department who does the testing and the application of those matters. Actually, this department is separately organized away from the development and the production. And in order for that department to conduct test and process for homologation, they already have the well-documented processes as to, for instance, how many days it should take until the acquisition of those certificates. And of course, those certification has to be given in order to make the process to go on to the next development process. We have the clear rules for that. Therefore, we do not have the system such that we can prevent the very tight development stage, which might induce the fraud…

Next question. Mr. [indiscernible], please. Mr. [Indiscernible], please. We cannot hear you. Can you check out with your microphone? Can you hear me?

Thank you for the presentation. I have two questions. Well, we have seen a number of recalls in this fiscal year. And I think it's reached to some tens of thousands. And you say that the warranty is JPY 353.4 billion. And does this include all the costs of a recalls? Or is it a case that the warranty expense will increase further from what you have already stated?

Yes, thank you. And yes, in the third quarter, well, the warranty costs expenses have increased. I did explain that. So, there was a fuel pump [indiscernible] this incident. So, this has been added to the fuel pipe. First of all, I'd like to express my condolences to the person who has passed away. But this, in terms of the accounting, the financial statement, is this reflected in the numbers? Well, in terms of the units, as you mentioned, it is increased to some few million units, and we will respond to this situation. And in terms of the financial statement, we believe that this is a failure coming from supplier side. And therefore, we will have them compensate for the recall expense. And this is how we've handled it in our financial statement. In regards to this case, the warranty expense is not that large. And that is our understanding. And the reason why it's large, in the February 1, the U.S. authority and we've already filed notification of a recall, there's a seat weight sensor. And there was a failure with the seat weight sensor. And we have added some JPY 55 billion for that recall. And I think that this is a reason that can be attributed to the increase in warranty cost. Thank you.

May I have an ask another about your buyback of shares? Why did you decide to acquire your own shares? Well, yes, I think there's still room for increase in shares given the weak Yen. And I think that impact of the interest rate hike in the U.S. and China. But is that the reason behind this decision, the resolution?

Well, about the acquisition of our own shares, we want to improve the capital efficiency. And recently, the issue is the PBR, onefold. Given this, I'd like to start talking from there. We, the management, we are aware of this PBR issue, and we take it seriously. And therefore, we are thinking of what we need to do. We believe that it is a responsibility for us to take further steps. It's about JPY 1,700. It's about 0.7 folds right now, and it's less than one fold, 1.0. And I think there are three reasons for this. Well, the three are: those accumulated from the past and the current and the future. So these are the three-folds. First, from the past. Over the past decade, our capital has increased from JPY 6 trillion to JPY 12 trillion. And so, it's 45% in terms of the ratio. And we have to deal with this past that we have. And the current situation is, that for a long time, the automobile revenue had dropped and therefore, the share prices were not increasing because of this situation. But in regards to this, I'm looking at the financial results here. As we've been saying for the past, we are trying to reduce the fixed cost and also improve the revenue of new models, and incorporating these measures, plus the shortage, we are starting to recover from the shortage of semiconductor, and therefore, the revenue of automobile business is improving. And so, this is the current situation. And what's more important is the future, the auto sector as a whole, their share prices are not picking up. This is because in this age of the XEV, we really don't know who the winner will be, and therefore, there is this lack of transparency, uncertainty. And…

Thank you very much, Mr. Nakamura. Next one, Yomiuri Newspaper, Mr. Nakamura, please.

Can you hear me?

Yes.

Nakamura from Yomiuri Newspaper. I have two questions. One about semiconductor procurement status now. The production situation is very well good now. But do you think that semiconductor supply situations have been recovered fully before the COVID? And the second question was, you said about pre-tax profits. And you talked about the precious metal prices. And what is the current status of those prices, including forex situation, too? You mentioned the reduction of the precious metal prices.

So, in terms of the semiconductor supply procurements this year or from the February, March periods, in 2023, the situation have been on the recovery, we've done a lot of measures and those actions are getting some fruitful results. And nowadays, it is not a concern at all. Once in a while, we might face some situation. However, recovered now. And now, we have a full-scale production in place after a long while until the second quarter or so. In the U.S. or the places like that, there were a shortage of the laborers at the supplier and equipment problem because the equipments were not running for quite a long time. And we had some situations like that. However, those issues have been resolved. And in the North America, full-scale production continues after a long stretch of not having one, but we have a stable condition. And in terms of the precious metal conditions, actually those utilized mufflers or catalysts in the mufflers, that is to purify the air emissions. A few years ago, the precious metal prices were soaring really. But in the last several years, prices have fallen, because in China, they have progressed the electrification. That may be the main reason for the precious metal prices dropping down. And in addition to that, in the electrification efforts, not just automobiles, but when the economy is booming, precious metals, steel, copper, resin, those material prices are to fluctuate a bit. We have to, of course, look at forex currency rates as well. We would like to keep watching out all those factors as we go. Thank you very much. Thank you, Mr. Nakamura.

Next question, please. Toyo Keizai magazine, Mr. Yokohama, please.

Can you hear me? This is Yokohama from Toyo Keizai. Thank you. I also have two questions. The first is about the full year forecast. Well, until the third quarter, I think that you are making good progress about the third quarter. I think the fourth quarter will be showing a slowdown in your operating profit increase. What's the upside and downside? You know, automobile and motorcycle power products, I think the situation will be different, but can you share with us your perspective toward the full year forecast? Can I continue the second question about China? Well, currently I think the unit volume is increasing, as you said, but at the last presentation, I think that there is a severe competition. There's a discount race in China. I understand that it's a situation, but how do you see the Chinese market environment? I think Mr. Fujimura talked about the need to cut production capacity. So, what are your thoughts on China?

Mr. Yokoyama, thank you very much. In terms of the numbers, the first quarter outlook, rather than talking about that, I wasn't asked to talk about this. I would like to give an overview of the financial results of this time. Well, this third quarter, the October-December, three-month actual, we had a JPY 380 billion operating profit. And the breakdown of the automobile and the motorcycle is JPY 160 billion each. So, it's RS 20.1%. It's the highest in terms of the quarterly result of motorcycle business. I think the situation is that -- well, this is continuation of what I explained. And there's a downturn in Vietnam and also there is a greater scrutiny in terms of the quality, but in Brazil and Turkey and Europe included, the unit volume is increasing or the profitability is increasing in Asia likewise, though there are areas where we see a decrease in unit volume. I think that we have a proper pricing in place and other efforts, which is trying to show results. So, for automobile, last fiscal year, there was the semiconductor issue. And so, this was a major challenge. But in North America it’s a plus, 120,000 units. This is mostly hybrid. Second quarter, there was a logistics disruption, but this has been cleared already. And thanks to this, we have a dealer inventory of 30 days. So, this is the standard that we have in place. So, 330 days. So, we reached this standard now. And in Japan, it's a plus 20,000. This is because of the semiconductor, the unit sales is in a positive range. Now China, it's plus. And this leads me into the second question, but it is a positive. But the third quarter last year, the third quarter, the inland area, there was a…

Mr. Yokoyama, thank you for the question. The third quarter versus fourth quarter, the fluctuation in the profit, as Fujiwara has already explained. Yes, just as well to give you some numbers. As was said, the third quarter, just the three months, we have some JPY 380 billion operating profit. And the full year forecast if you deduct this, according to our current plan for the fourth quarter, we are expecting some JPY 170 billion. So, there is a drop of some JPY 200 billion. But the reason is because the assumption is that foreign exchange. So, this is different. In the fourth quarter, we are estimating JPY 140 against the dollar. The third quarter, the average was about JPY 146 against the dollar. And therefore because of this difference, according to our plan, the premises was JPY 140. So there, is minus 80 billion or so. Meanwhile, the third quarter, as was said, the supplier, there was impairment of some JPY 50 billion. Therefore, this part will be knitted. And what we based is the fourth quarter, skewed a cost and also, R&D expense. Well, there will be the model development timing and the various activities that are underway which will influence this. But we think that the expenses are more skewed toward the fourth quarter. And this is about JPY 120 billion, compared three to four, it's a negative in the fourth quarter. And as I explained, the cost part, again, in North America mainly, the wage increase and labor cost and inflation impact. Cost is on the rise. And these things also has aggravated the cost situation plus some seasonality with the suppliers. And we have some adjustments to be made. And as these all combine to cost, it's about an JPY 80 billion, third to fourth quarter, negative. So, about the upside and downside that you asked. Upside, it's the foreign exchange. It's JPY 147. Well, it's difficult to predict the foreign exchange rate, but if it continues until March, then according to a capital plan, it will be on the upside. Meanwhile, the downside, North America economy and also the impact of the earthquake, these will be the downside factors. But through our sales activities, we want to minimize the downside as much as possible. That is all from me. Thank you.

Mr. Yokohama, about China, about the production capacity, I forgot to mention this, so I have to answer that part of your question. Last time, when we made our financial announcement, production situation in China, as I said earlier, we have 1.2 billion units capacity, about double yearly. We have the dedicated factory, two factories. So it'll come to 1.7 million units. And once these new factories are -- I'm sorry, is currently 1.49 million plus. And then there will be 1.7 million. We think of that 1.2 million is the appropriate level. We have to make adjustments for the remaining 0.5 billion. And for the China, we are talking with our partners. You know, in terms of how we see the issue, I think our partner sees the same way. We are the same page in regards to this issue. However, especially in China, when it comes to employment, they're very sensitive, and so I cannot give you any details here. But for the second quarter, we've been saying this, so compared to that, we are on the same page with our partner and moving forward. This is a progress report. And we have to make adjustments for 0.5 million units, and we have to talk to them about how this will be done. That is all from me. Thank you.

Thank you, Mr. Yokohama. So next question. [indiscernible] Mr. Taki.

Taki from [indiscernible] Can you hear me?

Yes, please.

Thank you. I have two questions. I'll go one by one. First question is about a current EV sales trend in our main market in Western countries, it is slowing down a bit, instead of hybrid cars getting popular, I hear that. How do you see that situation now? Would that be within expectations or would that be a kind of a tailwind for your businesses? And do you have a target of 2040? And what is the impact of that on the electrification strategy?

Thank you very much, Taki-san. And yes, we get this question quite frequently these days. But in terms of the Western countries markets, the EV growth is kind of slowing a bit. And in the U.S., EV ratio is about 8% recently. That's my understanding. And for us, I think such things can happen. So, we were sort of imagining this kind of thing could happen. But in the long run for 2035 or 2040, in line with the carbon neutrality trend, we need to push forward electrification initiatives. Nevertheless, this is our idea as a mobility company. So as of now, 20%, 30%, 40% and 80% are in 2035 and 100% in 2040. This is the battery EV goals. And such goals, to stand, no change, and we will just simply go on for that. And we are sort of a latecomer in EV area. Therefore, we need to make sure that we stay, the customer viewpoints, to find out and think what is the needs by the customers for the EVs, so that we can provide to them, to get a good profit from that. And that is the important point of this game. Therefore, we don't change the strategy. We simply go on what we do. And of course, the situation may change from time to time. And of course, there's a kind of a lag of several years and so forth. And then into 2020s, such things can happen. Therefore, of course, for strategic spending, maybe we can adjust the cash out timing and so on as we go. In the meantime, unit sales should be supported by some means as well. And we will stay flexible to support the situation like that. But in terms of the hybrid, popularity is quite solid. For sure, out…

Thank you very much. Second question, you talked about the challenging market situation in Asia, and you mentioned that several times. And closing for the first half, did you see any changes since the first half closing time? And what is the prospect of our upcoming situation of Asian markets?

Maybe I can answer your question based on the motorcycle businesses because of Asia. Since the last announcement, the change of the goals are not really happening. There's some differences. However, differences are always due to some good reasons. In Thailand and Indonesia, maybe in Thailand, as I said before, the loan credit assessment is tougher now and the economy is a bit slowing down in Thailand. Of course, there are situations like that. However, at Honda Duo Plus, it’s doing good, and we are getting the shares really high. And although we have a higher share now, the market itself is tough. And in Vietnam, the export businesses are facing with a tough situation because of the economic stagnation. And I thought the economy would recover quicker. However, maybe this condition may continue to fall this year '24. And for Honda Value 160, that's something we have to compete. And its market share has marked other high level. Negative thing could be. Our own situation, though, in Indonesia, the market itself is growing in Indonesia. But in the second quarter, there was a rushed issue of the airframes because of which we had a unit sales falling down. But we had measures and actions to recover our trust by the customers, and we are leading the sales recovery because of that efforts. And Indonesia sales next term, it will be on the positive side, I believe. And in terms of the future prospects, about different countries in Thailand, first, it will continue with a little bit of negatives for a more while. And I don't know it is related to the regulations, but there could be some upper limit for loans for the customers, starting in April. And when that comes in, Thai situation is be tough. And in India, if issues are cleared, it will be fine. India, Brazil, Turkey, European countries, including Turkey, our positive situation can continue for a while. So, thank you for your understanding.

Thank you very much.

Thank you very much. For the interest of time, the next will be the last question. Nikkan Jidosha, Misatori, please.

Can you hear me? This is Misatori from the Daily Automotive newspaper. I have two questions. The first is about China. Last time you said that it's about 1.1 million unit sales that you're expecting for the full year. That was at the midterm. But is your forecast unchanged? Is that understanding correct? I want to double-check this. And having said that, next fiscal year, what is the forecast? Well at the mid-term announcement, I think that you were saying that you were thinking that the same trend will continue into next year. Does that remain the same? And the second, I am going to asking this question, about the sales price and cost impact, the wonderful chart that you mentioned. Can you explain about the breakdown? So, nine months and also the full year. So, what are the factors that comprise these numbers? Thank you very much.

In regards to China, the 1.1 million units that we're expecting for this year, well, this is what we announced at the middle of the year. Of course, the big CRV, these core models, we have invested a lot of our resources here. And if we underperform, then we think that our market performance, as we shift to that, will not be good for us. And therefore, we think that we are selling at around the high price, but in order to maintain our presence, we think that we need to maintain a certain volume for the sake of the future. And then that is how we've competed. And as a result of the third quarter, we have slightly overperformed our plan. And it's plus 30,000 from the 1.1 million. The fourth quarter, there is a dealer inventory, that has stocked up and therefore about 160,000. So, we have narrowed down on our wholesale plan. But looking at the current situation, maybe the number could be larger, that is the impression that we get right now as of now. As for next fiscal year, the current 1.1 million units, plus EV, the EN series, the second of the series will be the first step and the third series, that will be coming up in the second half of the next fiscal year. And therefore, if it turns out to be 1.3 million this year, then we think that we could go beyond that. And about the second question, Mr. Kawaguchi.

Thank you for the question. About the sales and also the cost impact of what we explained in the waterfall. Let me explain about that. First, about the nine months, the waterfall. The 360 billion plus was what I explained. Of which the pricing impact, this is about 270 billion or so. It's a plus 270 billion, of the plus 360 billion. So, that is the one part. And the remaining 90 billion is the impact of the cost. That is the breakdown. About that pricing, this is mainly the automotive market. For each region, there are differences in the inflation rate and also the customer situation, plus our model. Value-added situation are different. And therefore, we have to examine these closely in determining our selling price. But because of this, we have of the 270 billion for the automotive, it's about 200 billion attributable to pricing. The remaining cost of the plus impact, the manufacturing cost and also the drop in the precious metal price, this has an impact. So, we have these factors. And the labor cost is rising, plus there's the inflationary trend. And therefore, there is this cost increase pressure, so minus JPY 27 billion. But meanwhile, the precious metal and material cost is going down, and so it’s a plus JPY 660 billion. Meeting this, it's about a positive of JPY 80 billion to JPY 90 billion. Now, annually, in other words, how we see the fourth quarter and throughout the year, the selling price impact, we could think that it will continue to have an impact because we'll continue the change, and also the change in selling price will continue to have an impact. So we'll continue to see that impact in the fourth quarter. Annually, as I showed you in the full year forecast, the cost, in fact, it's about JPY 430 billion plus, of which JPY 360 billion, this is a full year, and it's the impact of the pricing. Meanwhile, the cost part, well, the material cost, yes, it is declining. But once the declining pace slows down, then in the fourth quarter, we have incorporated that slowdown. The plus impact will compare to last fiscal year and will come down. Meanwhile the cost -- we think that the labor cost increase, the wage increase will continue to have an impact cost. The plus, nine months, is about JPY 80 billion I said. But for the full year, it will be slightly less. The cost, the supplier, we are consulting with the suppliers and sharing information and carrying out our activities. That is all. Thank you.

Thank you very much [indiscernible].

Today, we didn't get this question, but I would like to appeal one point. If you have time, although, the time is already finished, however, if you could stay on, please stay with us. So, in terms of the summary of the financial status, I didn't say it because it would be too long. But now, the thing is that why motorcycle businesses are so strong, that is the frequently asked question recently. And we would like the media people to understand that fully. Maybe you can write an article that for your own writing and then if you have time, please let me state this. Before the COVDI-19 in 2019, we had 220 million unit sales globally. Now, we have 188 billion units in the plans, this term, but back in 2019, our OP was at JPY 290 billion, 14% ROS. Now, we have 500 million businesses. And the RP per unit is about JPY 20,000 to JPY 40,000, the profit per one unit of the motorcycle. And then we have a near 40% global share. In some countries, we have 80% market share of the motorcycles. And then, we have such a sales commercial power. And we have a well-trusted brand power that is fruit of the cumulative efforts of my predecessors. And then since 2010, we had a mega module platform as strategy in place powertrains, frames. We had a model -- or we had a commonality initiative across the models, across the regions. Because of that, we improved our profit structures and we had also improved more contact with the customers with many more models available to them. And now in South America, in Europe, we have a high-profit businesses, which is a good positive thing for us. Therefore, we used to be profiting from Asia,…