Good day everyone. My name is Matt Heffern. I would like to welcome you to the Toyota Motor Corporation's Fiscal Year 2008 First Quarter Financial Results Conference Call, with your Chairperson Mr. Takahiko Ijichi. Your line will remain muted until the question-and-answer session begins. [Operator Instructions]. I would like to remind all participants that this conference is being recorded at the request of the hosting company. I would now like to turn the conference over to Ms. Ikuno Fujii from Toyota, who'll introduce the conference.

Hello everyone. Thank you for joining us today. My name Ikuno Fujii, and I am a member of the Accounting Division of Toyota Motor Corporation. I would like to welcome you to today's discussion of the earnings results for the three months ended June 30th, 2007. I am joined by Mr. Takahiko Ijichi, Managing Officer of Toyota and Mr. Steven Shaw, Narrator. Today's conference call consists of two parts. First Mr. Ijichi will discuss a summary of Toyota's earnings results and Mr. Shaw will explain further details of Toyota's earnings results. After conclusion of Mr. Ijichi's presentation, we will open for your questions. We expect that the entire call will last approximately one hour. Also, please note that the following presentation contents forward-looking statements that reflect our plans and expectations and our actual results maybe materially different from those expressed by these forward-looking statements. A complete cautionary statement, with respect to forward-looking statement, is included on page 3 of today's presentation material. In addition, a complete cautionary statement with respect to insider trading is included on page 4. Now, I would like to turn the call over to Mr. Ijichi.

Hello everyone. Thank you for joining us for today's discussion. Now, I will discuss the details of Toyota's financial results for the three-month period ended June 30, 2007. I would like to begin by giving you a brief overview of our sales and the financial results before turning the presentation over to today's narrator Mr. Steven Shaw. Please turn to the slide 6. For the first quarter of fiscal year 2008, consolidated vehicle sales increased by 71,000 units to 2.16 million units compared with the first quarter of fiscal year 2007. In Japan, the vehicle sales decreased due to severe conditions of the Japanese automobile market. However, we were able to achieve increases in vehicle sales overseas in all regions. As you can see, consolidated vehicle sales in North America increased by 16,000 units. Furthermore on retail basis, vehicle sales remained strong with an increase of about 58,000 units. Please turn to the next page. Next, I would like to talk about consolidated financial results for the first quarter. Toyota posted substantial increases in both revenue and profit, marking all-time high for all quarters to-date. I'll now turn the rest of today's presentation over to Mr. Shaw.

Thank you, Mr. Ijichi. Please move to the slide 8. Now, I would like to discuss the major contributing factors for the increase in operating income. Major factors were, marketing efforts, such increases in sales volume and improvement in product mix, and cost reductions which offset the increase of material costs. Beginning this quarter, the effective variances in ForEx rates category will only include the impact from differences in exchange rates associated with actual transactions in foreign currencies. The impact of translation difference in exchange rates for operating income of our overseas subsidiaries will now be accounted for in others, in the increases in expenses category. This positive impact amounted to 21.8 billion yen in the first quarter. Next, I would like to explain the results by geographic region. The bar chart shows the results of operating income on a quarterly basis, in comparison with the same period of the previous fiscal year. First, Japan. Operating income increased significantly by 103.6 billion yen to 396.6 billion yen. Increase in exports in response to overseas demand and improvement in product mix, due to the strong sales of the Lexus LS mainly contributed to this increase. We lunched the hybrid version of the new Lexus LS in May. Please turn to the next page. In North America the launch of the new Tundra and the Lexus LS and the increase in sales of fuel efficient vehicles such as the Preus, contributed to continued strong sales. The number of vehicles sales of the Tundra in June [ph] achieved 23,000 units reaching the monthly record of vehicle sales for three consecutive months. Its sales are meeting expectations and are on the pace for sales of 200,000 units which is the sales target for this calendar year. Operating income increased by 20.1 billion yen to…

Thank you Mr. Shaw. Now, we would like to offer for questions. During the Q&A sessions we'll have consecutive interpretation for questions-and-answers in both Japanese and English. Now our conference call operator, Mr. Heffern, will explain how to connect your line. Please Mr. Heffern. Question And Answer

Thank you. Today's question-and-answer session will be conducted electronically. [Operator Instructions]. We'll go first to Steve Usher with Japan Investment [ph].

Good evening. Thank you very much for the call. Could you please give us a slightly more detailed breakdown of the contributing factors to the rise in operating income, in particular, the cost reduction efforts, for example, the rise in raw material costs versus pure cost reduction efforts? And with regard to marketing efforts, can you give us an idea of volume versus price, versus product mix? And on the product mix aspect, if you give us a breakdown by region that would be very helpful? And then a third and final question, can you give us a bit more color on the commendable gain in equity income, the original breakdown possibly, that would be very helpful. Thank you very much. [Foreign Language].

Thank you very much. Let me answer your question, starting from the cost production efforts. [Foreign Language].

When we had our financial results announcement in the month of May, we said that that for this year, we are expecting to generate cost reduction savings of 130 billion Japanese yen. [Foreign Language].

Also at the same time, we said that that this 130 billion yen of cost reductions will be allocated between the first half and second half of the year. They will be 40 billion yens for the second half of the year and the remaining 90 billion yen to the expected in the second half of the year. And for this quarter we were able to achieve 20 billion yen out of the 40 billion yen assigned for the first half of the year. So, we are on track with the plan. [Foreign Language].

Until some years ago, our cost reduction was... used to be very much, large in amount, something like the 300 billion yen, Japanese yen. And when we made announcement about our plan for the cost reduction in the month of May, we also added that we still have a large potential to generate a large amount of the cost reduction. So, for this fiscal year, we are expecting a 100 billion Japanese yen and which will be in contrast with the timeframe we were generating as much as 315 yen, so you would say that the difference would be the cost increase by the material increase. So, we were able to achieve the sum, and we are on track with the plan as we were able to make results, positive result absorbing the material cost increase and also we are able to have cost reduction effort. [Foreign Language].

And, of course, obviously the material price increase which we assumed at the beginning of the year about one-fourth of them is affecting us for this first quarter and therefore if you add up our cost reduction efforts benefit and also the full impact of the price increase, which was realized in the first quarter, you would say that some of the two trends are the performers of our company for the first quarter. [Foreign Language].

Now let me take up the second issue which is the breakdown of this marketing effort. On a unconsolidated basis this... excuse me, marketing efforts have benefited 40 billion Japanese yen and in a unconsolidated level 68 billion Japanese yen, so in total it's 100 Japanese yen; as a result of the marketing effort. Now, I would like to give a breakdown of that 100 Japanese yens. [Foreign Language].

First, the 40 billion attributed to the Japanese unconsolidated performance: domestic, plus/minus 0, and export is 40 billion. [Foreign Language].

And in terms of the breakdown of the subsidiaries, 60 billion Japanese yen. [Foreign Language].

The breakdown is that for Japan, it's 5 billion... minus 5 billion yen and the North America 10 billion yen, Europe 10 billion yen, Asia 20 billion yen, and others 25 billion yen, that's the breakdown for the subsidiaries. [Foreign Language].

In terms of the geographic observation about the model mix, we don't have detailed data for that, however, we can say that the mix has been improved both in Japan and North America, helped by the Yaris. [Foreign Language].

Okay. Thank you. So --

And... excuse me, sorry, the last question is about the equity earnings. And total equity earning was 81.8 billion of which 50 billion came from Japan and 15 billion came from China and the remaining is other regions.

Okay. Thank you very much. So, is it safe to use a numbers then for raw material price increase for the full year is expected to be about 170 billion yen and about 42 billion yen of that was realized in the first quarter? [Foreign Language].

You are safe to say that but actually speaking the first increase of the raw materials for this quarter was a little bit higher than that, but frankly speaking you are right.

Okay. Great. Thank you very much.

[Operator Instructions]. We'll go next to Ron Tadross with Banc of America.

Thank you. Can you hear me, okay.

Yes.

Okay. Just on the marketing effort, is there... could you break it down by volume, price, and mix; the 100 billion yen. [Foreign Language].

Sorry, for the time being, I don't have the data to explain the breakdown of marketing efforts for volume and pricing mix, but -- [Foreign Language].

So, we don't have time to get those numbers. And I am very sorry for that.

Okay. Just a few other quick questions. On SG&A, do you think you can keep SG&A flat with fiscal 2007 on a yen basis, I guess about 2.2 trillion yen for the year. [Foreign Language].

Thank you for the question. In terms of the trend of the SG&A, the cost of business is expanding; we think that the SGA will go up gradually rather than keeping it to a flat.

Okay. So, maybe in the 3% to 5% range; it will go up? [Foreign Language].

You said 2.2 trillion yen. But if I look at the data, the fiscal '07, the S&G was 2.5 trillion, so the 2.2 trillion should be the one before... one year before that, but you can say that from 2.2 trillion to 2.5 trillion. This is the rate of the increase of the SG&A, and we will say that you can extrapolate from this growth and can say that we will continue this pace of increase of SG&A. [Foreign Language].

So, the growth from the 2.2 trillion to 2.5 trillion is something like 1.7% increase, but as our business expands we would say that the growth rate of SG&A will be slightly less than 2% rather than 1.7%.

Okay. And then just two other quick questions. On capital spending, you had a fairly slow start to the year. What is it that gets your rate of capital spending up in the other quarters? And then on the yen, if you were to get to 115 yen to dollar, you'd need to be roughly like about 110 for the next seven months. So, do you really believe that the yen is going to 110 or are you just being conservative? [Foreign Language].

Thank you for the question. In terms of the CapEx, the implementation ratio to the total CapEx planned at the end of the first quarter was 17%. [Foreign Language].

However, in the second half of the year, we are planning to implement major investment plan such as the number two factory of TMMC Canada. So, it's very dislike a slow start but major investments are going to be implemented toward the end of the year. [Foreign Language].

In terms of the function of the yen/dollar movement, in our business plan, the assumption is a 115 yen to the US dollar. I don't know where you pick up this 110 yen, but we believe that this 115 yen assumption is still relevant and we haven't changed it, our percept was that.

But the yen has been at a 120 for the first five months of your fiscal year; to get to 115 for the whole year, you'd have to be running at around 110 for the next seven months? [Foreign Language].

For the first quarter and also for the next one, we already have the actual numbers for the exchange rate and hereafter we still continue to use the assumption of a 115 yen vis-à-vis the US dollar.

Okay. Thank you.

[Operator Instructions]. We will go to Rick Herman with the Philadelphia International.

Oh, hi. Thank you for taking my question. Could you breakout the geographic operating income in more detail, it is obviously very strong. Can you tell us, what weakens with August contributors? [Foreign Language].

Would you like to know about the geographic operating income contribution or would you like to know the profit and loss by destination, which is the case?

The operating income contribution for the other regions? [Foreign Language].

Now first of all, the other region consists of the Middle and Latin America, Oceania and Africa. [Foreign Language].

This other region has contributed the operating income over 22.7 billion Japanese yen and out of this 22.7 billion Japanese yen about one-third came from Oceania and the remaining is from the Middle and Latin America and Africa and the ratio is roughly equal between the two regions.

So, it's about one-third from each region? [Foreign Language].

Yes, but actually speaking Oceania is a little bit... little more than one-third, you could say that.

Okay. Thank you for that answer. In North America there is concern that sales maybe weakening due to the housing issue, can you address that and tell us if you've seen any weakness in your orders in any particular models or regions? [Foreign Language].

For the North American business, you are right saying that that in the first half we are seeing a decline of the business compared to the same period of last year? [Foreign Language].

Right now, results for the month of July is coming, and you could say that last year the markets offered... the total market in July was unusually big, and this year, compared to that, we have one day less for the operation. The operational days... number of the operational days is one day less for this year, and therefore the total market is about 10% declined from one year ago level. [Foreign Language].

In addition to this declining market in general, there are some uncertainties, for example, for the interest rate and also the oil price remains very high. However, the personal spending in United States remains very strong, and also the population is still growing in the United States, and therefore... so, the North America market in general and particularly the US market, they are still maintained rather positive feeling about the future. So, on a full year basis, we are seeing that this year the result will be almost on par with the result of the last year. [Foreign Language].

In terms of the orders level, Korea and China is slightly decreasing order, and presumably because of the high oil price but we don't think it's such a significant reduction. So, we don't think it's going to give a big impact on our operation.

Okay. Thank you for that answer. Lastly, I would like to ask regarding the first quarter, but I believe this will, in the second quarter the earthquake and the weekend problem with the distant rings. Can you give us any estimate, and how much that's going to affect your earnings in the quarter? The second quarter? [Foreign Language].

Due to this recent earthquake, we had to stop the operation for 2.5 days which is equivalent to five shifts of our operation. [Foreign Language].

And we have already made a recovery plan for those five shifts which has been lost due to the earthquake. We are going to have a one shift for catch-up in September and another one shift for catch-back in October and remaining three shift to be recovered in the months of November. And therefore, although for the second quarter, we will be affected by this lost five shift, however, toward the end of the year, on a full year basis, there would be no major issue because of this earthquake.

Okay, thank you very much for that answer. [Foreign Language].

Thank you.

[Operator Instructions]. We will go to a follow-up question from Steve Usher with Japan Investment [ph].

Thank you for the additional opportunities. Could you please comment on sales volume and profitability in the Russian market? Just that one question. Thank you. [Foreign Language].

First starting with the volume for Russian market. The first quarter was 50,000 units which is 20,000 units increase over the one year ago level. [Foreign Language].

In terms of the profitability of the Russian market, you could safely say that we can do the business in Russia with higher operating income per unit than in Europe. [Foreign Language].

And if you just look at the operating income of just Russia for this first quarter alone, we were able to increase the operating income of that company by 2 billion Japanese yen.

Great. Congratulations. Thank you very much. [Foreign Language].

[Operator Instructions].

Thank you. This concludes today's conference call. Should you require further information regarding today's conference or on Toyota, please feel free to contact IR representatives in London and New York. Their contact details were given at the end of the invitation to this conference call. Thank you again for joining us today. Good bye. [Foreign Language].

Thank you. That does conclude today's conference. And thank you for your participation. You may now disconnect.