Honda Motor Company, Ltd.

for spending your time to join us here today at the announcement of Honda Motor Company's FY21 financial results. And I'd like to convene the meeting. I'll be serving as the emcee. My name is Okamoto from Corporate Communications. Thank you. First, allow me to introduce the executives attending. Executive Vice President Seiji Kuraishi. Senior Managing Director, Kohei Takeuchi. First, Executive Vice President, Kuraishi, will give the outline of FY21 financial results and FY22 financial forecast, please.

Let me explain FY2021 financial results. First, regarding FY2021 unit sales of Havi Groups, For motorcycle businesses, 15.132 million units. Automobile businesses, 4.546 million units. And light creation businesses, it was 5.623 million units. I'll explain main market situations next. Total market in Japan dropped from last year due to COVID-19 pandemic impact. M-Box and others mapped strong sales results. However, hundreds of sales declined year on year. M-Box series won the top unit sales out of the new launches in mini vehicle segment for six years in a row. In March, we launched a new legend in Japan equipped with the Honda Sensing Elite, which is the world's first automated driving technology level 3. Total market in FY 2022 still remains uncertain going forward due to the concern of resurgent COVID-19. However, Honda expects the results will exceed the year before thanks to the effective launch of a new model vessel. Total market in the U.S. declined year-on-year. Nevertheless, as the gradual reopening of economic activities since May, the market slowly recovered, though it ended up still below the last year. Honda recovered their businesses mainly with a CR-V and pilot. finally being close to the market results. During the fourth quarter, many of light track models have upgraded those sales records of the month of March, outperforming the market growth. Total market for 2022 is expected to be better year-on-year thanks to increasing vaccinations for COVID-19 and efficient economic policies. Honda will enjoy the effective launch of a new model Civic, as well as the sales expansions, mainly with the light trucks, so that our results will exceed the level last year. The total market in China exceeded the level of last year, with effective and stimulative measures for consumption by the government. Honda enjoys a strong sales over breeze, CRV, Vizzle, and so on. And thanks to the extended EV lineups across leading models, we have marked the record highest sales units so far. Regarding the total market of the calendar year 2021, we are expecting the growth from the year before along with economic recovery. Honda will launch new models and will further improve EV lineups aiming for this highest sales result than the preceding year. In April, in Shanghai Motor Show, Honda made a world premiere showing of a SUV, e-prototype, or the first Honda brand EV in China. Moving on to the motorcycle business, The markets have recovered in China, US and Suwon, its largest market of Asia, showing a moderate recovery. However, it resulted below the level last year. Honda's results declined year on year. In India, since third quarter, the sales recovered to the level same period last year. In Indonesia, the sales of the fourth quarter have recovered to 83% of the same time last year. China and Pakistan exceeded the level last year. Total market of FY 2022 is expected to grow from the year before, despite the concern of the COVID-19 flare-up. Honda expects the sales to exceed year-on-year, mainly in Indonesia. Let's conclude our financial performance of FY 2021. Despite the declining demands due to COVID-19 impact, we have revisited our business activities to control SG&As and to reduce costs, and with the positive effect of credit loss provisions in this term for the financial businesses, the operating profit was 660.2 billion yen, outperforming the year before. Profit attributable to the owners of the parent was 657.4 billion yen, also favored by the increased investment of profit based on equity method. This slide also presents a unit sales and P&L. And next, With regard to the FY2022 forecast, we plan to increase unit sales year-on-year across all business areas of Honda Group. Regarding operating profit, albeit the impact by soaring raw material prices and concerns over supply shortages of semiconductors, as well as the effects of accredited loads provisions, We will press forward the actions to increase unit sales, to optimize our production capabilities, to improve efficiencies of product manufacturing, and to fortify existing businesses expecting to achieve 660 billion yen this year. Regarding the impact of the semiconductor supply shortages, as of now, we are withholding production at some facilities. Supply situations of those parts are changing day by day. However, Harvard managed to coordinate the production activities globally so that we can minimize its impact on production throughout the year. For the expected business performance, we plan to defend 660 billion yen operating profit by catching up with the production together with our corporate efforts and etc. Speaking of dividends, Annual dividends for FY 2021 is ¥110 per share, with ¥28 more added to the previous expectation we announced, and dividends for the fourth quarter is ¥54 per share. Expected annual dividends for FY 2022 will be ¥110 per share, same as for FY 2021. Our dividend policy is to keep the consolidated payout ratio aiming at 30% despite the changing business environment going forward. We decided to revise them as shown here, making efforts to provide stable and continuing profit returns to shareholders. Now I'd like to hand over to Mr. Takeuchi.

He will give you the details of the financial results and financial forecast. Allow me to begin my presentation. First, the fourth quarter results. Honda Group unit sales. Motorcycles, despite drop in Indonesia and others, unit sales was up in markets such as India, Pakistan, and China. Automobiles, despite decline in markets such as U.S., there was increase in markets like China. Life creation saw increase in such markets like China but decrease in the United States. And next, income statement. Sales revenue was up in all business categories, reaching 3,623,800,000,000 yen, up 4.8% from the same period last year. Operating profit due to drop in STNA and increase in profit attributable to increase in revenue model mix. Operating profit was 213.2 billion yen. Share of profit of investments accounted for using the equity method was 68.1 billion yen due to profit increase derived from increase in sales revenue model mix in China. And moving on to change in profit before income taxes. FY21 fourth quarter profit before income tax was 255.3 billion yen, up 251.5 billion yen from the same quarter last year. Operating profit due to lower SG&A expenses, profit increase coming from difference in the provision for credit losses and change in revenue model mix amongst others, operating profit was 213.2 billion yen, up 218.8 billion from the same period last year. And please look at page 14, sales revenue operating profit by business segment. Motorcycle business operating profit due to profit increase from increase in unit sales and model mix combined with cost reduction effect was 72.2 billion yen. Next, automobile sales related operating profit included in automobile and financial services business was 140.4 billion yen combined. Automobile business operating profit due to profit in SG&A and as well as profit increase from unit sales model mix change reached 37.6 billion yen. Financial services business operating profit mainly due to difference in the provision for credit losses was 106.3 billion yen. And next, life creation and other businesses recorded operating loss of 3 billion yen. of which aircraft and aircraft engine operating loss was 7.8 billion yen. And next, FY21, 12 months, financial results are as shown. Please look at page 16, change in profit before income taxes. The profit before income taxes was ¥914 billion, ¥124.1 billion year-on-year operating profit. Though there was decline in profit due to drop in revenue model mix, Thanks to a cut in SDNA, difference in the provision for credit losses, cost reduction effect amongst others, operating profit reached 660.2 billion yen, up 26.5 billion yen year on year. And next, cash flows of non-financial services businesses. Free cash flow was 303.8 billion yen. Cash and cash equivalents at the end of period was 2,528,000,000,000. Also, net cash was 2 trillion, 48.3 billion yen. Next, FY22 consolidated forecast. Beginning with Honda Group unit sales, motorcycles due to increase in major market, we are forecasting 18 million units, up 2.86 million from last fiscal year. Automobiles, though there is concern over semiconductor supply shortage due to market recovery and introduction of new models, we are forecasting 5 million units, up 450,000. Life creation business, we are forecasting 5.9 million units, up 270,000 units, mainly coming from North America. FY22 consolidated financial forecasts are shown on this slide. FY22 Forecast Change in Profit Before Income Tax Despite decreased factors such as increase in FG&A, including a difference in the provision for credit losses and lesser cost reduction effect, due to increase in profit coming from revenue model exchange, we are forecasting the operating profit to be the same as FY21, 660 billion yen. Cost reduction effect is minus 51 billion yen, but this is mainly due to sharp rise in raw material costs. Meanwhile, we are planning for cost reduction of more than 200 billion yen and price increase. Lastly, FY22 capital expenditures, depreciation, and R&D forecast are as shown on this slide. And this concludes my presentation. Thank you for your attention.

Thank you very much indeed for your attention. And I'd like to now move on to the questions and answers part of the session today. And we have already spoken to those in media. We are going to accept questions through Zoom functions. And due to the interest of time, please limit your number of questions to two. Two questions per person, please. Thank you very much for your cooperation. So please raise your hand should you have any questions. Thank you. Question one from Mr. Abe from Nikkei Shimbun newspaper. Abe from Nikkei, nice to meet you. First of all, the operating profit margin for the mobile business is recently, the profit margin has been coming down and It is 1% down, too, in March 2021. In order to improve the operating profit margin of multiple businesses, what is the major action for that? And the other question is purpose, the target of electrification. By 2040, zero emissions vehicles will become 100%, and the EV, SUV, those are the zero emission vehicles, and when you switch over to those types of the vehicles, how much investment would you need? In case of a Tesla, they say in order to start up the one EV factory, they take about 100 million yen or so. What is your prospect for investment in your case at Honda? Thank you for your question. So let's talk about operating profit margin for the automobile businesses. For long, we have been trying to solidify the existing businesses. We have actions for that. And last year, across all Honda, we have been pushing forward reviewing of their businesses. And because of that, we are improving our business structures today. And for automobile businesses, we have communicated before that due to the development organization changes, the number of the models and the number of the derivatives are changing, and also we have introduced the Honda Aspect for data efficiency. By 2025, the number of the processes for the development will be down by 30%. That's the actions we are taking now. And in terms of the production, we are trying to optimize them, too, And by the end of this fiscal term, we are going to close down the factories in the UK and Turkey, and Sayama factories will move to Yoli. Thanks to that, we can improve our business efficiency for better operating profit matching. And in terms of the second question, the development expenses for the electrification of the vehicles, President Mibe, the other day talked about 5 trillion yen R&D investments in the next five years. And in the area of the R&D, we will, of course, define the core technology areas where we are going to be pursuing our independent efforts and We also try to make a more improved efficiency for the current development processes for the models. That way we can get more investment margins. And then if we find some areas which is efficiently pursued by the alliance, of course the alliance with other companies could be a choice. And in order to make that possible, we need to optimize the production system and make improvements for the efficient production. This way we can improve the efficiency of all, including the developments. And in terms of investments, battery procurement is one of the issues that that we believe to be a major one and GM in the North America and CATL in China those are the areas that we are investing with already and for other kind of technologies we will look into the technology trends and particularities of the regions and so on so that we can pursue the appropriate alliances and I cannot share with you how much we are going to need for the electrification processes however six or 10 trillion yen in five years. Those would be the basic idea as we shared before. Thank you very much. Thank you very much.

Next question.

Yomiuri Shinbu, Katagiri-san, please.

Can you hear me?

Yes, we can hear you. Please. Thank you very much. Thank you for this opportunity. I have several questions. First, you say that there is an increase in profit and you attribute this to the cost reduction of sales amongst others. sdna and others and can you be more specific as to where the profit is coming and also you are expecting a further cost reduction for next fiscal year can you be more specific about next fiscal year and where you say that you're expecting 200 billion or more cost reduction and also about r d expenditure And compared to recently, it's higher than the past, 840 billion, and also for safety purposes, electrification and safety. Can you be more specific as to what you'll be doing? Please. Mr. Takeuchi will answer these questions. Thank you. About the SG&A and what cost reduction we have achieved and will be achieving. Well, last fiscal year, the SG&A was an area where we had the financial support And, well, compared to the previous year when the U.S. unemployment rate, compared to that, the provision back then was increased for the credit losses. But last fiscal year, thanks to the U.S. government support, as well as the fact that the unemployment rate improved, we were able to reduce the provision. And also, aside from that, our business activities had to be held down due to COVID-19. And given the pandemic in the different countries, our workers, associates, worked hard to reduce the cost. And thanks to that, we saw the SG&A reduced year on year for FY21. And about the provision for credit losses, aside from that, even if we were to exclude that, we believe that we were able to achieve SG&A reduction of $200 billion And about cost reduction and also the effect of price increase, we're looking at both these, and the automobiles, motorcycles, and live creation products. We want to focus on making our manufacturing efficient, and together with our suppliers, work out where we can reduce the cost. And I think that these efforts, as well as the price increase, have produced this result. About R&D, we are expecting 840 billion yen. And as for R&D expenditure, well, it was 780 billion the year before, and therefore 840 billion is high. And before that, it was $820 billion. So it is the highest on record. That is true. But this is because the existing internal combustion engine is going to be electrified. We need money, and we're shifting towards electrification. I cannot give the breakdown of how much will be spent on what, but as a result of the shift and also connect, we are – investing or spending 840 billion for R&D. But as Kureishi said, it's not going to be purely used for R&D for AHUNDA alone, but we also want to rely on alliances, and that is the reason why we are planning for 840 billion R&D expenditure for FY22. Thank you. Thank you.

Next question, please. From Asahi Shimb newspaper, Mr. Kamiyama, please. Kamiyama from Asahi newspaper. Can you hear me? Yes. I have two questions. For the FY21, I have a question about that. In terms of the sales unit, you're expecting to grow them in the US and China in March 2022 period, April 20 next year. And I think that is mainly because of rebounding or rebound from last year and for China. How much growth or percentage growth are you expecting in China? And question two, So March 2022 sales is expecting to grow but the profit level is down including the net profit and of course that includes the slowing of material prices and the semiconductor effect and how much of effect included in those results. So I can talk about it itself and you can talk about the profits. So 15 trillion yen expectations for next year and 660 billion yen operating profit expectations next year. So let me explain about it. As I said earlier, Cost reduction area, negative 51 billion yen, that is a difference as we said earlier. More than 200 billion yen can be reduced by the cost reduction efforts as well as the price increases. And then with that all included, actually you can find out the effect by the raw material price increases as much as the gap between the two and in terms of the semiconductor effect as of now in the first quarter as of now today we are changing a number of daily operations and we are trying to reduce the type of the models that we are producing this way we can try to contain its effect in terms of doing sales and of course as much as we are trying as much as we can do that we can also cover that by also 660 billion yen as I said earlier financial credit loss provisions So it was booked up in previous years and then it was written off and then that is causing effect and unemployment rates involved in this sector and also the subsidies by the governments going to be provided until autumn sometime like that and for those 110 billion yen is going to be included for the negative effect and then it is not just raw material prices that 660 billion yen is the results based on the combination of all those efforts and in terms of DNA cells The COVID-19 impact is getting alleviated globally today, and demand is coming down thanks to that today. And in the United States, in April, the vaccinations going on smoothly, and Biden administration providing good economic measures causing higher demands and we have 111% of the market growth today year on year in the end of April and of course semiconductor effect still continues in the States too and perhaps the growth rate is still uncertain because of that and in China COVID-19 actually was studied in China. However, they have no impact whatsoever nowadays. And in April, they had a good business. However, they also are hit by the semiconductor situations. And we do have the impact in our factories as well. And depending on how it goes going forward, its effect on the business will change. However, as of now, Chinese government says that The total market will be 2.1 million cars, and they're expecting to have the growth by 8%, 108% of the last year, and we're trying to do our business to be in line with the market growth, and of course we have to pay attention to the semiconductor situation as well as the COVID-19 in the global business situations. Thank you. Thank you very much.

Next question. NHK Tsuboi-san, please. Thank you. Can you hear me? Yes, please. NHK Tsuboi. About the unit sales, once again. At Yori, you say, well, I'm sorry, it's 5 million yen. And because of the soaring raw material cost and semiconductor shortage, to what extent have you measured these impacts in coming up with this number? Can you give the breakdown of the impact of raw material and semiconductor shortage? So, basically, For the automobiles, 5 million units, we have factored in the impact of the rise in raw material costs and semiconductor shortage. Let me explain about semiconductors more in detail. From the end of last year, due to COVID-19, we have been suspending our production, had problems with logistics, and the industry on the whole had a shortage of components, of procurement. especially semiconductors, because there was a growing demand for gains. There was a shortage in supply of semiconductors. We, for a stable supply, we, including overseas with multiple sources, have tried to secure sources of semiconductors so as to have appropriate inventory. And for each of the components, we tried to secure optimum inventory. Initially, The semiconductor manufacturers tried to increase production, and we tried to accommodate. And we thought that there would not be a major impact. But then Texas was hit by a storm, and then the semiconductor, one semiconductor was hit by a fire outbreak. And unfortunately, in the first half of this fiscal year, we will still continue to see an impact of semiconductor shortages. But we'll try to minimize the impact. We're continuing to make effort towards this end, and currently we don't know what the situation will be. It's fluid. But in the second half, we think we can recover, and therefore we can minimize the impact at the end of the year. And even if there is an impact, we, from our corporate effort, as explained, we will be able to defend the budget that we explained. and it's based on that premise that we have put together this budget for FY22. Thank you. Thank you.

Next question. Toyo Keizai, Mr. Yokoyama, please. Yokoyama from Toyo Keizai. Hello. Question one about North America. So according to the survey I have, the number of days in stocks kind of are pressured at the moment, very tight. And is that because of the semiconductor situation, or is that because of the market going so well and you're selling so well and the stock is very tight? Is that the situation? So please let me understand how you take this now. And in terms of the battery procurement, you have your alliance partner in North America and China too, and including Japan, you probably have a plan or idea about different matters in different regions, including Japan, for instance. Please tell me your ideas about it. So in terms of the inventory situations in North America, in the first place, since last year due to the COVID-19 situation, every company OEMs needed to do the adjustment of the production base and because of that of course we have the effect by that on the inventory level today and of course every company has a different reasons from that and semiconductor insufficiency of course causes that as well and We had some stocks of semiconductors, thankfully, and we didn't have immediate impact by that. However, going forward, if the semiconductor shortage continues on and on, then the tight stock situation may continue, too. And 33 days, that is the average stock days. That is the average limit. North American hours is about 50 days. And semiconductor situation is now being adjusted in the market. And then we will look at the inventory levels and supplies as well to try to alleviate the situation. But in the second half, we will try to recover. So this way we can achieve a 5 billion yen target finally. And in terms of the battery sourcing, GME North America and CDL, CATL in China those are the partners to try to get the batteries and of course batteries are one of those components and we need to work on two CD of those meaning that we might have a different source link in different regions though we have not defined who as yet but of course we do have such ideas as you said Thank you very much

Next question.

From Reuters. Mr. Shiraki? Mr. Shiraki, excuse me. How do you do? This is Shiraki from Reuters. Can you hear me? About India production. Let me confirm the situation, including the outlook. Well, currently, the four motorcycle factories are closed down until tomorrow. And also, the automobile factories also have been suspended. And with the spread of the pandemic, how are you going to try to secure the production of motorcycles, automobile production in India? And How do you see the impact on the units that can be produced? Well, it's very difficult to predict, but what is your premise on doing production in India? Well, about the situation in India. Well, our motorcycle plant due to the second wave of COVID-19 and also the lockdown that was introduced domestically our dealers also about 80 percent of our dealers in india closed down and from may 1st um four factories um have been closed and uh we'll suspend um production until may 18th that is our current situation well um to be candid with you and we really don't know what will happen and we cannot predict them but um We have to observe what happens to the pandemic, and we have to ensure the safety of our associates. And with that in mind, we need to consider when to resume production. About impact on... Production units, we really did not know for sure at this point in time. But for India, actually last year, there was a big impact. But in the second half, we saw the recovery was even better than we expected, thanks to partially the government's pump-priming measures. But from the end of March, the second wave hit, and currently the medical system has been totally overwhelmed. And therefore, we have to keep an eye on what is happening in India and carefully consider what needs to be done. That is all. Thank you.

Thank you.

So next question, please. Wall Street Journal, Mr. Sean McClain, please. I'm going to ask in English if that's okay. Yes, please.

Two questions. One, if you could give us a number in terms of lost production from last year as a result of the assembly conductor shortage, and if you could try to give us a number for how much production you think will be lost in this current fiscal year as a result of the shortage? And secondly, if you could give us a high-level sort of idea of where you think your alliance with General Motors is headed? You seem to be cooperating on more and more areas, and how close should we expect GM and Honda to become in the future?

Yes, I have two questions. One is, how many crops were lost last year due to lack of semiconductor? And the other is, how many crops were lost due to lack of semiconductor this year? So in terms of a semiconductor, We had 100,000 units affected last year, and in the current year, as I said before, the effect continues in the first half, and in the second half we are going to catch up. And as of now, I expect that all those lost effects on the production will be as traded off or set off in the end of the year. And with the GM, actually two companies are taking actions for the PFC and other areas, automated driving, so forth. And we have announced collaborations in North America last year, and we are continuing our discussions together. And electrification strategy is supported by the GM Alliance. That is one of the pillars supporting that strategy. And for that purpose, we are going to try to find out efficient collaboration going forward. And in specific, I cannot give you an idea as yet. And going forward, when we are ready to share with us more specifics, we will, of course, do that.

Thank you very much. Any other questions? Thank you.

If not, then with this we would like to conclude today's presentation on our financial results. As for the materials, they will be posted on our webpage. so please access our webpage. Once again, we thank you for your attendance.