Honda Motor Company, Ltd.

Thank you very much for attending. This is Honda Motor Company, FY23, second quarter, financial results announcement meeting. First, I'd like to introduce the executive's representative director, executive vice president, and representative executive officer, CFO, Kohei Takeuchi. This is Takeuchi speaking. Thank you. Operating executive and head of accounting finance supervisor unit, Eiji Fujimura. How do you do? I am Fujimura. I would like to ask Takeuchi to first announce the FY23 second quarter financial results and FY23 forecast, followed by Fujimura, who will give the details on the above. Mr. Takeuchi, the floor is yours. First of all, I'd like to thank all of you for your support towards Honda products and activities. I'd like to thank our customers and all stakeholders. Thank you. We apologize that the delay in vehicle production is causing inconvenience to our customers who are waiting Honda's products. We are working hard to deliver our products as soon as possible. We hope to gain your understanding. I'll now explain the financial results for the second quarter of FY23 and give a summary of the forecast for the fiscal year. First, FY23 results. Amidst a difficult business environment, including the semiconductor shortage driving down automotive production and unit sales, combined with soaring raw material prices, Honda has been making company-wide efforts to improve profitability. In addition, the increase in motorcycle unit sales and the impact of yen depreciation as sales revenue and operating profit for the first six months have increased year on year. In the second quarter, a specific semiconductor shortage affected production of main models, mainly in North America. But we made worldwide production allocations, utilized substitute parts, and replaced models sold, resulting in a year-on-year increase in group unit sales of automobiles. In addition, sales revenue, operating profit, and profit for the period have all increased year-on-year due to price increases commensurate with improved product value and strong motorcycle business impact of the yen's depreciation. in the fy 23 forecast a group unit sales of automobiles is lowered by 100 000 units to 4.1 million units taking into account the impact of semiconductor supply shortages in addition to the decline in unit sales we expect to see continued inflationary pressure on costs however we have revised upward our previous forecast for sales revenue operating profit and profit for the period reflecting profitability improvement efforts, motorcycle unit sales increase, and recent weak yen. Despite the challenging business environment, Honda will continue to accelerate initiatives for electrification and new growth in preparation for the future. Next, the status of our automobile business in major markets. The first half of sales decreased from the same period year-on-year due to semiconductor supply shortages and others, despite the positive effect of new model launches. In the second quarter, sales in Japan and China increased year-on-year, but in the U.S., a shortage of certain semiconductors drove down production of mainstay models and inventories at dealers. Although demand is expected to reaffirm, we have revised downward our previous forecast for FY23. In the second quarter, Honda announced its initiatives for electrification. In the U.S., Honda has agreed with LG Energy Solutions to establish a joint venture to produce EV batteries and to manufacture them in the state of Ohio. Honda has also decided to devolve the three existing plants in Ohio as a home to EV production in North America. In China, Honda has established a new JV with Dongfang Motor Group and also Guangzhou Automobile Group to procure EV batteries. In addition, we signed an MOU with CATL to further strengthen our partnership, aiming to establish a long-term stable procurement system in China and further enhance our competitiveness. Honda will continue to accelerate its efforts toward electrification. Next, the motorcycle business status. Although there were some effects of semiconductor supply shortages, sales in many countries were higher than in the same period of the previous year due to replacement of models sold and the use of substitute parts, et cetera. In Vietnam, we recorded record high sales for the month of September. Although sales in Pakistan Affected by flooding, as well as China and other countries dropped, sales in India, Vietnam, and other countries were strong, leading to an upward revision of the previous forecast for consolidated F-123 unit sales. In September, HUD announced it will launch more than 10 electric motorcycle models globally by 2025, and 3.5 million unit sales by 2030 to achieve carbon neutrality. Here is an overview of the first half of FY23. Despite the decrease in automobile production and unit sales due to semiconductor shortages and rising raw material prices, operating profit increased 11.2 billion yen reaching 453.4 billion yen due to price increases commensurate with enhanced product value and reduced incentives as well as increased motorcycle unit sales and currency impact. Earnings per share attributable to owners of the parent was 338.5 billion yen, mainly attributable to share a profit of investments accounted for using the equity method of Japanese affiliates. The table shows unit sales and profit and loss. Next, consolidated FY23 forecast. Although we expect to see continued pressure on costs in addition to the impact of lower automobile unit sales, we revised upward the forecast operating income by 40 billion yen to 870 billion yen, reflecting further efforts to improve profitability, including higher motorcycle unit sales in India, Vietnam, as well as other countries, and currency impact. Earnings per share attributable to owners of the parent is revised upward by ¥15 billion to ¥725 billion. Exchange rate assumptions are ¥135 to the dollar for the second half and ¥135 to the dollar for the full year. Unit sales and profit loss are shown in the table. As for dividends, interim dividend is ¥60 per share. The annual dividend forecast remains unchanged and is 120 yen per share. Honda will continue to strive for stable and sustainable dividend payments, aiming for a consolidated dividend amount payout ratio of 30%. Regarding share buyback announced on August 10, as of October 31, the total number of shares repurchased was 15.33 million shares at a total cost of 53 billion yen. Fujimura, operating executive and head of accounting of finance supervisor unit, will give the details.

Let me explain. Honda Group's cumulative unit sales until the second quarter of 2023 were as follows. Motorcycle businesses, 9.202 million units sold, mainly with incremental sales in Asian countries year on year, and automobile businesses, 1.785 million units due to the decline in sales in North America, and power products businesses, it was 2.935 million units due to decline in North America. Next, let me explain factors behind ups and downs of the profit before income tax for the first two quarters year on year. The profit before taxes were 515.8 billion yen, 44.5 billion decline year on year. Operating profit was 453.4 billion yen, up by 11.2 billion yen year on year. Excluding factors of foreign currency impact, the profit was practically negative by 141.9 billion yen, The breakdowns are as follows. Regarding impact on sales, profit declined by 100.1 billion due to reduction in unit sales, changes in model mix, and profit decline in financial businesses. Regarding impact on retail prices and cost, there were impacts by selling raw materials prices and product pricing, reflecting product value improvements. However, the profit increased by 8.2 billion yen. regarding miscellaneous expenses profit declined by 41.9 billion yen due to quality related costs and regarding research and development expenditures profit declined by 8.2 billion yen in terms of sales revenues and operating profits in each of the business categories operating profit in motorcycle business was at 224.7 billion yen and of the automobile businesses, OP was 63.5 billion, and of financial services businesses, it was 153 billion yen. Out of the automobile and financial services businesses combined, the operating profit associated with the automobile sales is estimated to be 211.3 billion yen when aggregated together. Next operating profit of the power products and other businesses was 12 billion yen, which include operating losses of the aircraft and the aircraft engine businesses being 12 billion yen. Next, I'll explain about cash flow situations. Free cash flow of the non-financial services businesses was 153.3 billion yen. Net cash at the end of the second quarter was 2,560.9 billion yen. Let me talk about our forecast of a consolidated business performance for FY 2023. With regard to the Honda Group's unit sales in the motorcycle business, as compared to the previous forecast, the expected unit sales will be 18.43 million, mainly reflecting the flood in Pakistan and the demand decline in China, and so on. When consolidated, we expect unit sales to be 120.2 million units, up by 360,000 units, reflecting good sales performance in countries such as India and Vietnam. Unit sales expected in our automobile business would be 4.1 million, mainly reflecting decline in North America. For power products businesses, we maintain the previous forecast of 5.556 million units. Next, I'll explain factors behind ups and downs of profit before income tax as compared to the results from last year. We expect the profit before tax to be 1 trillion and 80 billion yen, up by 9.1 billion yen year on year. and operating profit to be around the same level from the results of the last fiscal year. Excluding foreign currency impacts, we expect negative profits of 287.2 billion, of which the breakdowns are as follows. For the impact of the sales, profit will be increasing by 41.8 billion yen due to unit sales increase of motorcycles and automobiles. Regarding retail price and cost impact, profit would decline by 110 billion due to soaring raw materials prices and so on. Regarding miscellaneous expenses area, profit would decline by 152 billion due to incremental sales and quality-related cost. For research and development expenditures category, we expect the profit to drop by 67 billion. Comparing our new expectations to the previous forecast, the differences as follows. Profit before income taxes will be up, revised by 40 billion. Operating profit will be up, revised by 40 billion yen. Excluding foreign currency impact, we expect a negative profit of 80 billion yen, for which breakdowns are, regarding sales impact, down by 125 billion yen. 128 billion yen, mainly due to unit sales decline in automobiles and in the area of the retail price and cost impact. Although some cost increases expected due to inflation impact, we will manage pricing practices to reflect enhanced product values to add profits by 36 billion yen. Regarding research and development expenditures, we expect the profit to go up by 16 billion. Finally, for CAPEX depreciation and amortization, as well as R&D spending for FY2023, we revised the previous expectations to reflect the currency impact. That concludes my explanation. Thank you very much.

We have informed the media beforehand. We will take questions through Zoom. And in the interest of time, we kindly ask you to limit your questions to two per person. We seek for your cooperation. Those of you who have questions, please press your raise hand button. We'd like to go to Nikkan Jidousha Shimbun. Mr. Mizutori, please. My name is Mizutori from Nikkan Jidousha Shimbun newspaper. Can you hear me? Yes. I have two questions. The first, well, currently we're seeing a depreciation of the yen, and this has boosted your profit. But in order to maximize your benefit when it comes to production and procurement, what kind of ideas will you come up with? Honda localizes its production, but are you making any changes to your approach? The second question. Worldwide, there is a concern over recession at your major markets, U.S. and China. How do you see the prospect of the economy? Mr. Mizushima? Mr. First of all, in regards to your exchange rate question, as you rightly mentioned, we have the policy of producing where the demand exists. This is our basic policy. That is how we have set up our production sites. And so it's locally produced and locally consumed, meaning that we are, well, of course, given the major fluctuation in the currency rate, it does have an impact to a certain extent. But compared to other manufacturers that are exporting from Japan, compared to those manufacturers, I don't think that our impact is that big. Well, but having said that, still, to explain the currency impact, the U.S. denominated only. If there's one yen, there's a difference of the current situation. There is a swing of 10 billion. It used to be 12 billion, but it's now 10 billion, of which half is the export of components. or the loyalty received from overseas. So it's mainly cash flow. And also, we generate profit overseas, and we convert this in Japanese yen. And in that conversion, we have half of the difference. So that is the impact of currency. But as for the yearly forecast, we are estimating now 135 yen against the dollar. And so, this would mean an impact of 120 billion yen in profit. But still, the supply chain, we have suppliers and others relationship. So, it's not the case that we can immediately shift our production to Japan. Basic philosophy is to produce where the demand exists will remain in place. That's in regards to your currency question. And about the U.S. and China's economy, well, the midterm election is being, the vote count is underway right now in the United States. Given the 8 percent inflation continuing towards the end of the year, as everyone says, there is likely to be an impact on the economy, so we also share that concern. But if we look at the current situation, our car supply for certain models due to the shortage of semiconductors, we have lost some unit sales. But customers are waiting for our products. So looking at the current situation in regards to our customers, And we believe that the cars we produce will be purchased by our customers. But economically, as is being said, there is the interest rate increase and inflation occurring. And therefore, there will be some impact to a certain extent. And keeping this in mind, we will continue with our operation. Likewise in China, the Chinese GDP compared to a few years ago is declining. But automobiles annually, the passenger car is about 23 million units per annum in line with that. especially in the market, electrification. Last month also, or this month, we see 20 percent or 19 percent ratio, and therefore we have this EV car on the market, the first one, and we've announced a second. We are focused on electrification, and we want to meet our customers' demands, also in China. And this is how we want to market our products in China.