Honda Motor Company, Ltd.

I thank you very much for taking time out of your busy schedule to attend our press conference. We would now like to start Honda Motor Company's press conference for financial results for fiscal year to March 2023. Though COVID-19's category has been changed to Class 5, we have decided to continue to hold this briefing online as well. First of all, allow me to introduce the attendees today. We have Mr. Shinji Aoyama, Director, Executive Vice President and Representative Executive Officer, Chief Operating Officer. This is Aoyama. Good to see you. And then we also have Mr. Eiji Fujimura, Executive Officer, Chief Financial Officer. This is Fujimura. Good to see you, everybody. Now, Mr. Aoyama will first present an overview of the financial results of financial year to March 2023 and forecast for FY24. And then Mr. Fujimura will present the details. Over to you, Mr. Aoyama.

Good afternoon, everyone. I'm Aoyama. I'm the Executive Vice President starting April. Thank you very much for your participation today despite your busy schedule. So let me explain the financial results of the FY2023 and a summary of the FY2024 forecast. Starting with the highlight of the financial results, I will explain the progress of the profitability structures and its reinforcement. According to the FY2023 results, we sold 3.69 million cars, The previous expectations were set at 3.85 million. Operating profit was 839.3 billion yen, whereas the previous forecast was 870 billion yen. The efforts on fixed cost reduction, pricing that reflects improved values of the product, and so on, helped strengthen our operational structures. As a result, we maintained the operating profit margin of about 5 percent, which is the level of the previous forecast. As for the FY2024 forecast, we will further improve the operational structures that we have built up until now, and we will strengthen Supply chains, such as the stable procurement of the semiconductors, will improve operating ratio of the air factories. And we will plan to sell 4.35 million cars with the expected operating profit of 1 trillion yen, which will be the best profit ever. Cash generated will be invested to provide resources for electrification going forward, and we'll stay engaged in shareholder return programs. In specific, in FY2024, we plan to increase the dividends to 150 yen per share, which will be the highest ever. In addition, in the Board of Directors' meeting today, we have made a decision for share buybacks for the amount of 200 million yen. Toward FY2026, we will continue to reinforce our operational structures altogether in unity, aiming to achieve the operating profit margin above 7%. Let me continue to explain the automobile businesses' situations in main markets. In April 2023, there had been a major impact of the COVID-19 pandemic in China and the supply shortage of semiconductors until our third quarter, due to which the unit sales dropped below the year before. During the three months of our fourth quarter, supply situations of the semiconductors gradually improved. Thus, the unit sales resulted better year on year in the United States. In China, the tax protection measures ended which caused a negative impact on the unit sales. Thus, the results dropped significantly lower year on year. In terms of the unit sales of FY2024, although the outlook in China is rather unclear, in the global market, we can enjoy the favorable model cycles that continues from last year, and we'll aim to expand our unit sales based on the resumption of the supplies in the market thanks to the improved operating ratio of the forecast. Regarding our actions for electrification, we started our discussions with the POSCO for a comprehensive partnership in order for achieving carbon neutrality. In the Shanghai Motor Show in China, we exhibited the world premiere of the second set of the EN series called EN-P2 prototype and EN-S2 prototype, as well as the third set of the concept model EN-SUV-SU. Next, moving on to the motorcycle business situations. For the FR 2023, the unit sales increased year on year in the main markets. During three months of the fourth quarter, the unit sales had dropped year on year in India and Vietnam. However, in Indonesia, although we had the supply shortages of the semiconductors, we were pleased the model offerings and utilized the alternative parts, which then helped a significant decrease of unit sales. Thus, the total resulted in better than the last year, year-on-year. As for the unit sales, for 2024, we plan to achieve higher results year-on-year based on decreasing unit sales in India and Indonesia. Let's look at the overview of the consolidated financial results of April 2023. In addition to the reduction in unit sales and the production of the bill due to the impact by semiconductor shortages and COVID-19 pandemic in China, we had incremental production costs caused by the soaring material prices and inflationary impact. Nevertheless, Thanks to the pricing scheme that reflects commercial values of the products, increasing unit sales over the cycles, and the foreign currency exchange impact, we achieved the operating profit of 839.3 billion yen. The profit for the year attributable to the owner of the parent was 695.2 billion yen. status of the unit sales, PL, are described here. With regard to the forecast of consolidated data performance of FY2024, although incremental production costs and the inflationary impact, yen appreciation impact, and et cetera, may exist, we have been working on the pricing scheme reflecting commercial values of the products and further strengthening of the operational structures, plus the increase of the production and unit sales of our mills. Altogether, we plan to hit 1 trillion yen operating profit. That will be the highest ever. The profit for the year attributable to the owner of the parent is planned at 800 billion yen. Assumed exchange rate is 125 yen for a dollar for the full year basis. You can see the unit sales and the PL plans on the slide. Let me explain about the dividend. Annual dividend for the FY23 is 120 yen per share, and the year-end dividend is 60 yen per share. As for the expected annual dividend for FY2024, we will add ¥30 to the amount of FY2023. Thus, it will be ¥150 per share, the highest dividend so far. In the Board of Directors' meeting today, we made a decision of share buybacks. For the purpose of improving capital efficiency, of executing flexible capital policy and so on, We will buy back our shares up to the total amount of 200 billion yen of acquisition values.

Next, Mr. Fujimura, CFO, will explain the details of the financial results and forecast. Allow me to start the explanation. To begin with Honda Group's unit sales for the fiscal year 2023, in motorcycle operations, unit sales grew year on year, particularly in Asia, to 18.757 million units. Automobile sales came to 3.687 million units, mainly due to decline in China and in North America. In power products operations, unit sales came to 5.645 million units, mainly due to decline in North America. Next, I'd like to explain the factor analysis of the pre-tax profit for the four quarters compared to the previous fiscal year. Pre-tax profit was 938.1 billion yen, which was lower by 131.9 billion yen compared to the previous fiscal year. Operating profit was 838.9.3 billion yen, which is lower by 31.8 billion yen on that year. To give you a factor analysis of the operating profit, impact from sales, Though there was an increase in motorcycle unit sales, declines in automobile sales volume and lower profit and financial operations led to income decline of 109.1 billion yen. Selling price and cost factors. While there was effect from pricing in line with the product value, Due to surging material prices, as well as effect from inflation, it resulted in a decline in profit by 27.4 billion yen. Expenses. Due to increase in quality-related expenses and selling expenditures, this gave us a negative impact of 132.5 billion yen. R&D expenses led to profit decline of 58.5 billion yen, and currency effect resulted in positive impact of 295.9 billion yen. Next, to explain the sales revenues in operating profit by business segment, for motorcycles, operating profit was 488.7 billion yen, the record high. Automobiles operations profit was 42.0 billion yen. Operating profit from financial services were 285.8 billion yen. And for power products business and other businesses, operating profit came to 22.8 billion yen. Next, I will explain the cash flow. Free cash flow operating entities for fiscal year 2023 came to 685.8 billion yen. And the end-of-term balance of net cash came to 2,758,000 yen. Next, I'd like to talk about the consolidated financial forecast for fiscal year 24. Firstly, speaking of Honda Group's unit sales compared to the previous fiscal year, in motorcycle business, considering the growth mainly in Asia, forecast is for 19,180,000 units. In automobiles, We are putting it at 4.35 million units, considering the growth mainly in North America. And in power products, 4.75 million units in view of the declines in North America. Next, I'd like to explain the factual analysis of pre-tax profit compared to the actual results from last year. Pre-tax profit is forecast at 1 trillion and 185 billion yen, up 246.8 billion yen from the previous year's results. Operating profit is forecast at 1 trillion yen up 160.6 billion yen from last year's results. To explain the factors behind operating income, impact from sales is forecast at positive 440.6 billion yen due to growth in unit sales of automobiles and motorcycles. Selling price and cost impact is positive 265.0 billion yen due to effect from our ongoing pricing in line with product value, though there has been some impact from inflation as well. Expenses impact is expected to be negative 217.0 billion yen due to increases in selling expenses. R&D expense impact is negative 60.0 billion yen. and currency effect is forecast at negative of 268.0 billion yen. Lastly, our forecast for capital expenditure, depreciation and amortization, and R&D expenditures for FI24 are as shown. This completes my explanation. Thank you very much for your attention. Thank you very much for your attention. Then now we'd like to proceed to the Q&A session. We would like to take questions through Zoom, which you have been informed in advance. And due to limited time, we'd like to limit it to up to two questions per person we ask for your cooperation. Now, if you have any questions, please use the raise your hand button to let us know.

To start with, first question from NHK. Mr. Thoma, please go ahead with your question. Thoma from NHK, can you hear me? Yes, we can. Thank you for your question, please. So I have two questions. One is the Chinese businesses. and that is dropping quite a bit. That is my impression. But for that, what is your analysis and a cause for that and for the recovery plans for going forward? What is the air expectations this year in terms of the volumes and your plans for the production for the fourth of the year for 2024 forecast? And the second question is about a semiconductor. The supply is on the improvement now gradually, but this time or this year, including the semiconductor supply areas, I assume that you're going to recover the production volume, including semiconductor supply recovery. And when do you expect to have that picked up? When do you think it will be normalized? Thank you very much, Mr. Thomas, for your question. Aoyama is going to answer your question. For the first question, in the fourth quarter, the businesses getting down in China in the fourth quarter and the forecast going forward. And in our January-March period, the fourth quarter, Actually, up until the third quarter of last year, the purchase tax, that is the acquisition tax of a purchasing car, that particular measure ended in December last year. Together with that, we had a negative impact. in response to that measure being ended. That is the material situation there. And also, along with the environmental regulations, in order to make the air cells out from the air inventories completely, there are some discounts being done. And then toward the end of the air time period of the Earth selling out plans of the products in stock, the consumers expected more discount. And then people waited to buy cars for some time. Because of that, the demand dropped. And such a reactional situation will improve now. And also, last year, we had a lockdown, COVID-19, which also had a negative impact on the businesses. But for the FR24 Honda going forward, we will have the full model change, a new model to introduce in the market. from Honda, which we expect 1.4 million cars to sell according to the plans in China. That is what we think as of now, but NAVs and new energy vehicles portions will increase going forward gradually. So, as of now, we expect one-third of the demands will be of a new energy vehicle, we suppose. And we are selling our ice and have vehicles as a main product to sell as of yet, but we need to. make a good utilization of the intensives and so forth so that we can continue to sell and keep the presence in China. And in terms of the semiconductor, toward the end of the fiscal year, or in the second half of the year specifically, the supplies of the semiconductors will improve, finally, and we still have the 4.35 million unit sales forecast. And it is not going to be that rough recovery, but it is going to be a gradual recovery from the mid of the year to the second half of the year. And full recovery is expected to be found in the fiscal year 25. Thank you very much.

Thank you very much, Mr. Toma. We'd like to proceed to the next question. Mr. Kondo from Asahi Newspaper, please. My name is Kondo from Asahi Shimbun newspaper. Good to see you. Okay, thank you. I would also like to ask one question about the Chinese market and the different question for the second one. Right now, Mr. Aoyama explained the situation that the NEV, NEV's percentages are getting higher, and also the ICE vehicles shrinking down, and then there are some pricing competition. So that for the time being, probably the feasibility economics of the business in China. I would like to know how you view the Chinese market in terms of market feasibility. My second question is you are going for the selling price, selling price hikes that should contribute to the profit of 1 trillion yen for the first time. So in what how you are making those price hikes different different regions i believe for japan japanese market you announced the price hike for the n box and series so please let us know what your price hike strategies are okay thank you very much mr condo for your questions Okay, first about the profitability for Chinese business. NAV is really coming up. And then so Honda has announced this EN series. So that's something we will continue to strengthen. The second wave will come on the... the first of 24, and the SUV called SHU, that will come at the end of 24. That's what we talked about. So, therefore, in terms of fiscal year 24, I believe as NEV expands, we will not really have any NEV products available for the time being. So we would like to continue to maintain our presence. So we might consider using the incentive and then try to maintain 1.4 million unit sales. So if you think about FY24, yes, in terms of business feasibility, it will deteriorate. It will be challenging for us. And then the other question about the price hikes. For North America and then for Asia, and then also Europe as well. For those markets or regions, we are seeing a lot of increasing on the manufacturing and procurement cost. So we have been reflecting those cost hikes, increases to the price hike. So Mr. Fujimura will give you more detailed specific numbers. But when it comes to the Japanese domestic market, well, yes, we did raise our prices. when it comes to prices, we believe we still do have pricing in line with our product value. So we want to go through another review. So I cannot give you any specific numbers right now, but we will continue to consider further price hikes. Mr. Fujimura, if you have anything to add. Okay, about price hikes. And then, of course, What we need to do first is to try to reduce our costs, trying to absorb cost price hikes. However, with the raw material procurement costs and with the inflation, our cost has been going up a lot. So over two years, we have like a 600 billion yen cost increases over the past two years. But when it comes to price hikes or when it comes to our pricing strategy, uh... we have been able to recover about 540 billion yen, so about 90 percent of the cost increases. But we say 90 percent, but in Asian markets, we have been able to recover almost 100 percent in Asia in motorcycle market. But speaking of automobile market, still, we have not been able to recover all the cost increases. And of course, in North America, there has been a lot of cost increase, which contributes a lot. But for Japan, because we have been trying to gain understanding from our customers and improve our services and products values, and that's what we have been doing our best at. And then in this fiscal year, now the cost, if you can look at this graph here, I believe the number was shown, this plus benefits from cost increases when we saw the chart that drives up to 1 trillion yen. So we have been addressing the issue of cost increase towards our suppliers. So that issue still exists. However, We have been seeing good benefits, at least as far as raw materials go. And then also, we are doing better at pricing strategies so that this box, I believe this has, after a few years, has gotten to be in the positive impact. That's what I can say for now. Thank you very much. Thank you very much, Mr. Kondo. Next.

From Nikkei Shimbun newspaper, Mr. Tanabe. Tanabe from Nikkei. I have two questions. First one, regarding R&D cost, 980 billion yen planned this year, and this is the largest, highest ever, I think. And please tell me why it is increasing. Maybe that includes electrification. As far as you could tell us, please explain. You're going to invest on the electrification and the softwares of next year, and other companies are saying about additional investment on the electrification. And do you have any plans to change that expenses plan? And in the past fiscal year, automobile businesses generally through March, you had operating losses, in fact. And what is the reasons for that? Please share with us. Thank you very much, Tanabe-san. I will respond to your question as much as I can, and then my colleague, Mr. Fujimura, give us further explanations. So R&D expenses, 980 billion yen, that is the largest ever. And of course, battery EV R&D cost is on the increase. That is the main part of these expenses. And also ice and have as well. which will be also to be developed for the next generation ones. The R&D expenses that includes those conventional ICS EV plus battery EV development are now coming to the full-fledged effort, so that is why. And then I said 5 trillion yen in 10 years. As of today, we do not have any new plans. now, but I think in April last year, I shared with you the number like that. However, we have been updating the numbers like that every now and then. And actually, the trend is going up more to invest. And sometime later, we can share with you more. Please wait for that. And automobile businesses operating losses in January through March. Finally, the annual rate itself was 3.69 million, and then we had 160,000 less sales finally. And in terms of the operating profit regarding that, out of 160,000, about 110,000 Chinese won losses in China, and they remain in the negative situations for the consolidated business figures. But those 50,000 part is going to be, is actually causing an impact on the gross margin numbers. Please. I have nothing much to add to this, but in the fourth quarter, we usually have this kind of a trend every year, but it is a kind of a step like changes of the expenses. R&D expenses tend to occur toward the fourth quarter period. That happens every year almost. And this year, especially, we have a quality-related cost included in that portion. In this fiscal year, the quality cost, actually, that is rather low ratio to the sales turnover. It was a 0.9% level of the total turnover, but in this full quota, it was up to 1.7% of the total turnover because of the equality-related campaigns, which are like recalls. So, it doesn't mean that we had new incidences happening, but we estimated the number of the vehicles in scope for that, and then we had to have the air reserve allowances for that. And, in fact, we have about 5 percent level of R&D to the turnover. That is usual one. But now, this year, we had 6.4 percent instead. And it is about a U.S. situation in the area of the cost. With the suppliers, we've been working together, negotiating for the cost-related issues with them. And then we finally came to the agreement after a year. And then we are going to return back to them for the year. portion of their businesses together and that is put up in the fourth quarter accounting and that is why for the automobile businesses like that. Thank you.

Mr. Tanabe, thank you very much. We'd like to take the next question from a weekly Toyo Keizai. Mr. Yokoyama, please. Okay, this is Yokoyama from Toyo Keizai. Yes, we can hear you. Okay, thank you. I have two questions as well. First one is concerning automobile business. This is 0.4%. Mr. Aoyama, how do you view this? How do you evaluate this? And then also this fiscal year, quantities and numbers will improve, I believe. But where would be the focal point in the automobile business for you to earn, make better earnings? That's my first question. Second question is concerning supplier support. Other OEMs, there are some of them, they're taking care of the electricity bills. or pay expenses in line with the production. But I believe Mr. Aoyama mentioned it briefly. But what kind of range of support are you giving this fiscal year? That's what I'd like to know. Thank you. Okay, thank you very much for your questions, Mr. Yokoyama. Okay, so for 99 business year, yes, well, this 0.4%, I'm not satisfied at all. But when it comes to issues, So as Mr. Fujimura explained, recently there have been many factors that have been pushing up the cost. And then so how much of that we can reflect that the cost increases in either in the form of cost reduction or price hike. So to what extent we can recover, we don't know. I mean, are we really doing enough? Maybe not enough. So we need to do a little bit more. And then also, this can be, well, comes down to the semiconductor, but because the volume is below what we aimed for. So for the previous year, that was the biggest factor that we could not meet the volume that we were aiming for. So we want to reach this 4.35 million units right now. So that's what we're aiming for. When it comes to issues and focus, So as you've seen in these numbers, in North America, we want to grow our volume, particularly in North America, as you're seeing here. So if you look at the total market trend, we need to monitor closely how that develops. Is it going to recession due to inflation? We need to monitor how that trends into the future. That's something we really need to follow closely. That's what we believe for North America. For supplier support, to what degree the support is given, that will be answered by Mr. Fujimura. But, you know, well, you know, just taking on the electricity cost, that's only part of it. And then we had some impact from a semiconductor shortage. And then, of course, there will be some excessive fixed costs and all that. That would be another big item for the suppliers as well. So Mr. Fujimura will provide some additional information, including some specific numbers. OK, thank you very much for the questions. concerning the suppliers, particularly in the past fiscal year, due to the inflation and the logistics cost, and then also particularly the energy utilities cost, particularly electricity, labor costs, one after another. Suppliers have had a lot of factors that increased their costs as well. So on a one-to-one basis, with each individual supplier, in different regions, we have engaged in discussions and made some decisions. So, last year, globally, we made about 100 billion yen cost increase support. So, for that cost, without really reducing this cost, We believe that cost level will continue at that level. But as I said, per region, because of the pressure from inflation, is working, started to come into effect in North America by region. Sorry, for this business here, I cannot tell you the detailed numbers because it's summed up to individual negotiations. But last year, business year, we saw main cost increases in North America last business year. And then in Japan, Sorry for Japan. We have incorporated a bit of budget to support and then North America There was some cost increase and then we have accept accepted the part prices in line with the part cost and also we had some Volume expansion and also in order to ensure stable production. That's which we aim to do to some extent those suppliers who are very capable and then who have the room for expansion. We have been working together closely with the suppliers to work out some cost reduction measures. So we have been engaging and then we will be engaging in those discussions. The same applies to Asia as well. With several suppliers, we have decided to work on cost reduction together. So this is just an image, but this is how we are including our ideas and work together into a budget for this 100th business year. Thank you.

Thank you, Mr. Okoyama. Next question from Yomiuri newspaper. Mr. Nakamura, please. Can you hear me? Yes. I have two questions. Earlier, there was a mention to it about Chinese, the discount situation. So it is like a discount competition. And how long do you think it will continue? In extreme cases, Other companies offer another car if one buys a car. And what is the extent of the discount in practice today? And also, second question is about forecast of operating profit, the highest ever operating profit in the fiscal year 2024. Are there any other ever highest numbers expected? Thank you for your question, Mr. Nakamura. So for the question one, I'll address that part, and the second question will be supported by my colleague. And then in terms of the discount, how long it will continue, it is difficult to foresee how long it will continue, practically speaking, because the discount at this time is in association with the response to the the environmental measures, the CUNY 6B, the country 6, or state 6B1, and that is to ban certain types of models by a certain time. So after the end of June, it is ended. And then from the July 1st, we need to sell the air product that satisfies State 6B type of regulations. Other cars have to be sold out by the end of June because of that. It was actually, the deadline was the end of December, the switchover timing, and then it was postponed until the end of June recently, and it is very difficult to tell how long it will continue because of such changes. And Honda's perspective, we will not do extreme discounts such as buy one and then give you another car or extreme discounts. We are not going to do it. And for us in the second half this year, we plan to launch new models and it will refresh the models altogether. And I would like to make sure that those fresh new models will be sold in the market. I do not have the data with me right here. However, I mentioned a bit earlier in my presentation about the motorcycle operating profit 480 billion or above. The operating profit in that segment, that is going to be the highest ever, motorcycles. And in terms of the net profit, 1,000. Before, There was a tax system change under the Trump administration, and then there was release of some of the tax debt, and then it kind of pushed up the numbers a little bit higher transiently. And including that, it might change. However, still, I believe it is going to be the record highs. I'll get back to you with the precise numbers later on. But in terms of the sales to NOVA revenue, It is also related to the air exchange rate, about 18 trillion. That is actually trending upward. Thank you.

Thank you very much, Mr. Nakamura. Next, I would like to take the question from Mr. Oribe from Nikkan, sorry, the Daily Automotive newspaper. Sorry. Yes, this is Oribe from Daily Automotive newspaper. I have two questions as well. First of all, about the factors for pushing up the operating profit. I believe that one comes from selling prices. But can we get more a little bit details about the negative factors like the raw materials impact? So I believe there are some questions asked about support to supply or how much of that is included in here. And then sorry that I'm getting into different details, but so you are expecting 120 yen to a dollar for 24, but probably this is more accurate. But when you do the, if there is any background story you can share in consideration of the forex exchange rate as well. Okay, so about the, thank you very much. So your first question relates to the past results as well as for outlook. Both. Both, please. Yes. Both of the financial results and the outlook. About the outlook, I think I can answer that. I believe this is a... There's about 50 billion yen increase in the material cost increase. I believe Mr. Fujimura, sorry, raw material cost down reduction. So Mr. Fujimura can give you the details. Okay. Okay. Then starting with the financial results. So the, and the selling cost. If you can show those boxes showing the factors, we had a 12.7 billion and minus. So what this is, sorry, this minus 27.4. So the negative was about, sorry, 180 billion or so. And then we have the logistics and labor costs, and those are included in there. So those... We actually did a pricing that negated, that canceled those factors enough, and then we have this $330 billion and so forth. For the outlook, we have a plus $265 billion. So, this includes a positive effect from raw materials of 50 billion, and then also minus 40 billion. So, the difference would be the cost increase, and then that would be the net offset results of the selling price and the cost increase. as mentioned earlier, for cost factors. Sorry, this is something that we negotiate individually, so I cannot really talk about it. But anyway, offset, there is about 250 billion or so, 260 to 50 billion yen or so. So about the exchange rate, just to give you the background, because the interest rate hikes in the States might settle down in the second half. That's what we are expecting. And then maybe 130 yen to a dollar during the first half and 120 yen during the second half. So that's where our 125 average came through. That concludes my answer. Thank you.

Thank you, Mr. Uribe. Next question from Gigi Press. Mr. Toyota. Toyota speaking from Gigi Press. Can you hear me? Yes. I have a question regarding the past fiscal year, the details of the ups and downs of the profits and its reasons behind. And the chart says that 56.5 for quality. And as you said, it is related to the recalls in the United States. And in the same box, you have 60 billion in the same box. And next one, 800 so forth. That is a negative, in fact. And what is the breakdown inside of the box? And the second question, in the United States market, financial instability so forth now happening today, but what is your macro perspective of the U.S. economy going forward and its potential impact on the automobile industry? What is your thoughts about it? Thank you, Ms. Toyoda, for your question. So the operating profit from the past year, quality-related one, is connected to the recall cost in the United States. That is your question. But actually, it is not limited to the U.S. But globally, there are other regions also connected to it. The main part is the U.S. But as a fact, however, other regions or countries are connected to the recall as well. But in terms of the numbers, Fujimura is going to answer. But in terms of the U.S. market and financial instability, outlook of the economy, and its impact on the automobile businesses, according to your question, and I would say that the market itself is quite solid as of now, recently. And for 2023, toward the end of that fiscal year, the U.S. OEMs actually resuming their stock levels for the market. And then in 2020, FY, in the middle of the COVID pandemic, you compared a situation to that. The stock level in the market is not that high as yet. It's not that much of the recovery, but also the market of the mid-term perspective, it is a little bit coming to be weak, perhaps in the mid-term perspective. However, as of now, it is trending quite solidly, I should say. And then this is more of the macroeconomic perspective. but including a stable financial situation. But that part should be the area where we should pay close attention to. We shouldn't have prejudgment on that. And practically speaking, this year, we will have the fresh product out, the product fresh product will be there. So it is a good situation for us. And in the industry like that, I'd like to make sure that we will sell those fresh new products in the market in the coming year. Thank you for your question. And then you say that other box is quite big, and then I'm sorry that we couldn't give you a good explanation for that. In terms of the gross margin, it's 6.4, 86.4 billion. In the second quarter, A part of the subsidiaries and entities had recognized the impairment of the fixed asset that is about as much as $200 million or so. And also, we had the impact of the reduced unit sales that is included in the a breakdown of their units of sold and Chinese ones actually are in a different box. About 304,000, 40,000 units were down, reduced amount in the United States, in China. And we had KG parts, profits for Honda, and we had a royalty payment less made from Chinese joint ventures. And we have consolidated subsidiaries in China where they had reduced the profit level too. So, out of those impairments of the subsidiaries, we have impact by the reduced volume situation in China. That is in that. It's 80 billion yen expenses, excuse me, 60 billion expenses. So largest part out of that is the impact by the inflation of various countries. And most of that is actually for that reason. And then practically, maybe New models are starting up quite a bit, and then we do spend some advertisement, of course, for the new models. But still, we try to maintain our lean structures that we achieved so far.

Thank you very much, Mr. Toyoda. Next, Mr. Hirooka from News Fix. This is Hiraoka from NewsFix. Can you hear me? Yes. So as a total, as your company, how do you generate the cash that goes into investment? In going forward in your automobiles business, you will be spending a lot of R&D and also capital expenditure, which will increase. This will be reflected in the depreciation. Probably in NAV, probably the raw material price will probably stay high. So I'm thinking just as a—maybe this is an issue for the auto—all across automotive companies. So how do you gain the cash? So, you know, for you, maybe motorcycle business is good and profitable. You can earn cash there. So you can probably pull a lot of investment in automobile. Let me know if that's really a strength you feel. The second question is talking about the auto mode, sorry, PBR across all Japanese companies tend to be low, rather below one. And then there are voices saying what give us the account, be accountable for this. In your case, in the medium to long term, perspective, how do you propose to increase PBR? Okay, thank you very much for your questions, Mr. Hirooka. I will leave all the details to Mr. Fujimura. But so are we, first of all, to answer if you're earning cash from a motorcycle business? Even for motorcycles, we need to convert to battery, electrify them in the future. But there is a bit of a time lag between motorcycles and automobiles. So in medium-term perspective, I think it's all fair to say that we can earn cash. to put into automobiles. So for Bev, you said the raw materials prices are really staying high. But when it comes to raw materials, you're talking about the batteries and cells. I guess that's what you are talking about. But this is something you cannot really say that the cost is staying up high across the board. You can't say that. It's something, I mean, because it's market, it moves up and down. So I wouldn't really say you know, the material cost does not hit only an individual company. So we hope to be for those that moves up and down in terms of prices, costs, we would like to accommodate ourselves. At The Shanghai Motor Show as well, there are some relatively low-priced battery EVs coming out. We see that for sure. So we would continue to monitor the situation for EV. For the PBR, the second question. This is one of the critical issues in our management operations, of course. So, basically, last year, with the reporting, this is something we touched upon a little bit. The capital cost, we want to stay keenly aware, and then we will continue to consider introducing ROIC. But when it comes to the specific KPI, we like to set up a roadmap. And we'll communicate what our KPIs will be for going forward. Okay, then. Well, just additional, I don't know if this means additional information for you, but as you've pointed out, the cash that we earn from a motorcycle operation is considerable. But for automobiles, even though the operating margin due to the fixed cost because the operating time is only 80% or less. So we hope to be able to earn 0.3% or higher. So even though that's the situation in terms of earning in automobiles, but for operating cash flow, Within the operating, the depreciation that we can—we are able to get this back, but also the equity earnings, the—maybe 20 percent of the net profit comes from that. And then, of course, dividend from there is contributing as well. And then in addition, there are some investment related to ICE. We need to wisely manage in our operations. But as you've pointed out, going forward, we will be making a lot of investment in BEV. Is that what you expected? But what we are thinking of is that we need to maintain the current level of the investment, but just as a shift, we want to shift away from ICE to spend more in R&D and investment for the new areas. So that's what we are thinking of. So we want to have a comprehensive control, and then we would probably Keep in mind this cash generation capability from automobile operations as well. That's what we'll continue to do. Thank you very much, Mr. Hiroko.

Because of the interest of time, the next question is going to be the last one from Nikkei newspaper. Mr. Uehara, please. Uehara from Nikkei newspaper. Can you hear me? Yes. Thank you. I have two questions. One, about the United States, the interest rate hikes and also the economy have a risk for the depression. But what is your judgment about the outlook as of now? How do you see the situation for businesses and also the cash finance? What is the impact on your financing situation of cash support? And then also the outlook for China, mid-term perspective, specifically its impact on the upcoming fiscal year revenue? Mr. Uehara, did you complete your question? Yes. Thank you. Thank you for your question, Mr. Uehara. So in this year, in the fiscal year 2024, how do we see the economy's impact on the sales? So in terms of the finance businesses, We have basic revenues of financing operations, and we have so-called penetration, how much we should acquire from that. That is one part. Whereas we have the rate of delinquencies and the bad dates and allowances, reserves for that. How should we go about it? And also the lease businesses. the residual values of the air lease fleet vehicles, let's say. so-called net charge-off. We take that net charge-off quite severely because of the inflation and economic pressures. We have included our forecast quite severely for that part. And also, the fleet vehicles' residual values In the previous two years of our businesses, we had a shortage of the supplies. And because of that, the trade in markets, used car market was quite booming in the way. But in terms of the residual, values of those cars. Actually, in the past two years, it was quite favorable to us. However, in the upcoming fiscal year 2024, that is not going to stay positive. And that is our assumptions now. And for the China situation, the effort 2020 Therefore, it will stay with a bit of the difficulty in China. But after FY25, we are going to strengthen the EN series with the battery vehicles and so forth, more and more. to add, and then for our businesses along from the FY25 onwards, we will expand the battery EV vehicles more, along with the revenues to enjoy as well. Thank you. In terms of the details, in fact, in the last few years, as Mr. Wehmer said, now, financial businesses were like we had losses of the air, those residual value-related used car ones, and also the bad debt things. And in fact, the used car prices were very high. and also the government provided supports for the individual consumers. And after the pandemic, there was not much of the lost cost, and we had about three as 60 to 380 billion or so. And then it went on like that until now. But in fact, the cost as such is actually abnormal in the last two years. So I think we should say that we are coming back to the normalized status as we speak now. It's coming back like that. However, still, the used car prices are still high. So the losses due to the residual value still exist. And in fact, after that is over, it will be turning to the profit level. But actually, when the lease period is over, the customers' cars will be returned back to us, and then we'll put that in the market of used cars again. And we used to have 60,000 cars like that before pandemic, and now we have about 200, 300 cars, that kind of level. And in terms of the bad debts, we have about 0.3 percent of the bad debts, in fact. And we've been doing the assessment of the credit score, like 70, 80 percent of AB score, and we try to be prudent in terms of the customers like that, and we try to control the asset side of the ER chart. And when we had a financial crisis, we had a similar situation about procurement. The idea is how well we can diversify the procurement. And we shouldn't be optimistic, of course, but we will try. like that, and we will stay operating with the procurement, and we have a policy as such. Thank you very much. Thank you, Mr. Rehara.

Okay, then with this, I would like to finish our financial results press conference. The press release information, the materials for financial results are listed on our website. Thank you very much for participation.