Honda Motor Company, Ltd.

thank you very much for coming despite your busy schedule today we would like to now start honda motors company limited's briefings on fi 2024 q1 financial results we have interpretation service for the non-japanese investors and analysts thank you for your understanding

First of all, let me introduce today's speakers.

We have Eiji Fujimura, Executive Officer and CFO.

I'm Fujimura. We have Masao Kawaguchi, operating executive, head of accounting and finance supervisor unit. I'm Kawaguchi. Thank you very much for today.

Finally, I am Niwa from IR department, and I will be facilitating today's meeting.

So without further ado, I would like to have Fujimura provide a summary on the 2024 Q1 financial results, followed by the details of the earnings by Kawaguchi. Over to you.

Thank you very much for taking the time out of your busy schedule today.

I would like to review the results from the first quarter of fiscal 2024.

First, I would like to touch on the highlights of the results.

In Q1 FY24,

With the improved fixed cost structure that we have been optimizing, we maximized the effect of increased sales units, mainly in North America, and achieved significant growth in automobile operating profit year on year. With respect to the total profit, operating profit grew 172.2 billion year on year to 394.4 billion yen, a quarterly record, with operating margin at 8.5%. The fiscal year 2024 forecast is kept unchanged.

Today at the board, a resolution was adopted approving a stock split.

I will now turn to the automobile business results in the main markets. The overall results from the first quarter fiscal 2024 exceeded the same period previous year. In the United States, the improved supply of semiconductors and recovery in production In addition to strong sales of models introduced last year, led to results substantially surpassing the Q1 of last year. On the other hand, in China, expansion of new energy vehicle market resulting in more intense competition impacted the results, which were lower year on year.

We maintain the previous forecast for fiscal 2024.

In regard to our electrification efforts, in order to develop the next generation competitive software-defined mobility products and services, we reached basic agreement on partnership with SCSK Corporation.

In North America,

Seven automakers, including Honda, concluded agreement to establish a joint venture to create a high powered charging network for EV. Next, turning to the motorcycle business, number of units sold was lower in India and Vietnam year on year. But in Indonesia, in comparison to last year when we were impacted by semiconductor supply issues, production has become stable and sales results significantly outpaced the same period last year. Overall results exceeded the same period last year. Forecast for FY24 remains unchanged. As regards electrification efforts, we announced this month the launch of the personal-use electric motorcycle EM1E, which is the first of its kind for Honda in Japan.

Next, I will go over the consolidated results from Q1 FY24. As I highlighted earlier, Operating profit rose 172.2 billion year-on-year to 394.4 billion yen. Profit for the period attributable to owners of a parent increased 213.8 billion to 363 billion yen. Next, I will discuss the stock split and dividends. At the board today, a resolution was adopted approving a stock split by reducing the company's stock price per investment unit

We aim to establish an environment where it is easier to invest in our company. For the purpose of expanding the investor base, each share of common stock will be split into three shares per share. Annual dividend forecast for fiscal 24 remains unchanged on pre-stock split basis. The dividend forecast calculated based on the number of shares after the split is as shown here. Next, I will turn the microphone over to Kawaguchi, who will give the details of the earnings results from Q1 fiscal 24. Let me explain.

First, Honda Group's unit sales for Q1 FY2024 were

4.473 million units in the motorcycle business, mainly due to higher sales in Asia compared to the same period last year. Sales in automobile business were 901,000 units, mainly due to an increase in sales in North America. Sales in the power products business were 983,000 units, primarily due to lower sales in North America. Next is on the changes in profit before income taxes in Q1 compared to the same period last year. First of all, operating profit increased by 172.2 billion yen year on year. Let me walk through the factors. impact from sales was plus 133.7 billion yen as a result of higher sales units of both automobile and motorcycle. With regards to the impact from price and cost, the increase was 65.9 billion yen as a result of lower raw material prices, especially for precious metals, and the effect of pricing commensurate with the improvement in product value. With regards to expenses, while quality-related expenses decreased as a result of higher advertisement cost and labor cost, the impact was negative 29.8 billion yen. R&D was minus 20.8 billion yen. Currency effects was positive at 23.2 billion yen. In addition to higher operating profit and unrealized gains from foreign currency bonds, pre-tax profit was plus 277.5 billion yen. Next on the sales revenue and operating profit by business segment. Operating profit for the motorcycle business was 143.5 billion yen. For automobile business, 176.9 billion yen. 69.5 billion yen for financial services and 4.4 billion yen for power products and other businesses. Next is on the cash flows.

Cash flows in the three months of Q1 FY24 were 285.6 billion yen. Net cash at the end of Q1 was 2 trillion and 984.1 billion yen.

That is all for the explanation. Thank you very much for your attention.

Thank you for your kind attention. We will now entertain questions.

Due to time constraints, please limit the number of questions to two questions per person. We appreciate your cooperation. If you have a question, please indicate by clicking raise hand button.

First question from Citigroup Securities, Yoshida-san, please.

Please turn on your video and microphone. Thank you for taking my question.

First question, results were quite strong.

Operating profit, how much was it better in comparison to internal forecast? However, you have kept FY24 forecast for the year unchanged. What is the background? That is the first question. The second question is about China. When we look at the numbers, it seems that in terms of unit sales, you are struggling. What is the latest status, including price competition? And what is the risk in terms of unit sales for this term? And what is the impact based on equity method profit?

Thank you, Mr. Yoshida, for your questions.

First of all, as you rightly mentioned, we have kept four-year forecast unchanged. And Q1 quarter results, we wanted to convey the Q1 results today. And regarding upside and downside, we would like to comment on upsides and downsides for your better understanding. As for how we look at the first quarter results before discussing profitability about unit sales in automobile business, 90,000 In comparison to the same period last year, profit is maximized in North America, increase was by 130,000 units. Annual plan is 4.35 million, and the progress is 21%. It is somewhat at a lower level, but we believe this was more or less on target. To begin with, regarding China, In the beginning of the fiscal year, we mentioned in our announcement that there was a 6B pollution standard resulting in discount competition, and there is also increase in market share in NEV market, and we expected that it will be a difficult market. In that sense, regarding unit sales, China was as we expected. As for semiconductor supply shortage, last year, because of the shortage, we struggled significantly. But we have a production plan one week or two weeks ahead of time, which was suddenly changed last year. But this year, in January, especially after January, The situation continued. However, in April to June, we no longer experienced such difficult situation. But we cannot become too optimistic regarding China. So I will come back to China later. As for motorcycle business, in the first quarter, unit sales was slightly below our expectations.

That is the reality.

In comparison to last year, group sales increased by 200,000. However, on a consolidated basis, unit sales declined by 100,000. India and Vietnam saw larger declines. As for India, from April this year, environmental regulations have to be complied to. And for that purpose, we are introducing new components. And for these new components, we were somewhat impacted by semiconductor supply issues. And it was about 50,000 are down from the previous year. However, we expect to recover in the second half of the year, and we believe that we will be able to achieve unit sales in India. As for Vietnam, you are familiar with the situation. Economy is slowing down. There are signs of slowing of the economy. And to maximize our profit, we are also focused on Vietnam. And therefore, this is a cause for concern. However, regarding Vietnam, however, as opposed to Vietnam in Thailand, Europe and the United States sales unit is increasing, so we would like to offset the decline in Thailand. As for profitability, as you mentioned, operating profit annual target is 1 trillion, and it is about 40% of progress at 390 billion. Regarding motorcycle, ROS is 19%, and As I mentioned earlier, in Vietnam, we are struggling a bit. However, we were able to report rather strong results. As for automobile business, we have always been saying that we are focusing on fixed cost reduction, and we are also introducing new models. We now have more or less all of the new models after Civic, and we are increasing profitability with these new models. and we have been able to improve COGS ratio and unit sales increase. Additionally, it enabled us to maximize the effect of increase in unit sales. However, in Q1, quality related expense was only about 0.6% of operating profit. There are also some

The changes in lag from the plan and ROS for automobile is 5.8%.

This is not really an analyzed number, but a gross profit was

driven by strong unit sales, which we assess positively.

As for three months, 30 billion was our expectation, but it is a 39 billion. 390 billion rather than 300 billion which is up on 90 billion and half is because of currency effect and half is because of the delay in delivery etc and so for profit and for sales units we are achieving the plan more or less As for full-year forecast maintained unchanged, although there are China and Vietnam situation, but in areas other than currency effect, on real basis, we have the target of 1 trillion, and we would like to make sure that that is achieved. And in the beginning of the fiscal year, we felt that it is too premature to change full-year forecast, and that is why forecast remains unchanged. So that is my response to the first question. Turning to the situation in China, in the beginning of the year, 1.4 million was the plan, and this plan is also kept unchanged. On this point, as I mentioned earlier, we expected the first quarter to be somewhat weaker. And from the second quarter onwards, accord and breeze inspire CRV. With these models, new models have been launched, and we want to make sure that with these new models, sales is expanded. But we believe that we will have to focus significantly.

We have to spend much effort.

how we view the situation in coastal cities, some of the cities and in inland cities where we were not traditionally as strong. We will also have to reinforce our sales capabilities and in Chinese headquarters with the partners to achieve the target efforts are being made. But a recent trend is such that in July, the Combining the results, including joint venture at the retail level, unit sales is about 80 to 90,000. And we are also dependent on our partners in our business. And currently, I'm not able to discuss on the exact number of units, but

the decline in number of units.

We allocate components to regions, and we will make up for that in other areas on an effective or on real basis. We will make up for the profit, and unit sales will be offset on a global basis. I think that will be the focus area going forward. Those are my responses to your questions.

Thank you very much.

One supplementary question here. So in the past, you used to change your forecast on a quarterly basis. But this time, the way you present it has changed. Is that the case? We should be willing to comment on that. And the second point is that So you have not changed your forecast of 4.35 million, but the reductions in China will be reallocated to North America and other parts of the world. So maybe you have enough demand trend you see, or maybe you have some semiconductor forecasts. So maybe you see some opportunities in other parts of the world other than China. Is that the case? Well, with regards to the first point, so depending on the situation, what we do with this quarter and the next quarter, next year, is because we're basically in line, then Whatever we have laid out at the beginning of the year is our forecast, and it's also our ambition, our target. So if you exclude foreign currency, we would like to make sure that we're able to go with our commitment. And that's the significance of it, and also related to your latter. question, but 4.35 million units. And the reason why we have kept this plan unchanged is basically, as you point out, let's say it turns out to be difficult in China. If we make that decision, then we will offset that in other parts of the world.

And I did not talk about North America, but actually, if you look at North America,

We are producing in a very extremely difficult environment. The chip supply shortage is beginning to dissolve. However, we have been producing at a very low volume, and now we're trying to lift that up. And I think last time in Q4, against the forecast, our production was not able to catch up, and so there was a shortfall. But we need to, in the stage of ramping up our units, and suppliers are also struggling with us together, so we are cautious in that sense. We, in any case, 4.35. This is our global target, which we would like to make sure we're able to achieve. We'd like to make that effort. So that is why we kept it unchanged. That is all from me. Well, thank you very much.

Thank you, Mr. Yoshida, for your questions.

Next, from Mizuho Securities, Ishiyama-san, please. Please turn on the video and microphone.

This is Ishiama from Mizuho Securities.

Can you hear me? Yes, we can.

Please go ahead. Thank you. First question. I'm looking at page 17 of the material.

there is a business-by-business profit results. And as for sales price for motorcycle and automobile business, could you comment on this? According to the earlier presentation, it seems that the price level is also more or less in line with their expectations, but results are quite strong.

So what is happening in more detail?

that is the first question and the second question motorcycle demand a generally speaking how do you foresee the demand for motorcycle going forward for automobile 4.35 million units is the overall target although the breakdown might change but for motorcycle business could you elaborate on the

Thank you, Mr. Ishiyama, for your questions.

As for the sales price and costs, Mr. Kawaguchi will explain. As for motorcycle business, basically the same applies. The target, we have to ensure that targets are achieved. And as for that likelihood regarding India, As I mentioned earlier, there was a semiconductor shortage. However, we are making sure that we are able to take responses, and we have increased the visibility. As for Vietnam, the situation is somewhat more difficult. However, from the beginning, and I always say this, regarding motorcycle business, Asia and Brazil Our markets were very, very strong in terms of sales unit and profit, and they account for the majority of sales unit and profit. However, these are also markets with higher volatilities. Last year, in comparison to last year, ROS number is 19% this quarter. But given high volatilities, we expect further volatilities. So around 15% or so is the target for ROS constantly. And that is as far as profitability is concerned. And as for unit sale, we would like to make sure to achieve the target. And regarding profitability, although Vietnam is somewhat down, we would like to make up for that in other markets such as Thailand and Europe and North America, where per unit profitability is higher. And it's not that we have given up on Vietnam. We would also like to continue to make efforts in Vietnam.

On price and cost, thank you for the question. With regards to the impact of price and cost, I want to start from the company-wide total. So first of all, in Q1, if you look at the total, compared to last year, the selling price was actually positive. 5.9 billion yen. This includes material costs and different inflation and cost increases. And as a guess that we have, you know, pricing based on the company efforts. So this is CNET. And up until last year, there was a significant inflation impact and raw material cost increase. And in order to absorb that, we have tried to reflect that in the pricing. But as I said at the beginning of the year, starting from this fiscal year, inflation is starting to And if you look at the precious metals and materials, the pricing has also calmed down.

So whatever we have tried to respond in terms of the cost effects, this has been actually reflected in a full year basis.

first quarter, whatever we planned at the beginning of the year, we are beginning to see that effect in the three months. In terms of cost domain, compared to Q1 year on year, because inflation was intermittent, if you compare to this quarter, including labour costs, there was elements of cost increase. Also, our suppliers They have also been trying to raise cost, have seen increasing cost as well. So, you know, we talked to each one of them and tried to share the burden of the cost increase. So increasing cost compared to the last quarter, last year, we still see that in this quarter. And in terms of material cost, Because of the reductions in the production volume of automobile, we have seen reductions including PGM. And that portion, compared to Q1 2023, we are seeing the reductions in the metal prices. So we have seen the cost increase, but also the cost reductions in the material cost. So that's a net effect. So in other words, on a company-wise, in terms of the pricing of the products, we're beginning to see a full effect of it. So if you could kind of get that idea from that. And in terms of motorcycle and automobile, if you look and see the breakdown, For automobile, as we have just explained, in terms of cost increase, this has been absorbed by the decrease in material cost and metal price cost, and we're beginning to see positive effect on pricing. In terms of motorcycle, the pricing is the same as automobile, but in terms of cost reduction, because of the production volume has recovered quicker in motorcycle, cost is a little bit more positive on the motorcycle side. So 29.4 billion in here. This includes positive impact of selling price, and also we have a net positive effect on cost as well. So for automobile, We are also looking at how the suppliers are doing as well, but we will continue to realize cost reductions in line with the production volume. That is all from me. Thank you very much.

Quickly, second question. First quarter was more or less in line and probably forecast is kept unchanged. So do you think that there are opportunities for upside labor cost and regarding inflation in comparison to our expectation? We believe costs are generally somewhat higher, but as for materials cost, they were lower than our expectations and offsetting these It is more or less in line from the beginning of the year forecast. As for precious metal, this is affected by commodity market, and we cannot foresee. But for the moment, it is in line with our forecast. Thank you.

Mr. Ishiyama, thank you.

Next, Mr. Nihon Yanagi from both Bank of America Securities, please. Could you turn your camera on and the microphone on as well? This is Nihon Yanagi. Thank you for the opportunity to ask a question. I have two questions, please. First question. I'm a little bit persistent here, but in Q1, in particular, if you look at fixed cost domestic and with regards to sustainability, would you be able to elaborate So basically, at the beginning, I think your question answers the earlier question was that this fiscal structure is not sustainable. But based on the numbers that we have seen, if you exclude the claim fees, I think you have increase of cost of about 25 billion yen year on year. Meanwhile, If you look at geography, profitability in Japan is 8.9%. This is unprecedented margin, and it seems as though this is too good to be true. You have undertaken different initiatives, and I think this is the effect, and I hope that this effect will continue. So we have some hopes in your ability to sustain this. So would you be able to comment on sustainability? So this is my first question. The second question is on the free cash flows and how you think about it. If you could update us on your way of thinking in Q1. If you exclude financial services, it was a positive 290 billion. Meanwhile, if you look at the balance sheet, there is a foreign exchange impact, but you still have a high level of inventories. So if, let's say, as you have been saying from before, production recovers and you have increasing unit productions, then maybe you will see reductions in the internal inventory. So this year's free cash flow could be at a very significant level. So if you have any, you know, target, numerical target or ballpark figure we'll be able to look at, please share that with us. So that's my second question.

Thank you.

So, Nihonyanagi-san, thank you very much.

So with regards to domestic Japan, every time I know that this is a little bit difficult to understand because it's by site and we submit this number by segment.

So as you know very well, so that we have the business we produce in japan and sell in japan and we have business where we do knock down the export from japan and then we have r d and we have business where we're able to collect on a loyalty basis so there are three different types of businesses which exist and we're trying to present this all together so that is why it's very difficult to understand in japan the fixed cost reductions benefit that's being realized here in Japan. This is more or less, this is the impact on the increasing loyalty from overseas and also foreign exchange. And I think those have comprised a very large portion. With regards to the reductions in fixed cost, In North America, Europe, and Asia, we have implemented different measures to do that. And of course, we are also trying to improve our debt situation in Japan as well. But I think the growth comes mostly from foreign exchange and loyalty. royalties. I think those are the two large effects.

With regards to free cash flows, it's true, 290 billion yen, that's right.

This was the case last year, but there's about 700 billion yen or so on annual free cash flows. So with regards to this year, we're eyeing at about that same level.

So as I have said, profit is about 40% right now.

And also in terms of investment, it will be, you know, of course we have been taking equity stakes in companies, but investment is more leaning towards the second half of the year. So between 600 to 700 billion yen in free cash flows, we should be able to generate for this full year. That's our plan. And with regards to the inventory, this is, compared to our peers, our inventory management against sales revenue, sales tends to be a little bit on the larger side because we're trying to supplement on a global basis. But reversely put, We have some challenges on the distribution logistics side. So I have mentioned before that we would like to entrust this to ROIC. But as you point out, this is an area where we would like to improve. We do have foreign exchange impact, but inventory is of that situation. So it is slightly high. We do agree with you. Hope that answers your question.

Thank you very much. So for each point, first for the first question. So in Japan, it is lagging behind in terms of when it is accounted for in this current fiscal year or the next quarter. But what is the situation? And as for Towards the end of the fiscal year, inventory will decline and the free cash flow. Of course, there may be more investments, but declining inventory will contribute to free cash flow. As for the first question, the answer is yes, your understanding is correct.

As for inventory, naturally.

If our products are sold, inventory should come down. And right now, production, as soon as we produce a car, it is sold, especially in North America. So I believe the inventory level at the current level may continue. Where it is slightly higher, it may come down, contributing to free cash flow. But overall, what we envision is around 700 billion yen in free cash flow. Thank you very much. Thank you, Mr. Nihon Yanagi. Next, from Daiwa Securities, Hakomori-san, please. Please turn on your video and microphone. Hello, I'm Hakon Mori from Daiwa Securities. Thank you for taking my questions. I have two questions. First, according to the presentation material, page 17, detailed breakdown of increase and decrease are given for both motorcycle business and automobile business. As for the unit for automobile, a sales unit it is 130 billion and uh i understand that there was an increase of 130 000 in the in north america where there is a higher profitability but in any event uh increasing profit is very large so could you comment on this and uh the uh As for the operating profit ratio of automobile, it was mentioned that it is not sustainable, but the 5.8% in comparison to the competitors is not especially high. And with the unit sales recovery, Could you comment on the mechanism where you do not expect much recovery in operating profit margin? And the second question is a very simple question in the United States. What is the latest in terms of your demand forecast for North America, for the United States?

Thank you, Hakomori-san, for your questions.

As for the breakdown, I would like to ask Kawaguchi-san to discuss later.

In comparison to a unit, it might appear larger.

Profitability by model and cost reduction efforts have been providing a positive impact. marginal profit per unit, although this is not disclosed in North America. In comparison to when I was in the US three years ago, it has increased substantially. There is also an impact from currency effect to the positive side. a very high level is i realized accord crv pilot are the new models that were added and i see a strong positive impact from these models as for 5.8 percent in comparison to the peers it is not necessarily high and that is true but in any event our os of seven percent or above

by 2025 is our target. And in the pursuit of such target from automobile business, it is not 7% or more. With the help from motorcycle, it is 7%, so it may be around 5 to 5.5% in automobile.

for rs and steadily 5.8 percent whether it is sustainable or not i'm only looking at this fiscal year and i mentioned that it may not be sustainable but we would like to make sure to raise rs and in what ways can we increase rs

By region, or globally, we have production capacity of 5.14 million, but we are producing only about 4 million or so, so we should increase our production. And price per unit, we will continue to examine the unit price.

We have been making efforts to reduce cost, and we also have been supporting our suppliers. And after COVID pandemic, unit number declined, and there were also some issues with our operations. Based on the premise that we have sufficient semiconductor, we have production plants. However, because of a shortage of supply, we have to stop in some places and we have caused inconveniences to some of our suppliers. We have to stabilize the production and we have to make sure that we do that. There is no magic wand because we're dealing with production. We have to steadily improve. the production and thereby achieve the target. As for the U.S. business, before that, could you give the breakdown?

Thank you for the question with regards to automobile. impact on sales. There's not much trick to it. As Fujimura said at the beginning, last year we invested highly profitable sort of architecture effect

you know, models, so highly profitable models we have launched. And that is why we have seen an increase of 12.5 million, I mean, 125,000 units, excuse me. And meanwhile, in Asia, especially India, we have seen slowdown in units. And on the average basis, I think it has helped increase the unit price for automobile. And in North America, the fact that the production volume has beginning to ramp up on a supplier basis, there are some that it will be included in consolidated basis. So there's improvement in profitability there as well. So there's a little bit of that, but I would say the majority is contributed from the North American increasing units. So that is all from me. Thank you. Then that's the situation in North America. So Q1, as we have described, sales

Our solid demand is good.

Civic, HRV, CRV, Pilot, Accord, all of these model cycles have been leveraged, and I think we have been able to make a good use of that. In terms of dealers' inventory, at the end of last fiscal year, so end of March, We had about 60,000 in dealer inventory. While we are increasing production, but our inventory level is only 62,000. So that's only an addition of 2000 units.

So that's why wholesale

you know, production and sales. I mean, this is all continuing in a good cycle. So as I have been saying, we would like to work with the suppliers to focus on ramp up. And there will be some challenges, of course, but we would like to make sure that we're able to ramp up our production in North America. So we're working on that. And for this fiscal year, You know, there may be some concerns of recessions and maybe in terms of the used car market impact. There is a little bit of uncertainties, maybe with in terms of certainties, but maybe on the recession side, we're starting to see some dissipation of that. So we would like to. you know, maximize our sales opportunity. And in order to leverage that, we need to make sure that we are able to complete our production plan with regards to finance financial services.

So there was a time

where we had reduced incentives. And that's why the penetration was less than 50%. And also, you know, US Honda units were slow. So financial receivables have decreased, but Finally, penetration has recovered to more than 60%. And as a result of that, in terms of the reductions in receivables has hit bottom. We look at KPI of an ROA in order to operate our financial services. So in terms of operating profit, It's somewhat inevitable that there's a little bit of decline here, but we have hit the bottom. So even compared to last year, receivable is low. So there's reductions on the profit side, but that's the situation with the gross profit. Now, in terms of used car, If we're looking at Anaheim index as well, we see some result there. But against that residual contract amount, there's about $4,000 per unit on average. We're still on the gains. There's gain cut from there. I don't think it will turn into losses right away. And even if it does turn into losses, you can say that this is heading towards normalization. Also, in terms of residue of value, the fact that it is on the gain side, valuation gain side, it means that we are not able to return, the cars are not returned to us. Before COVID, it was like 60,000 that was returned and we were able to auction it, and that was residual losses. But there's only about 200 units right now. So there will be negative impact on the used car side. But it's not that we will be impacted by that immediately, at least not so much.

With regards to charge-offs, we are now beginning to see this come back to pre-COVID situation.

And during the days of Mr. Trump and onward, you know, there was, you know, support for the households during COVID. So there was hardly any charge-offs, credit losses at the time, but it's now beginning to go back to the pre-COVID state, there's about 0.6% in terms of credit loss allowance rate. But this is on a normalized basis. I think we're going back to the normalization. So in the United States, on the finance basis, we will manage ROA based on pricing. So we do not have any large concerns over financial services at this point in time. I hope that answers your question.

Yes, thank you for that very thorough, detailed response.

Thank you. Next, from Goldman Sachs, Yuzawa-san, please.

This is Yuzawa from Goldman. Thank you for taking my question. I have two questions. First, appropriate valuation. You have announced a buyback and you have also announced a stock split this time. And I believe you will continue with these actions. But what are other measures and actions that you plan to take going forward? And at the same time, you had these results this time, but how do you plan to change the structure of the group companies? What are your thoughts? And second question, about China, you've mentioned that you need to make much efforts. Could you comment in more detail if the market it is very difficult and at the price level it seems difficult to improve the situation in China. So what are your plans for the countermeasures in China? Thank you, Mr. Yozawa, for your questions.

First, about buyback.

As we have been stating from the beginning of the year,

inclusive of future free cash flow. Net cash is 2.2 trillion, 2.9 trillion, about 2.3 months worth. And there is accumulation of cash. And equity ratio is about 46%.

In terms of capital policy, and in anticipation of a major transformative time in the future, we also have to be mindful of our ability to invest, but we have to be reviewing our capital policy. And as for PBR, there's much talk about PBR these days. But even before this became a hot topic, we have been conscious of this issue, and we have been making efforts to improve. As for the measures going forward, it is difficult to comment specifically. But as for dividend, we would like to ensure that we will continue to have a payout ratio of 30%. As for acquisition of our own shares, buyback, we would like to look at the situation and be even more timely. As for stock split, we have been considering this for quite some time. Of course, others are also taking measures recently. And I do not know whether the numbers that I have at hand are correct. I apologize if I'm mistaken, but there is 2,000 trillion of individual assets and about 1,000 trillion is in bank deposits. close to a market capitalization of total TSC are parked in bank deposits, and government is encouraging investments, including in NISA. 8% is the percentage of individual investors out of our investor base or shareholder base. We would like to see more individual shareholders, and through holding of our shares, we hope that individuals will support Honda and will take greater interest in Honda's business. We hope that that will be the case. And that is why we have decided to implement a stock split this time. And it should be done at such a time as when the stock price is rising. And since it is currently rising, and right before a new NISA program is introduced the next fiscal year, we were able to implement this. Fortunately, the stock split by itself is not sufficient. We would also like to enhance investor relations for individual investors, retail investors. We would like to stay young as a company, and we would also like to make young investors interested in our company.

So we would like to make efforts towards that end. As for reorganization of Yachiyo and as for the structure of group companies in electrification,

Because of electrification, what components, what technologies will become core technologies? We have to be able to identify that as we consider the structure as a group. What company, what to do going forward? I'm not able to comment naturally, but The basic is the technology and what will happen given the electrification going forward. However, if we combine and consolidate, as was the case with Yachiyo, we believe that we are able to improve our enterprise value. And mothers supported us, and so we would like to pursue a win-win solution for our structural reform.

As for improving the situation in China, I think there are about three things – overtime, short-term measures. Right now, we are trying to establish a new bed factory with two joint venture companies, targeting 2024. And if the current 1.4 million unit is difficult, we have to think about a fixed cost.

Those will be short-term measures. in short short to medium term measures and going forward regarding ev we will be focusing on ev and we would like to launch attractive products and as we have been saying In fiscal 25, the third phase and fourth phase EVs will be introduced. And by fiscal 28, we will have 10 models of EV in our lineup. Whether this is speedily enough, we may have to review that once again. And as I mentioned earlier, we are doing this through our joint venture business, and our intentions will have to be discussed thoroughly with our joint venture partners to reach a conclusion of what we should be achieving, and therefore, at this point in time i would like to refrain from commenting specifically on what we will be doing but i believe the there is a shared understanding of the issues amongst our joint venture partners so through discussion with our partners we would like to decide on the measures over short medium to long term and we will be implementing those measures I apologize that I cannot discuss in concrete terms, but that is what I meant in terms of improving China.

Thank you for the explanation.

Mr. Izawa, thank you.

I need to apologize, but next question will be the last question.

Mr. Naruse from Okasan Securities. Over to you.

Thank you.

I'm not to say from Oka Sun Securities. Can you hear me? Yes, we can hear you. Thank you. I just have one last question about your battery strategy. If you could explain once again, not to give an example from other companies, but, you know, Toyota has made different announcements about battery and and there's some OEMs that have made an announced about So you are starting up a business on battery with GS Yuasa. So what sort of battery are you planning to develop? I know you have all solid state, but, you know, what is the situation today? And also overseas you are now tying up with LG. But domestically, who's going to produce the batteries? So you have announced on the development, but what about production? including sourcing raw materials. So I know this is going to be a right topic, but if you could give us a progress update on the battery. Thank you, Mr. Naruse.

With regards to battery, in April 2026,

I'm sorry, April 26, excuse me. And we have now made an announcement about technology strategy. So I think you have looked at that and your question is based on that. But basically, in terms of the nature of the batteries, it should be produced locally.

So our main markets or electric vehicle

in markets where the developments of EV will be fast. So that will be most likely North America and China. So in China, we would purchase from CATL. That's how we would source in China, as it was mentioned earlier. And there's some challenges in terms of speediness. And we have some other challenges as well. But that's where we are with regards to North America.

This year, finally, we have been able to

You know, we have been developing a model, EV model, electrified model, which we have co-developed with GM, and that will be launched finally. But in this way, we will be able to source from GM in terms of vehicle. But we also have, you know, joint venture production with LG, which we established in Ohio. So we will produce there and we will install that on our vehicles. So those are what we have in mind.

With regards to GS Yuasa, this is a company that develop battery, but we are also thinking about manufacturing development.

So we were looking at manufacturing method, development, and this is more or less looking up from the raw material stage to recycling.

So this is all resource circulation.

We're looking at to see whether we can do some circular activity like that with GS Yuasa. So that's what we have published already and we started activity already. So that's manufacturing and development of battery. But ahead of that, we will be producing battery as well with GS Yuasa and also Blue Energy, the company that we have been working together. and Honda. So this is a three party structure for production. And this is something that we are discussing in Japan. So that's the situation. I hope that answers your question. Thank you. So I understand the direction. Meanwhile, what about battery performance? Are you going to look for something that's innovative, or is it something to be considered on all solid-state batteries? Maybe for this initiative, this is more on the recycling, more sustainable and more practical basis. What is the type of batteries which you plan to sort of segment or break it down? So could you give us your thoughts on that?

So in principle, the mainstream is lithium-ion, liquid lithium-ion.

And of course, we're looking at that. But if you look at the technology trend, I think it's risky to just focus on one direction. So in terms of pattern, for semi-solid state, we work with GM. And as for all solid state, we have seen a pretty good result in lab basis, and we are trying to produce a production pilot line. build a production pilot line, and I think the key will be the manufacturing method in terms of all solid state. aiming for a breakthrough there so that is why in the latter half of 2020 so 25 to 29 29 that's we're looking at commercialization so we need to pursue basically different strategy different technologies at the same time so that's how we proceed with it thank you very much Thank you for your questions.

Thank you, Mr. Naruse.

With this, we would like to bring to a close financial results meeting for Q1 fiscal 2024. Presentation materials are uploaded on our website for your reference. Thank you very much for joining the meeting. Thank you.