Honda Motor Company, Ltd. (HMC)

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Honda Motor Co., Ltd. (HMC)

F3Q12 Earnings Call

January 31, 2012 08:00 am ET

Presentation

Unidentified Company Representative

Welcome to the Honda Financial Results Audio Presentation. On January 31, 2012 Honda Motor announced its financial results for the fiscal third quarter ended December 31, 2011. Through this audio presentation, we would like to review the financial results and discuss the major factors of Honda’s business during the period. We have posted presentation materials at Honda Investor Relations website at http://world.honda.com/investors/. So please download the presentation materials by clicking the link on the Acura NSX concept photo. If you’ve got the material ready, let’s get started.

This audio presentation contains forward-looking statements as defined in Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. Such statements are based on management’s assumptions and beliefs taking into account information currently available to it. Therefore, please be advised that Honda’s actual results could differ materially from those described in these forward-looking statements as a result of numerous factors including general economic conditions in Honda’s principle markets and foreign exchange rates between the Japanese yen and the U.S. dollar, the Euro and other major currencies, as well as other factors detailed from time to time. The various factors for increases and decreases in income have been classified in accordance with a method that Honda considers reasonable.

Now, I would like to start with the financial summary for the third quarter that ended on December 31, 2011. Please have a look at slide 3. Honda again, showed resilience in this quarter. The sever impacts from the flooding in Thailand as well as unfavorable FOREX were partly absorbed by the steady recovery of automobile business in major markets, strong return by the motorcycle business, and the company wide efforts to reduce fixed costs. Moreover, despite a reversal of differed tax assets due to the change in income tax laws in Japan, Honda achieved a bottom line of 47.6 billion yen.

Motorcycle unit sales totaled 3,076,000 units, up by 6.3% from the same period last year. Automobile unit sales totaled 830,000, a decrease of 2.9% from the same period last year. Power Product unit sales were 1,021,000 units, down by 11.8% from the same period last year.

Financial highlights for this third quarter are seen in the middle of the slide. Net income attributable to Honda Motor totaled 47.6 billion yen, a decrease of 41.2% from the same period last year. EPS was 26.45 yen, which was a decrease of 18.56 yen from the same period last year. Revenue totaled to 1,942.5 billion yen. Operating income amounted to 44.2 billion yen, a decrease if 64.7% from the same period last year. Equity in income of affiliates totaled 22.9 billion yen, a decrease of 47.3% from the same period last year.

Now, I would like to analyze sales and operating profit for the quarter. Please turn to slide 9. Revenue decreased by 167.8 billion yen, down by 8% from last year to 1,942.5 billion yen. Due to the FOREX impact and decreased revenue in the Automobile and Power Products businesses, attributable to the impact of flooding in Thailand.

Changes in revenue in the respective businesses without FOREX translation impact are seen on the slide. Had the exchange rate remained unchanged, revenue would have decreased by 36.5 billion yen, which is equivalent to a decrease of 1.7%.

Now, let me elaborate on factors that effected operating profit and income before income taxes. Please turn to slide 10. Here is the year-on-year variance. Operating income for the third quarter totaled 44.2 billion yen as you can see at the bottom of the right hand side, which was a decrease of 81.3 billion yen compared to the operating income of 125.6 billion yen from the same period last year.

Income before income taxes amounted to 58.4 billion yen as shown at the bar on the right side, which was a decrease of 73 billion yen from the same period last year. If you have a look at the first box from the left hand side, it shows how much gross profit was affected by the change in top line sales and volumes. Decreased unit sales mainly caused by a production slash as a result of the Thai flooding, brought a negative 32.9 billion yen.

The second box from the left hand side shows cost reduction, which also belongs to changes in gross profit. Cost reduction negatively impacted this quarter by 16.1 billion yen, due mainly to a raw material price increase, and then increase in fixed costs as the volume of production was reduced.

The third box from the left hand side demonstrates the SG&A impact, decreased SG&A mainly due to fewer quality related expenses led to a positive impact of 11.6 billion yen. Increased R&D expense was 10.3 billion yen. FOREX had a negative impact of 33.6 billion yen, as the yen appreciated toward major currencies.

Regarding pre-tax profit variances from last year Honda is hedging FOREX from interest rate risk by using derivative financial instruments in order to reduce the substantial effect of currency fluctuations and interest rate exposure. There were fair valuation losses and gains from derivative instrument that resulted in a positive impact of 3.5 billion yen. This is mainly associated with FOREX forward agreements for export transactions.

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