Isuzu Motors Ltd
TSE:7202
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Isuzu Motors Ltd
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Thank you for joining us today. We will now begin Isuzu Motors financial results briefing for the third quarter of the fiscal year ending March 2022. Today's briefing is held online due to prevention against COVID-19.
Now let me introduce today's speakers. Shinsuke Minami, Director of the Board and Managing Executive Officer, Division Executive of the Corporate Strategy Division and the Corporate Planning and Finance Division; Naoto Nakamata, Senior Executive Officer, Deputy Division Executive of the Corporate Planning and Finance Division and Group Chief Financial Officer.
First, Mr. Minami will explain the overall summary.
I am Minami, Division Executive of the Corporate Planning and Finance Division. Firstly, I will talk about our business overview.
In the third quarter of the current fiscal year, while we receive high levels of orders from customers overseas, we continue to face difficulties in procuring parts as we did in the second quarter. In particular, unit sales of CVs in Japan and LCVs in Thailand were significantly lower than those of the previous year due to a semiconductor shortage.
By shifting production of both CVs and LCVs to be shipped to emerging nations, total unit sales were slightly higher than those of the previous year. On the profit and loss front, despite deterioration in sales model mix and a sharp rise in raw material and logistics costs, the earnings were almost in line with our plans, supported by favorable ForEx rates and cost reduction efforts.
As for the full year outlook, although demand is strong in overseas markets, the ongoing chip shortage is expected to have a significant impact on shipments, particularly for Japanese and North American markets. Under such circumstances, we will minimize the negative impact to the overall production units by increasing the shipment volume reallocated to emerging nations.
As per the financial outlook, there shall be a fall in sales model mix and much higher cost increases in raw materials and logistics than our assumptions made last November. We will cover the negative impact by further promoting cost reduction activities and cutting fixed costs. The full year financial outlook remains unchanged from last November.
Let me explain the impact of supply chain disruptions. Although production in Japan faced constraints in parts procurement from Southeast Asia last summer, due to shutdowns deriving from the spread of COVID-19, the situation was restored to normal levels in the third quarter of the current fiscal year.
Meanwhile, a semiconductor shortage has caused new part shortages leading to a decrease in production volume, especially with CVs for Japanese and North American markets. This uncertain situation will likely continue into the fourth quarter, and decreased production for Japanese and North American markets will continue.
Furthermore, disruption of parts procurement from suppliers in Japan due to the spread of COVID-19, led to suspending assembly lines of heavy, medium and light-duty trucks for a total of 6 shifts.
The impact will be absorbed and recovered by the end of the fiscal year. In Thailand, the COVID-19 impact on supplier operations has mostly subsided in the third quarter of the current fiscal year, but a supply shortage continued for some semiconductor components. In the fourth quarter, chip supply is on its way to be completely resolved with the exception of certain parts. CBU production volume in January reached 30,000 units.
In the third quarter of the fiscal year ending March 31, 2022, global unit sales reached 182,000 units, up 16% from the same period last year. While unit sales in overseas, CV and LCV exports were higher than those of the same period last year, unit sales of CVs for the Japanese market and LCVs in Thailand were lower than those of the previous fiscal year.
Sales were JPY 638.8 billion, operating income was JPY 51.3 billion, ordinary income was JPY 53.2 billion and net income was JPY 33.5 billion. As for the full year outlook in the fiscal year ending March 31, 2022, we revised the outlook of CV production units in Japan and LCV production units in Thailand based on the latest supply status, reflecting the semiconductor shortage and the impact of a supply chain disruption due to COVID-19.
While unit sales of CVs for the Japanese market and LCVs will be lower than the outlook announced last November, unit sales of CVs for overseas markets are expected to increase. The fall in sales model mix and increases in raw material and logistics costs are expected to exceed our November projection, but they will be offset by further reducing expenses and promoting cost reduction activities.
The full year outlook remains the same at JPY 2.500 trillion in sales, JPY 170.0 billion in operating income, JPY 175.0 billion in ordinary income and JPY 110.0 billion in net income. The full year dividend forecast remains unchanged at JPY 58.
That concludes my presentation. The details will be presented by Mr. Nakamata. Thank you.
I am Nakamata, Deputy Division Executive of the Corporate Planning and Finance division. Let me explain the global unit sales of Commercial vehicles. The global CV unit sales in the third quarter, including UD Trucks, increased by 21,000 units from the previous fiscal year to 86,000 units.
In Japan, unit sales decreased by 2,000 units to 14,000 units. Overseas unit sales were up by 23,000 units to 72,000 units. Unit sales of UD Trucks from April to December are shown on this slide. But the consolidated financial statements in the third quarter reflect their performance between April and September.
Unit sales in Japan seriously affected by production constraints were lower than those of the same period last year despite shipments being made out of inventory. Meanwhile, demand in overseas markets remains strong, which is bringing us large orders.
Overall unit sales increased, thanks in part to the shift in production from CVs for the Japanese market to those with less production constraints for emerging markets. This slide compares the full year outlook of global unit sales between the current plan and that announced last November.
The full year outlook reflects the supply constraints of semiconductors and parts for production. A decrease in unit sales in Japan due to the severe impact of a semiconductor shortage will be covered by shifting production of CVs for emerging markets, through which the sales volume is expected to remain at the level announced last November.
Turning to the truck industry in the Japanese market. Industry unit sales in the medium and heavy-duty truck segment were 20,000 units, lower than those of the previous fiscal year affected by production constraints. On the other hand, the Isuzu market share in this segment reached 32.2%, surpassing that of last year.
UD Trucks market share stood at 13.8%. The industry unit sales in the light-duty truck segment amounted to 15,000 units, a significant decrease impacted by production constraints. The market share dropped significantly to 27.0% as we were unable to meet the demand due to production constraints. The full year outlook for the industry demand is undetermined for the segments of both medium and heavy-duty trucks and light-duty trucks since the impact of a semiconductor shortage on production is uncertain.
Next, I will discuss global sales units of LCVs. Although production of the new model in Thailand was hampered by a semiconductor shortage, our third quarter global LCV sales grew by 3,000 units year-over-year to 96,000 units because we managed to recoup the production loss by production of the previous model.
So as for a year-over-year comparison, unit sales in Thailand decreased by 9,000 units to 44,000 units, while unit sales in LCV exports increased by 12,000 units to 52,000 units. This slide shows the current outlook of LCV global sales in comparison to that announced last November.
As for the full year outlook, we have carefully allocated global shipments in response to semiconductor shortages. Overall, the full year forecast for Thailand and exports were revised downward by 4,000 units and 1,000 units, respectively, compared to those previously announced.
I will now focus specifically on Thailand. Industry LCV unit sales in Thailand in the third quarter were down from the previous fiscal year to 116,000 units due to the supply chain adversely impacting manufacturing. We have maintained a high market share of over 40%.
In light of the impact of the chip shortage on auto production, the outlook for industry demand is undetermined for the moment. LCV production units were up by 4,000 units year-over-year to 95,000 units as a result of shifting our production capacity to manufacture knockdown kits of the previous model for export, so as to counteract chip shortages holding up the production of new LCVs.
I will now turn to the global shipment volume of industrial engines and revenue from after-sales business. Industrial Engine shipments decreased by 1,000 units year-over-year to 38,000 units. Meanwhile, we have lowered the full year outlook from the previous forecast by 10,000 units to 142,000 units since there are signs of a slowdown in demand for construction machinery in China.
Revenue from the Isuzu after-sales business in the third quarter was up by JPY 7.1 billion year-over-year to JPY 87.4 billion. Part sales to overseas dealers, in particular, pushed up revenue. It was also boosted by revenue of JPY 27.4 billion, raised by UD Trucks for the period between July and September.
We have revised the full year outlook upward to reflect the increase in parts sales achieved overseas. As for UD Trucks, we forecast revenue of JPY 82.0 billion for the period between April and December. Next, I will discuss the change analysis performed on operating income comparing the third quarter of the fiscal year ending March 31, 2022, with the same period last year.
The increase was mainly attributed to sales model mix of JPY 3.4 billion, foreign exchange of JPY 8.2 billion and cost reduction activity of JPY 4.3 billion.
Also, UD Trucks, which is now a consolidated subsidiary, contributed JPY 1.1 billion. The decrease mainly came from economic fluctuations of minus JPY 7.2 billion, fluctuation in fixed costs of minus JPY 4.0 billion and depreciation costs of minus JPY 0.7 billion.
Results were almost in line with our projections announced last November, thanks to favorable foreign exchange rates and cost-reduction activities, even though they were weakened by a deterioration in sales model mix and rising material and logistics costs.
The foreign exchange rate results are listed in the table on this slide. Here, I will explain the gap between ordinary income and net income. Net income amounted to JPY 33.5 billion after posting gain on sales of investment securities and subtracting loss on disposal of noncurrent assets, et cetera. Income taxes and profit attributable to noncontrolling interest from ordinary income of JPY 53.2 billion.
Next, I will discuss the change analysis performed on operating income forecast for the fiscal year ending March 31, 2022, compared with the previous fiscal year. The majority of increases is expected to come from sales model mix of JPY 76.0 billion, foreign exchange rates of JPY 30.0 billion, cost reduction activities of JPY 24.4 billion and contribution of JPY 4.0 billion from UD Trucks, which is now a consolidated subsidiary.
The majority of decreases is predicted to come from economic fluctuations, such as rising prices of raw materials and logistics of minus JPY 45.0 billion, fluctuation in fixed costs of minus JPY 8.7 billion, depreciation costs of minus JPY 3.2 billion and COVID-19 expenses allocated as extraordinary losses in the previous fiscal year of minus JPY 3.2 billion.
Although we foresee a weaker sales model mix and the cost of materials and logistics to further increase then our November projection, we will implement additional cost-cutting measures and cost reduction initiatives to make up for the decrease in operating income.
Our operating profit forecast of JPY 170.0 billion, remains unchanged at this time. The forecast for foreign exchange rates is listed in the table on this slide. As to our full year outlook for the fiscal year ending March 31, 2022, we forecast our net income for this fiscal year to be JPY 110.0 billion, which is based on ordinary income of JPY 175.0 billion, from which the following are deducted: loss on disposal of noncurrent assets, et cetera, of minus JPY 3.0 billion; income taxes of minus JPY 38.0 billion; and profit attributable to noncontrolling interests of minus JPY 24.0 billion.
Last but not least, I will discuss the change analysis performed on operating income comparing the third quarter of the fiscal year ending March 31, 2022, with the fourth quarter of the same fiscal year. An increase in shipment volume, particularly in our LCV business, will bring about positive sales model mix effects on our business.
However, we will be substantially impacted by negative economic fluctuations. In addition, costs such as R&D tend to be concentrated in the fourth quarter, therefore, we expect the operating income of the fourth quarter to decrease by JPY 29.9 billion when compared with the third quarter to JPY 21.4 billion.
This is all for me. Thank you very much. This is the end Isuzu Motors financial results briefing for the third quarter of the fiscal year ending March 2022.
Thank you for your participation.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]