Isuzu Motors Ltd
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Earnings Call Transcript

Earnings Call Transcript
2023-Q3

from 0
U
Unknown Executive

Thank you for joining us today. We will now begin the Isuzu Motors financial results briefing for the third quarter of the fiscal year ending March 2023. Let me introduce today's speaker: Naoto Nakamata, Senior Executive Officer, Group Chief Financial Officer, Deputy Division Executive of the Corporate Planning and Finance division. Now Mr. Nakamata will explain the details.

N
Naoto Nakamata
executive

I am Nakamata, Group CFO and Deputy Division Executive of the Corporate Planning and Finance division. First, I will discuss our business overview.

As for the third quarter, CVs continue to be affected by semiconductor shortages. However, production constraints improved from the previous year, causing sales units in both domestic and overseas markets to increase. Likewise, LCV sales units increased significantly from last year because most part shortages were resolved as a whole. Profits and losses improved due to an increase in sales units, price realization and the weakening of the yen, despite higher materials and logistics costs.

As for the full year outlook for fiscal year 2023 ending March 31, 2023, I shall explain what has been changed since the announcement made last November. In overseas markets, demand for both CVs and LCVs continue to be generally strong. But in some markets, such as Thailand and Egypt, volumes are expected to fall short of our expectations.

Although the supply of semiconductors needed for CVs recovered as expected in the third quarter, a delay has been observed lately. While we expect the supply to gradually improve from April onwards, the impact is expected to remain in the first half of the next fiscal year.

Material and energy costs are shooting up to another level. As for the full year profit and loss outlook, although we expect a decline in sales volume and an increase in costs, we will keep the previous forecast unchanged as we intend to cover the negative impacts by further price realization and cutting expenses.

Now I will give an overview of our results for the third quarter of fiscal year 2023, ending March 31, 2023. Global unit sales were higher than those of the previous year and production constraints caused by part shortages were alleviated for both CVs and LCVs. Sales increased by JPY 211.9 billion from the previous fiscal year due to an increase in unit sales. Regarding profits and losses, despite higher materials and logistics costs, we saw significant increases in both sales and profits, thanks to the effects of increases in sales units, price realization and foreign exchange.

I will now turn to an overview of our full year forecast for fiscal year 2023 ending March 31, 2023. As for global sales units, as a result of updating the trend of each country's market, we have reduced the forecast volume for overseas CVs and exports of LCVs from the estimates announced in November last year. Gains and losses are expected to be covered by implementing price realization and lowering expenses, although a decrease in unit sales and an increase in costs are anticipated.

Next, I will explain the results for the third quarter of fiscal year 2023 ending March 31, 2023, and the full year outlook. Here, I will discuss CV global sales. CV global sales units increased in both domestic and overseas markets in the third quarter as production constraints improved compared to the previous year.

This page compares what was announced in November with the current full year outlook. Trends in each market are reflected in this outlook, and particularly, forecasts are lowered in Thailand, where there are concerns about the impact of rising inflation and interest rates; and Egypt, where economic turmoil continues.

Next, I will explain the third quarter industry sales in Japan and our market share results. Although Isuzu sales units of heavy-duty and medium-duty trucks declined from the previous fiscal year when production constraints were less severe, the market share of both Isuzu and UD Trucks increased due to the situation of other companies. On the other hand, Isuzu sales units of light-duty trucks increased due to improved production constraints compared with the previous fiscal year, even though the constraints arising from the semiconductor shortage continued.

I will now turn to global LCV unit sales. In the third quarter, as part shortages have largely settled, global LCV unit sales increased substantially, especially in Thailand. This slide shows the full year outlook in comparison to the outlook announced in November. There is no change in the number of completed vehicles to be shipped, but we lowered our outlook for knockdown shipments from Thailand, mainly to Egypt, where economic turmoil continues; and South Africa, where semiconductor constraints occurred.

I will explain LCVs industry unit sales in Thailand, our market share and production units in Thailand in the third quarter. The rise in interest rates led to stricter financial screening, and thus, total industry unit sales remained at the same level as those of the previous fiscal year, which suffered production constraints.

The production unit jumped compared to that of the previous fiscal year, which was largely affected by chip shortages. We maintained a high level of production. But in terms of parts supply, the risky situation continues. In addition, for the first half of the next fiscal year, there is a parts procurement risk due to chip shortages, and we are currently working to secure procurement.

I will now talk about global industrial engine shipments and revenue from the aftersales business. Shipments of industrial engines in the third quarter were lower than that of the previous quarter due to a slowdown in Chinese construction machinery demand and semiconductor shortages. We also lowered our full year outlook because of a slowdown in Chinese construction machinery demand.

We raised our full year outlook for revenue from the aftersales business because of the favorable weaker yen and a steady growth in both Japan and overseas sales. For your information, UD Trucks aftersales business revenue between April and June and 2022 is not included in the last fiscal year's aftersales business revenue.

Next, I will touch upon the analysis of the changes in operating income in the fiscal year ending March 2023. Despite soaring prices in material and logistics costs, operating income increased by JPY 34.4 billion due to the weaker yen, an increase in unit sales, price realization and cost reduction efforts. The exchange rates are shown in the table.

I will now explain the financial results beyond operating income in the third quarter of fiscal year 2023, ending March 2023. Ordinary income was JPY 84.8 billion, after adding the share of profit of entities accounted for using the equity method and other nonoperating income and subtracting foreign exchange losses and other nonoperating expenses from the operating income of JPY 85.7 billion. Net income was JPY 52.9 billion after adding the gain and loss on sales of investment securities, loss on disposal of noncurrent assets and others and subtracting income taxes and profit attributable to noncontrolling interests from ordinary income of JPY 84.8 billion.

Next, I will now talk about the change analysis of the full year outlook for the operating income in the fiscal year ending March 31, 2023. As mentioned in the beginning of the presentation, there are no changes to the outlook of the operating income for the full year. We expect a decrease in unit sales and a further increase in material costs but plan to make it up by additional price realization and cost reductions. We have set our exchange rates assumption for the fourth quarter, January to March, at JPY 130 to the U.S. dollar, JPY 3.80 to the Thai baht and JPY 90 to the Australian dollar.

Lastly, I will explain the difference in operating incomes of the third and fourth quarters of the fiscal year ending March 31, 2023. Though the effects from price realization shall stack up, we expect operating income to decrease by JPY 53.6 billion from the third quarter to JPY 32.1 billion because, in addition to unfavorable foreign exchange rates, negative impacts of steel oil prices, et cetera, fluctuations in R&D and other costs are expected to be concentrated in the fourth quarter.

This is the end of the Isuzu Motors' financial results briefing for the third quarter of the fiscal year ending March 2023. Thank you for your participation.

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