Toyota Motor Corp

TSE:7203

Earnings Call Transcript 2018-Q3

[Masayoshi Hachisuka, executive]

Hello, everyone. Welcome to the Financial Results Conference Call for the Fiscal Year 2018 Third Quarter. I'm Masayoshi Hachisuka from Accounting Division of Toyota Motor Corporation. Today, we have Mr. Masayoshi Shirayanagi, Senior Managing Officer in charge of the Accounting Group of Toyota Motor Corporation; and Ms. Morita, our interpreter with us.

The agenda for today's conference call is the following: first, Mr. Shirayanagi will briefly discuss today's earning results. This will take about 10 minutes. After the presentation, you are welcome to ask questions.

Please note that the presentation contains forward-looking statements that reflects our plans and expectations and our actual results may be materially different from these statements. A complete cautionary statement concerning the forward-looking statements is included on Page 2 of today's presentation material and the complete cautionary statement concerning insider trading is included on Page 3. Both of the statements can be downloaded from our Internet home pages. Now I'd like to turn the call over to Mr. Shirayanagi.

[Masayoshi Shirayanagi, executive]

Hello, everyone. Thank you for joining us today. I am Masayoshi Shirayanagi. It is my pleasure to discuss Toyota's financial results for the third quarter of the fiscal year, which will end in March 2018. Let me start with Slide 5. Compared to the third quarter of the previous fiscal year, consolidated vehicle sales increased by 9,000 units to 2,289,000 units. This was a result of increased sales in Japan and other regions, particularly, Central and South America.

Please see Slide 6. Consolidated financial results for the third quarter of this fiscal year were: net revenues of JPY 7,605.7 billion; operating income of JPY 673.6 billion; pretax income of JPY 750.9 billion; and net income of JPY 941.8 billion. Please note that net income includes the impact of about [ JPY 219 billion ] from unwinding deferred tax liabilities as a result of the U.S. tax reform.

Now, I'd like to hand the rest of this presentation to Ms. Morita, our interpreter. Using Slide 7, I would like to explain the factors which impacted operating income year-on-year. Operating income increased by JPY 235.1 billion, mainly due to the effects of yen depreciation, cost-reduction efforts and marketing activities. Excluding the overall impact of foreign exchange rates and swap valuation gains and losses, operating income improved by JPY 5 billion.

As you can see, Slide 8 summarizes consolidated financial results for the 9 months through December 2017. And for your information, Slide 9 summarizes the major factors which impacted operating income year-on-year on a 9-month basis.

Next, I would like to elaborate on operating income for each region using Slide 10 and the following few slides. Please look at the 3 months results on the left-hand side. In Japan, vehicle sales increased by 18,000 units year-on-year to 552,000 units as a result of robust sales of the Roomy, Tank, C-HR and Camry. Operating income was up JPY 259.9 billion year-on-year to JPY 471.1 billion, driven by marketing and cost-reduction efforts besides the effect of foreign exchange rates.

Please see Slide 11. In North America, vehicle sales were down 10,000 units year-on-year to 735,000 units. Operating income was JPY 27.0 billion, down JPY 74.3 billion compared to the third quarter of the previous fiscal year. This was largely a result of an increase in sales incentives on the back of rising interest rates and adjustment of residual value assumptions for leases to an appropriate level, combined with a temporary decline in vehicle production related to the Camry's switchover.

In Europe, vehicle sales grew by 4,000 units year-on-year to 237,000 units, driven by the C-HR, the Yaris and so on. Operating income was up JPY 2.4 billion to JPY 23.4 billion due to cost-reduction efforts.

Please take a look at Slide 13. In Asia, vehicle sales were down 24,000 units year-on-year to 404,000 units, mainly as a result of a decline in vehicle sales due to tightened credit standards for loans in Indonesia. Operating income was up JPY 3.7 billion to JPY 122.1 billion as a result of reduced monitoring expenses and cost-reduction efforts.

Please move on to Slide 14. In other regions, overall vehicle sales were up 21,000 units year-on-year to 361,000 units, driven by Central and South America and Oceania. Operating income increased by JPY 9.0 billion to JPY 34.1 billion, mainly due to the impact of marketing efforts.

Next, please see Slide 15 on the operating income for financial services. Operating income, excluding swap valuation gains and losses for the third quarter of this fiscal year, was up JPY 4.0 billion year-on-year to JPY 76.6 billion. This was mostly due to an increase in the lending balance and a decrease in expenses related to loan losses, mainly in North America.

Now I would like to move on to discuss the outlook for the full fiscal year. Please look at Slide 17. Our latest forecast of consolidated vehicle sales for the full fiscal year are 8.95 million units, unchanged from our previous forecast at the second quarter reporting. By region, our sales plan has been revised down slightly for Japan and Europe and up for North America.

Please see Slide 18. We adopt foreign exchange rate assumptions of JPY 110 per dollar and JPY 130 per euro from January onwards, which makes the full year assumption, JPY 111 per dollar and JPY 129 per euro. Based on this, our latest forecast for consolidated financial performance for the full fiscal year are: net revenues of JPY 29 trillion; operating income of JPY 2,200,000,000,000; pretax income of JPY 2,450,000,000,000; and net income of JPY 2,400,000,000,000.

Please take a look at Slide 19. The latest operating income forecast is up JPY 200 billion from the previous forecast at the second quarter reporting. Excluding the overall impact of foreign exchange rates and swap valuation gains and losses, it is now up JPY 130 billion. This reflects additional contribution anticipated from profit improvement activities such as cost-reduction, marketing efforts and reduction of expenses.

Next, please see Slide 20. An year-on-year comparison shows the latest operating income forecast for this fiscal year represents an improvement of JPY 205.7 billion. Excluding the overall impact of foreign exchange rates and swap valuation gains and losses, however, it is still the case of JPY 55 billion deterioration. Until the end of this fiscal year, we will continue to pursue activities to improve profits further.

Please look at Slide 21. As has been communicated since May, our focus for this fiscal year is on thoroughly enhancing our competitiveness. In order to realize a future mobility society, we have been further accelerating our initiatives, including alliances with other companies and the development of new technologies in areas of electrification, automated driving and MaaS. With respect to initiatives to make ever-better cars in cooperation with suppliers, we are enhancing our product appeal and cost competitiveness through TNGA. Further, we have been focusing on maintaining the foundation of Toyota's competitiveness, namely manufacturing excellence and skills transfer. Executive Vice President, Mitsuru Kawai, explained our activities in those areas in the press conference. Please see the presentation which has been posted on our website. And this concludes my presentation. Thank you very much for your attention.