Toyota Motor Corp

TSE:7203

Earnings Call Transcript 2021-Q3

[Unknown Executive]

Thank you for taking time out of your busy schedule to attend today's press briefing. We would now like to begin the FY 2021 third quarter financial results press briefing.

I'd like to introduce our participants today: Operating Officer, Jun Nagata; Operating Officer and CFO, Kenta Kon.

Now Mr. Kon will provide the explanation for the financial results of Q3.

[Kenta Kon, executive]

Hello, everyone. Thank you for joining us today. I'm Kenta Kon.

First and foremost, the battle against COVID-19 is still continuing, and I would like to extend my sincere gratitude to the medical workers and all of you who support our daily lives. We also would like to express our heartfelt appreciation to our customers around the world who choose us as well as our shareholders, dealers and suppliers who support us.

Let me discuss our financial results for the first 9 months from April to December 2020. Consolidated vehicle sales for the first 9 months ended December 2020 was at 5,438,000 units, which was 79.3% of consolidated vehicle sales for the same period of the previous fiscal year and mainly a result of the continued spread of COVID-19 in all regions. Toyota and Lexus brand vehicle sales was at 6,627,000 units, which was 89.5% of such sales for the first 9 months of the previous fiscal years.

As for the trend in Toyota and Lexus brand vehicle sales, with April being the floor, global Toyota and Lexus brand sales has been solidly recovering. Since September 2020, it recovered to above the previous year's levels, namely over 100% year-on-year. And the trend in each region is as stated in the presentation. Once again, we would like to express our sincere gratitude to our customers around the world who chose us and all of our stakeholders including our sales outlets and suppliers who have made efforts to deliver as many vehicles that our customers want as possible.

Consolidated financial results the first 9 months of this fiscal year were sales revenue of JPY 19,525.2 billion, operating income of JPY 1,507.9 billion, pretax income of JPY 1,869.9 billion and net income of JPY 1,468 billion.

I'd like to explain the factors which impacted operating income year-on-year. First, the effects foreign exchange rates decreased operating income by JPY 175 billion. Second, cost reduction efforts increased operating income by JPY 100 billion. Third, the effects of marketing activities decreased operating income by JPY 615 billion largely due to the decrease in sales volume caused by the continued spread of COVID-19. Finally, reduction in expenses increased operating income by JPY 85 billion. As a result, excluding the overall impact of foreign exchange rates, swap valuation gains and losses and other factors, operating income decreased by JPY 430 billion year-on-year. Regarding the changes on a quarterly basis, although operating income decreased year-on-year between April and June and between July and September, operating income increased year-on-year between October and December 2020, thanks to marketing efforts and other factors.

As for operating income for each region, although operating income decreased year-on-year in all regions largely due to the decrease in sales volume caused by the continued spread of COVID-19, we succeeded in increasing operating income year-on-year in all regions between October and December 2020.

Next, let me explain our consolidated subsidiaries and equity method affiliates in China as well as our financial services business. As for our China business, operating income of consolidated subsidiaries increased by JPY 75.8 billion year-on-year to JPY 178 billion, thanks largely to marketing efforts. Our share of profit of investments accounted for using the equity method was up JPY 25 billion year-on-year to JPY 113.9 million, thanks largely to marketing efforts.

Regarding financial services, operating income excluding swap valuation gains and losses for the fiscal year increased by JPY 50.6 billion year-on-year to JPY 355.3 billion, thanks to the decrease in costs related to residual value loss and increase in lending margins.

Now let us move on to discuss the outlook for the full fiscal year ending March 2021. With regards to our consolidated vehicle sales, we have increased our forecast that was announced in November 2020 by 100,000 units to 7.6 million units. The regional sales breakdown is as stated in the presentation. As for Toyota and Lexus brand vehicle sales, we anticipate that vehicle sales will be at 8.9 million units, a 300,000 unit increase from our forecast that was announced in November 2020. With respect to Toyota and Lexus brand vehicle sales in the fourth quarter, we anticipate that sales will be approximately 110% of the same period in the previous year.

Next, let me explain the forecast for our full year consolidated financial performance. We have adopted ForEx rate assumptions for January onwards of JPY 100 per dollar and JPY 125 per euro, which makes the full year assumptions JPY 105 per dollar and JPY 123 per euro. Based on this, our forecast for our full year consolidated financial performance are sales revenue of JPY 26,500 billion, operating income of JPY 2 trillion, pretax income of JPY 2,550 billion and net income of JPY 1.9 trillion.

Now I would like to explain the factors that contributed to the change in the operating income forecast. Operating income is now expected to be JPY 2 trillion, up JPY 700 billion from the forecast that was announced in November 2020. Detailed analysis is as stated in the presentation.

Please see Slide 14, which compares the latest operating income forecast for this fiscal year with the result of the previous fiscal year. The environment surrounding us remains highly uncertain considering the ongoing spread of COVID-19. While carefully monitoring the rest, we will continue to make efforts together with all our stakeholders, including cost reduction efforts at all levels and efforts at manufacturing sites and sales outlets. We also remain committed to continuing to steadily solve this for the future and accelerate our transformation.

This concludes my presentation. Thank you for your attention.

[Unknown Executive]

We would now like to receive questions and provide responses. [Operator Instructions] Mr. Chiba from Asahi Newspapers, please. [Operator Instructions]

[Takuro Chiba]

This is Chiba speaking from Asahi Newspapers. Regarding about the change or revision in the information, the reasons why your revenue has increased and why you have strengthened your company structure, I would like to hear further detailed explanation. Those will be my 2 questions. And starting with the 3 months in the quarter, the per-region income, North America and Japan and Asia, the operating income margin has improved. So what will be the factors of why you have made improvements in the operating income margin? Per market, would you be able to explain to me in more detail? This will be my first question.

Going on to my second question, for your operating income, the revision that you have made, for year-on-year comparison, you have to make a improvement in the -- with the cost of reduction JPY 185 billion. So how to understand this number? I think variable cost is included here, too. On a year-on-year comparison, probably it will be on the same level. And cost reduction efforts, what kind of improvements have you made this quarter and how was that reflected in this number? And based on that, for the third quarter financial results, can you provide your assessment and appraisals?

[Kenta Kon, executive]

Thank you for your question. So myself, Kon, would like to explain regarding the financial results. For the revision, the factors why the revenues has been -- income has been increasing, so per 3 months, Japan Asia and North America, the operating income margin has improved. So you asked about the factors behind us. For the 3-month geographic operating income slide is being shown now. And as Chiba-san has mentioned, each of these regions in the past 3 months, we have been able to increase the income. Operating income margin, also you can see in parenthesis, in Japan, 12.3%; North America, 6.8%, so an improvement from the previous year.

And regarding Japan, for the factors, the largest factor behind this is the impact from sales. About JPY 150 billion positive impact has been seen. And for North America, the situation is relatively similar. Sales side positive impacts, including volume, model mix, effects are seen here.

Each region, including Asia, will have a similar story. For Asia, inside this region, China and also Southeast Asia, South Asia is included. And for the increase of JPY 70 billion in income, mainly China and ASEAN countries will account for half, respectively. And for China especially, the sales impact with the increase in sales volume, with the price revision, also improvement in the product mix has been performing well. Looking at each of the markets, those would be the main factors.

For your question about cost reduction, for the full year forecast, if we can look at the slide where we show the full year forecast analysis, not on this chart, but there is a chart that compares with the previous year. Yes, this one. Cost reduction efforts, JPY 185 billion is what we have posted here. This item for cost reduction, annual basis of the gross impact will be around JPY 300 billion. That is the target that we have as an annual target. And compared with the target, JPY 185 billion on a gross basis, receiving the increase of the market fluctuation, it is about JPY 200 billion, so more than usual. Actually, compared to the usual terms, the number is smaller. And the reason is mainly because of the volume, full term basis, a little more than 1 million units, we see a drop year-on-year.

So cost reduction efforts, of course, efforts are being made at our suppliers and also at the gemba of the operations. But even though with these efforts, because the volume had dropped year-on-year, it's difficult to see the positive effects largely. With lower the operation rate, probably it is difficult to see strong positive efforts from cost reduction efforts. But for the explanation -- based on the explanation that has been provided, as Chiba-san has rightly pointed out, for the fourth quarter operating profit, JPY 13.9 billion for operating income and for JPY 506 billion for fourth quarter and JPY 980 billion for full annual.

When we look at each 3 months in short periods, of course, each has their own significance, but we do see a recovering trend looking at these numbers. And this is because from the beginning of the term, 8 million volume and the JPY 500 billion for operating income was the target that was stated from President Toyoda. And with all of our stakeholders, we worked very hard, worked on what we view as what we should do as basic and made our full efforts. And I think this is the fruit of all of those efforts made. And we -- when I had a discussion with President Toyoda about the financial results, he has also said that to the 5.5 million stakeholders for the automobile industry, he especially wanted me to convey our gratitude and appreciation for all of the efforts made. So I do understand that there is the strong efforts behind these numbers. And those efforts have continued after the global financial crisis. And in the past year, once again, we reviewed the basics, the items that we should be doing. And we sincerely worked on those. And we believe the results came out because of their diligent work. So sorry for the long response. That will be all for myself.

[Takuro Chiba]

Just one point, North America, when you talked about midterm financial results, you said that incentives are starting to decrease. Is that situation continuing? If incentive is going down, what is the reason for that? Sorry, a follow-up question.

[Kenta Kon, executive]

Incentives, the first quarter and second quarter, because the volume went down, the total amount went down. But per unit, the decrease level was very low. Basically, because the total number of units went down, the whole amount did decrease. However, in the third quarter, regarding North America, we see the volume going up. So as total, there is not much of a decrease, rather, per unit, we continue at low level. That is the current situation. North America, the reason -- the main reason are the number of units and the model mix, which I mean SUV ratio compared to the past, we have a high ratio. That is the impact.

Also, the financial services, TMCC financial company in North America. Currently, North America used car values, the price is high. So the financial business in North America a few years ago, Plano, and our headquarter in North America, automotive and financial business was integrated. So we've been working on collaboration with the automotive business. We have enhanced their communications and ties. I think that is another reason.

Also, the lease residual value, we have been reviewing it in a conservative way in order to keep our sound asset valuation. And also regarding the credits after the financial crisis, we have been having a clear view. So the asset has become much healthier, and we have continued our efforts. And with that used car price at a good situation now, the residual value, and also that situation has becoming better. With that, I think we are able to increase our profit. That is all. Thank you.

[Unknown Executive]

Going on to the next question, Yomiuri Newspapers, Katori-san. Mr. Katori, please. [Operator Instructions]

[Naotake Katori]

This is Katori speaking from Yomiuri Newspaper. My first question, so again, on the per-region results for China, looking at the January figure, there's about an improvement of 30%. But why is this so strong? I'd like to know further in detail about the improvement in China.

And another question is you have made a second revision on the numbers this time. And in spring, you started with a reduction in production volume. And up to the second revision of the forecast, you have done various restructurings on the structure and also the way of work. I think various initiatives have been taken by the company. So for the areas other than sales volume, do you have any positive factors to make this revision?

[Kenta Kon, executive]

Thank you. So I'll start with your question regarding China. The reason why it is in a increase, so like Katori-san has mentioned, we can see an increase of 30% in the sales. And you can see the operating income situation for the FY '21 third quarter. And looking at each model, the new model effects are being seen. The new model launches like Camry, Corolla and Levin, also RAV4 and Wildlander, which is a sister model, those new models that has been released is received positively from the customers. And we have been able to improve the sales there. Also for Lexus ES, RX, NX, the globally mass-producing Lexus models have been accepted very positively from the customers as well.

Of course, this is because of the lean inventory and lean incentives that have been achieved by strong efforts. So we can't say that it's a simple result of new model launches. But looking at the used car market also, the residual value of Toyota vehicles or the assessment has become very high. That is now becoming more a general trend in the Chinese market. And so when the customers repurchase a new car, their burden and the payment, there will be advantages on selecting our cars, and also on the quality side, the strength of the used cars of Toyota is seen in the quality aspects and also the easy to repair, repairability and also the parts availability. Also, originally, we had strong durability as a feature of Toyota cars. This is once again reevaluated, and probably this is one reason why it has seen a positive response.

And there will be a further additional comment from Mr. Nagata about the domestic sales. And this -- about the forecast revision, there was a drop in production volume in spring. And I think until the revision, there had been many initiatives taken. And to respond to that question, yes, it's difficult to explain briefly. And this was not something we have achieved just by ourselves. With our dealers and also our suppliers, also people within the transportation and people working at the gasoline stations, I really think that the people who have made strong efforts in recovering the economy, there are many people who believe that, that is our mission related to the automobile industry. And I could feel those strong efforts made with strong feelings. So if I say it in simple words, I think I can say that we did things that we thought are the basics, things that we need to do.

But -- and we had been introducing new models, 9 and around to 10 new model launches. That's very simple to say but difficult to do. But with strong efforts, we were able to make that a reality. And in Japan, in springtime, there were no plant production operation, but people made efforts to try to work. So the activities were done to promote the cost reduction efforts. And also, there were people who visited the suppliers to find areas that we can make improvements in costs. There were people who worked on making the masks, protective gears and then face shields as well. So when the fixed cost became very lean and when the recovery time period, we were able to make a rapid improvement.

And in the meantime, everyone was focused on not to stop the economy. The improvement of productivity for protective gears, that was another activity that people engaged in. Also for the vaccine refrigerator manufacturing, there was a manufacturer who had a bottleneck process, and therefore, there were members who visited these manufacturers. And also, in order to make efficient the vaccination process and because we see in U.S., U.K. long lines to receive vaccine shots, and there were members who thought that we will be able to apply our TPS concept so that we can streamline and make efficient this process, and these were some examples of the efforts that was made up to today.

And from the sales side, maybe Mr. Nagata would like to add some explanation.

[Jun Nagata, executive]

This is Nagata speaking. Regarding the sales side status, I'd like to make some additional explanation. Now on the springtime under COVID, we did have no idea how much sales we could achieve under COVID. But President, Mr. Toyoda, has made a statement of the criteria for -- to work for JPY 500 billion in operating income and 8 million for the production -- for the sales volume. And Japan, which I am in charge of overseeing, we did not just think about Japan but thinking about the individual dealer levels, we created a standard or a target. And every week, we rolled out our activities and did a follow-up to see the situation against our plan and also to follow up on the stock level. Of course, this is something that is very basic, that we would usually do, but we really focus on these basic areas.

And another thing is that for each model, there are different profitability. And for certain plants, there are models that is difficult to sell according to season as well. So we try to lose the differences of the operation among the plants and the models, and we try to expand ourselves on the meantime, in parallel, reducing the operation gaps between the plants and models. And this globally, we could see the promotion of our online sales. Regardless of region, in a noncontact form, how much we can reach out to our customers was key and how to the receive the orders from our customers in a noncontact way.

Payment was also difficult. So utilizing online transaction and also the financial products that we have, a combination of these was considered to provide a easier-to-buy environment for our customers.

And also when our customers come to the dealers to receive maintenance or inspections, there were the disinfectants that were utilized and preventive measures taken so that customers will have a peace of mind visiting the outlets. This is not Japan but globally, all the dealers had made efforts to provide this kind of peace-of-mind environment. So we are focused on thinking about what will the customers be worried about, how can we make them feel safe. And with those thoughts, we try to build up the efforts of that and take that into action. So I think this was the kind of activities we've done.

And for the employees as well, for the stakeholders' activities, to add a little further, the large factors was how to communicate among each other. This communication style changed largely in this period. And specifically speaking, our top management, President, Mr. Toyoda, in an online environment, to the employees and also to stakeholders, he had changed the style or he has strengthened his communication.

To be specific, to employees and to the employee side, between the employees, every week with the senior members, we had a weekly meeting with President Toyoda. And before COVID, members were limited to people who could physically come to the headquarters and IT prefecture in Toyota City. But with online environment, there were more people who could participate more easily. So the global senior executives and each CEO of region also participate in addition to the past participants. And we could utilize this meeting to make quick decisions and also share information. So that was a positive effect on our communication.

And every 4 years in Toyota, we make a midterm announcement for our product lineups in the next 4 years. So we call that the Toyota World Convention. Last year was the timing to hold this world convention. But unfortunately, under COVID, it was difficult to have the usual physical Toyota World Convention. And this time, Mr. Toyoda gave an idea that we should take the message -- his message by video and create a package and to deliver that online to our global stakeholders. So conventionally, for the World Convention, it will be a face-to-face meeting, and usually, those people will be limited to the global distributor companies and also the top management of dealers to about 1,000 to -- between 1,000, 2,000 members. But because of the online, employees could also be included in watching this distribution, so the video, and about 50,000 members were able to view this.

And I could see the effect from all of this communication change. The employees and the stakeholders who are engaged in various activities could see the direction where Toyota is heading to. And they were able to keep calm and focus on the work that they were engaged in now. That was what I felt as a positive effect of making this change in communication.

Also through the times, from April, we started the English language posting as well. So including that, the page view has increased significantly, about 2x more than last year's page view. So 2019 versus 2020, we had increased our page view to double level. And as an internal communication tool, it was very effective.

And changing the subject a little, for JAMA, this -- beginning of this year, we sent a message of our appreciation to the 5.5 million people who is engaged in the automobile industry business. So to extend our gratitude, we had a TV commercial. And after a week, Mr. Toyoda, as the President of JAMA, has extended his message to all of the 5.5 million stakeholders. And the 5 auto associations of the industry, OEMs and part association, there's 5 associations. And there is about 2 million members from -- who belong to the 5 associations. But other than that, there's people in the transportation industry, people working in the gasoline stations. Everyone had made strong efforts to continue to work even under COVID. And that has made our results that we have announced possible. So that is why we wanted to extend our appreciation in this opportunity. As a result, the 5.5 million people, including the people who work in the gasoline stations and transportation, we have received voices from them that they were thankful of the message.

And going forward, for the automobile industry, we have various challenges like carbon-neutral initiatives and so forth. We hope that it can become a trigger to join the forces to achieve this target. So in that sense as well, changing the style of communication probably may be effective in creating a force to achieve the future targets. That's how I felt. Thank you.

[Unknown Executive]

The next question from NHK, Noguchi-san, please. [Operator Instructions]

[Noguchi Shuji]

Noguchi from NHK. I have 2 points, a little bit aside from the financial results. But first of all, regarding the semiconductors, automotive semiconductors are at a shortage globally. Regarding the impact, what are your thoughts? Do you have impact for the near term and also for the mid- to long term?

And the second question is a completely separate topic from the financial results, but the Tokyo Olympic, Paralympic Committee, the President, Mori, there was a comment of discrimination against women. You are a sponsor of the Olympic, Paralympic Games. What -- how do you view this?

[Kenta Kon, executive]

First of all, regarding semiconductors, I will explain about our situation. Semiconductors, there is a globally tight demand-supply situation. We are at a similar situation. But for the near term, we do not see any decrease in our production volume.

Then are we secured for the mid- to long term? No. We do see the risks. That is why every day, every week, every month, not just Tier 1 suppliers but the conductors' manufacturers, semiconductor makers included, we are communicating to understand the situation on a daily, weekly basis.

Regarding the forecast, we think we do hear voices that might continue until the summer. But talking with our suppliers and our purchasing division, maybe it will not continue to the summer. It might be resolved at an earlier stage. That is one view.

And the second question by Mr. Nagata.

[Jun Nagata, executive]

Yes, towards the comment of President Mori, I would like to introduce the comment from our President, Akio Toyoda, on this matter.

Toyota was born in Japan, and we have grown into a global company, thanks to the support of people from all over the world. Our goal is to be a company that is the best in town and to create happiness everywhere that we do business. In the same way that we respect our hometown and our home country, we also care deeply for our home planet Earth, the home to all human beings, which is why we are working to help realize the United Nations Sustainable Development Goals.

This is also the spirit of the Olympic and Paralympic Games, which through sports aim to create a peaceful and an inclusive society without discrimination, in which anyone can participate. We became a top partner of Olympics and Paralympics because we share these values. We are disappointed by the recent comments from the President of TOCOG, which are contrary to the values that Toyota respects and support.

That is the comment from President Toyoda. We have discussed this matter in-depth within our company. And to convey Toyota's values and perspective towards the world correctly, we have concluded that we should not keep silent. Therefore, we decided to issue President Akio Toyoda's message today. That is all.

[Unknown Executive]

Going on to the next question, from Toyokeizai, Kigawa-san, please. [Operator Instructions]

[Yukinobu Kigawa]

This is Kigawa speaking from Toyokeizai. Can you hear me?

[Kenta Kon, executive]

Yes.

[Yukinobu Kigawa]

I have 2 questions. My first question has been raised a little earlier. This is related to the tight supply of semiconductors in the automobile business. Currently, it is in quite a tight supply, but you are making efforts to continue your daily operation. But compared with other OEMs, it seems that Toyota's impact will be limited. So do you think that the reason why the impact is limited, it was to a certain background at the East Japan earthquake, Renesas has received damages at its plant. And I was assuming that with the BCPs that you've created after the damages, it had a lesson learned and was able to utilize that lesson for this time with the semiconductor crunch.

Another was about electrification and the Japanese government has said that 2030, all the new car sales should be limited to electrified vehicles. So that was a policy announced. And you have Daihatsu Motors under your Toyota Group. And you'll probably have -- cannot avoid those buying the kei vehicles as well. How are you going to work on that, on those mini vehicles? So probably hybrids will be the most realistic solution, but can we ask -- can I ask about your thoughts about that point?

[Kenta Kon, executive]

Thank you. Regarding first about the semiconductor question, I'm sorry, I think I didn't provide a full response in the earlier question. So as Mr. Kigawa mentioned, after the global financial crisis, we had a reflection on seeing a stop in our supply chain. So we have looked into the multiple tiers of our suppliers and try to create a system that we call RESCUE to find out where we need to rescue after seeing challenges. So that system we have worked on creating since the global financial crisis.

And to the suppliers this time, with the semiconductors, we've made confirmations about the current situation, why it occurred. And then what we hear is that to suppliers, to a certain extent, I think we can say we are providing the rather sure production plan -- production volume plan, a monthly basis or a several month basis. And for a long-term plan, it is about 3 years forecast. And we have been repeatedly communicating with our suppliers with these plans, and that has supported this -- us this time.

And for BCP, with our business continuous -- continuity plan, of course, each part has different plans. But for each of the parts, we had secured 4 to 6 months of stocks as necessary.

And the third part is about in this tight supply, of course, we cannot cover all of the challenges with our RESCUE system, so it is key to have the communication with our suppliers, including not just the Tier 1 suppliers but Tier 2 and so forth, so that we can have -- be aligned in working together. So when we hear from the purchasing division about -- there were some -- about 10 or more telephone conferences held with the suppliers, so when we had supply problems, communication was enhanced with the suppliers. And when we listen to various voices, it seems that the style that we make our orders to our suppliers, it is regarded as a sure order based on a sure production plan. And continuing this practice probably has helped us in this difficult situation that we are facing. That was at the base that we have built with our relationship with our suppliers.

[Yukinobu Kigawa]

And Mr. Kon, regarding semiconductors, the electric industry with the work from home, I think you have to take away -- you're trying to secure the -- and having a competition of the semiconductors with the home appliances and also the games. So do you have a concern that the price will be increasing with this tight competition?

[Kenta Kon, executive]

We do assume that there may be a certain amount of price increase for semiconductors. And of course, there's a competition with the gaming industry for the semiconductors. But when we think of -- look into what kind of semiconductors are being produced like in consumer products, smartphones, games, consoles and those -- the semiconductors, there is not exactly the same type of semiconductors that we use for the automobiles.

Of course, how the semiconductor manufacturers foundries will allocate the semiconductors that they manufacture will be based on the communication that we have with them. So we need to thoroughly communicate how much demand we will have in the next 2, 3 years for semiconductors, not just with the Tier 1 suppliers but Tier 2, Tier 3 and so forth. Communication is -- will be key.

[Yukinobu Kigawa]

And my question about electrification?

[Kenta Kon, executive]

So for your electrification question, I think Mr. Nagata will make some additional comments. But for the electrification of the kei vehicles, the mini vehicles, it's also something we have to work on. For electrification inside of Toyota Group, our understanding is that we have a strength in the electrification technologies. And some people think that if we use Toyota technology, it might be expensive for a kei car. But for the element technologies, of course, there will be shared with the kei vehicles. And even with the kei vehicles, for what it can be used, we would like to proactively use it so that we can utilize the synergy as a group.

So probably, we will start with the hybrids, our strength area. But from the past, when we look at a long-term perspective, it's important to provide the electrified vehicles that our customers want. That way of thinking has not changed, and that way of thinking will also be applied to the kei vehicles as well.

[Jun Nagata, executive]

I believe there are more questions, but unfortunately, due to the time constraint, we would like to receive one final question from Chunichi Newspaper, Mr. Osada -- Ms. Osada, please. [Operator Instructions]

[Hiromi Osada]

Yes, Osada from Chunichi Newspaper. Very different from the figures of the financial results, but I would like to ask your views. You clearly showed a recovery trend this quarter. Under COVID-19, I think the financial results, how it is delivered is quite different as usual times, so maybe I should be asking in the final closure. But with COVID, you have changed your work style drastically. And also the response to semiconductor shortage, there are new concerns, but you are accelerating your cooperation with your partners. A year with COVID-19, experiencing that, I believe your work style has changed drastically internally and externally. Your company is very famous for genchi genbutsu, going to the actual site and seeing the actual product. I believe that has changed, and you transformed some of it online. So what I want to ask is your relationship with your suppliers, how it has been transforming and also how you calculate your cost reduction activity and your relationship with purchasing. I believe that might have changed. What kind of transformations have you experienced, please?

[Kenta Kon, executive]

Thank you. First, I would like to comment, as Osada-san, you said, yes, how we work has changed. It's difficult to explain with just one example, but today, I am in Toyota City, the headquarter. 60% of the people are coming to the office in Toyota City; in Nagoya, 30%; and Tokyo, 15% are coming to the actual office. Of course, there are many challenges, but we believe that remote type of work style has penetrated.

Also, you mentioned about genchi genbutsu, going to the actual site and seeing the actual product. For example, the business trip costs that we have had last year, it was several billion yen. It is because we were saying we have to go to the actual site. We did actual visits. However, this year, there is a decrease of 99% in TMC, so basically no business trips.

Why we visited the actual site? I believe, in retrospect, there has been wasteful business trips, maybe. But the final part, for example, installing the equipment, our skilled workers, our craftsmen visit from Japan and confirm at the final stage. I think that still remains our best option. However, now we see it through the camera and provide instructions remotely. The most important part, we decided to focus. I think we have been changing our work style in that way.

Our relationship with our suppliers, I'm not sure if I should say this, but conventionally, relationship with our suppliers who are basically, mainly the relationship with our Tier 1 suppliers. So beyond that, we were asking Tier 1 suppliers to basically take responsibility. However, regarding this year, of course, suppliers were struggling. When our operation rate went down, sometimes there was a huge burden, fluctuation. So Tier 2 suppliers, 10,000 suppliers, we actually communicated with them. This is a totally new kind of relationship we were able to build today -- this year and last year. So the relationship with our suppliers changed and also SSA, we call , which is parts where we set a very high level of quality standard. Maybe we did not request it directly, but the suppliers, because it's -- they are going to deliver to Toyota, if it's just a very tiny scratch, they did not deliver to us.

But for these things, we can visit the actual site, and we can let them know, if it's just a small scratch, then we can accept it at Toyota. Our skilled workers actually visit the site and hold discussions to align the level of quality. Previously, Toyota members, the suppliers didn't know us at all, and maybe they felt, well, TMC, we're scared to meet them. But by seeing them directly, I think they felt a sense of security that we can work together. And I think that also accelerated our cost reduction activities.

I don't think I am able to cover everything today. But if I may, I did share a few examples with you. Thank you.

[Unknown Executive]

With this, we would like to end our press briefing for the financial results. Thank you very much for your participation today.