Honda Motor Co Ltd

TSE:7267

Earnings Call Analysis

Record Profits and Steady Guidance Despite China Struggles

During the first quarter of FY 2025, the company achieved its highest quarterly operating profit ever at JPY 484.7 billion, driven by robust sales in hybrid vehicles and motorcycles, especially in Japan, India, and Brazil. Despite challenges in China, the profit for the quarter attributable to owners of the parent increased by JPY 31.1 billion year-on-year, totaling JPY 394.6 billion. The company maintains its full-year operating profit forecast of JPY 1.42 trillion and expects a profit of JPY 1 trillion attributable to owners. Annual dividends are projected to remain unchanged at JPY 68 per share.

Record-Setting Performance

Honda's first quarter of fiscal year 2025 marked a significant milestone with record-setting results. The company's operating profit reached JPY 484.7 billion, reflecting a growth of JPY 90.2 billion year-on-year, making it the highest-ever quarterly profit for Honda. The operating profit margin was an impressive 9%. This strong performance was driven by robust sales in both the motorcycle and automotive segments, particularly in markets like India and Brazil, where demand remained strong.

Challenges in the Chinese Market

Despite the overall positive results, Honda faced challenges in the Chinese market, where a tough economic environment and aggressive price competition in the burgeoning new energy vehicle (NEV) segment led to a decline in unit sales. Consequently, the company revised its sales forecast for China, expecting a volume reduction of 220,000 units. Interestingly, while conventional internal combustion engine (ICE) vehicle sales, including hybrids, declined by roughly 30%, NEV sales saw an increase, highlighting the transition within the market.

Stable Full-Year Outlook

Honda maintained its full-year guidance, expecting an operating profit of JPY 1.42 trillion and a profit attributable to owners of the parent to reach JPY 1 trillion. The company also upheld its foreign exchange (ForEx) assumptions at JPY 140 per dollar, despite recent fluctuations in currency values. Capital investment, depreciation and amortization, and research and development (R&D) expenditures are expected to stay consistent with previous forecasts.

Automobile Business Performance

In the automotive segment, Honda saw a year-on-year increase in unit sales in Japan and the United States, driven by the popularity of hybrid models. However, the company noted a decline in sales within China due to NEV market competition. Despite this, the automotive business still managed to record an operating profit of JPY 222.8 billion.

Motorcycle Business Surge

The motorcycle segment performed exceptionally well, achieving a record-high operating profit of JPY 177.6 billion for the quarter. This success was largely due to steady demand in markets such as India and Brazil, which helped offset a sales decline in Thailand attributed to an economic slowdown. Overall, Honda's motorcycle business saw a significant rise in sales volumes, reinforcing its market strength.

Share Buybacks and Corporate Governance

Honda continued to focus on improving corporate governance. During the press conference, it was announced that the company had bought back 12.36 million shares worth JPY 20 billion as part of its ongoing share buyback program. This initiative was part of Honda's plan to unwind cross-holding practices and enhance corporate management discipline. Additionally, Honda sold shares owned by non-life insurance and banking institutions, valued at JPY 500 billion, to broaden its shareholder base and foster medium- to long-term support from a diverse range of stakeholders.

Supplier Support Amid Inflation

Honda acknowledged the impact of inflation, particularly in North America, where labor costs have surged. In response, the company has been collaborating closely with its suppliers to share the burden of increased costs. Despite these challenges, Honda managed to maintain a strong financial position and continued to support its suppliers to ensure stable production and delivery of products to customers.

Outlook on Partnerships and Future Initiatives

Honda's partnership with Nissan and Mitsubishi, primarily aimed at developing EV models and complementary technologies, is in the early stages, with significant positive impacts expected to emerge in future terms rather than in the current period. The company is optimistic about the long-term benefits of this collaboration in achieving its environmental and business objectives.

Earnings Call Transcript 2025-Q1

[Unknown Executive]

[Foreign Language] [Interpreted] Thank you very much indeed for your participation despite your business schedule today. And now I would like to start our press conference -- financial results press conference for the fiscal first quarter ended June 30, 2024. To start with, I'd like to introduce the speakers today. Our Managing Executive Officer, CFO; Mr. Eiji Fujimura. Fujimura, nice to meet you. Operating Executive Head of Accounting and Finance Supervisory Unit, Mr. Masao Kawaguchi. Nice to meet you. So let's start with the Mr. Fujimura's presentation about the Quarter 1 of the FY 2025 results and the forecast of the FY '25 full year and Mr. Kawaguchi will elaborate a bit later.

[Eiji Fujimura, executive]

Thank you very much for the standing of our business activities as usual. Let me present our first quarter business results of FY 2025. Starting with the highlights of the financial results. Unit sales in the motorcycle business, the first quarter increased globally, mainly in India and Brazil. In the automotive business as well, we had a robust sales of hybrid models. And thanks to the pricing scheme that reflects improved commercial values, the profit increased year-on-year in both motorcycle and automobile businesses. As a result, operating profit of the entire company marked the highest ever quarterly profit of JPY 484.7 billion or 9% of the operating profit margin. For China, where a tough market environment still continues, we will revise the volume forecast down by 220,000 units. Whereas we will maintain our previous guidance of the operating profit -- operating profit margin and the profit for the period attributable to the owner of the parents. ForEx assumption will stay the same because the recent fluctuation of the currency is substantial. Then let me explain the outline of the financial results. Speaking of the main market situation of the Automobile businesses, hybrid models have been successful, making the unit sales increased in Japan and in the United States. In China, due to expanding new energy vehicle market and aggressive price competition, the unit sales declined year-on-year. In the Motorcycle businesses, unit sales declined due to economic slowdown in Thailand. However, the unit sales increased year-on-year due to steady demand in India and Brazil. Thus, on the whole, the total business increased year-on-year in this segment. Regarding the financial results of the first quarter FY 2025. Operating profit marked JPY 484.7 billion, up by JPY 90.2 billion year-on-year. Shares of profit of investments accounted for using the equity method was JPY 1.4 billion, which was down by JPY 41.4 billion. Profit for the quarter attributable to owners of the parent was JPY 394.6 billion, up by JPY 31.1 billion. Operating profit marked the highest ever as the quarterly results. With regard to the consolidated business outlook for the FY 2025. Operating profit will be JPY 1.42 trillion. Our previous forecast will stand the same. Shares of profit of investments accounted for using the equity method will decline due to the unit sales in China being revisited. However, profit for the financial year attributable to the owners of the parent will be JPY 1 trillion for which the previous forecast will be maintained. Full year ForEx assumption will stay the same at JPY 140 per dollar. No change of our previous guidance. Annual dividends for FY 2025 is expected to be JPY 68 per share. No change of the previous guidance. We announced the share buybacks in the press conference on May 10, for which the progress as of the 31st July was that we have acquired a total of 12.36 million shares worth JPY 20 billion altogether. By the way, Honda is working on the improvements of the corporate governance as one of the priority issues of our business management. Recently in the stock market, we are seeing the trends of reviewing the cross holding of the shares. Honda will aim to unwind the cross-holding practice soon in order to enhance disciplines on corporate management furthermore. In July this year, Honda shares owned by non-life insurance or banking institutions have been sold off in the public as much as JPY 500 billion worth. Having those shares available in public will help broaden our shareholders' base. And a right range of our shareholders can support us for medium- and long-term perspective. Bringing them in co-creation with us, Honda will aim to build a stronger brand and the business foundation in order to realize further improvements of our corporate values. In addition, Honda sold the shares that we have been holding for those long life and nonlife insurance and banking institutions as well. Honda will take the lead to unwind cross-holding policy so that we can improve our corporate governance further on. Next, Mr. Kawaguchi will explain the details of the financial results.

[Masao Kawaguchi, executive]

At this time, I would like to explain the details of our results. First of all, Honda Group sales volume for the first 3 months is as follows: compared to the same period last year, sales and Motorcycle business operations rose to 62,000 units, mainly due to an increase in Asia. Due to a decline in China, automobile sales totaled 869,000 units. Selling power product business operations totaled 822,000 units, mainly due to sales declines in North America and Europe. The first quarter consolidated financial results for fiscal year 2025 is as explained earlier. I'd like to explain the factors behind the increase or decrease in profit before tax compared to the same period last year. Operating profit increased by JPY 90.2 billion compared to the same period last year and totaled JPY 484.7 billion. As show the increase and decrease factors behind this change, sales impact, although there was an increase in profit due to an increase in unit sales, an increase in incentives led to negative impact of JPY 28.4 billion. Selling prices and cost impacts due to the effect of selling prices commensurate with the improvement of product value, a positive impact of JPY 159.8 billion was realized. Expenses negatively impacted profit by JPY 61.5 billion. R&D expenses likewise JPY 27 billion. The positive impact of exchange rates resulted in an increase of JPY 47.5 billion. Now profit before income taxes. Due to a decrease in sales volume in China, there was a decrease in equity method profit, however, operating profit for the quarter increased by JPY 44.5 billion compared to the same period last year and totaled JPY 5,594 billion. Now operating profit by business segment. Motorcycle business achieved a record high of JPY 177.6 billion for a quarter. For Automobile business, the total was JPY 222.8 billion. The total for potential services business was JPY 84.9 billion. The result for power products business and others was an operating loss of JPY 700 million. Free cash flow of operating companies, excluding for onshore business operations was JPY 73.9 billion. The quarter-end balance of net cash was JPY 3,744.3 billion. Operating cash flow, excluding R&D, which represents the source of future investments totaled JPY 435 billion. Next, let me explain the details of the consolidated forecast for FY '25. Group sales volume for Motorcycle business operations is 19.8 million units, unchanged from our previous forecast. The Automobile business forecast has been revised downwards to 3.9 million units, reflecting a decline in China as well as other changes compared to the previous forecast. Power products business operations previous forecast of 3.66 million units remains unchanged. The consolidated financial forecast for FY '25 is as explained earlier. The outlook for capital investment, depreciation and amortization and R&D expenditures for FY '25 remains unchanged. This concludes my present presentation. Thank you very much for your attention.

[Unknown Executive]

Thank you for your attention. We will now proceed to the Q&A session. [Operator Instructions] First question from NHK, Mr. Noguchi, please.

[Unknown Analyst]

Noguchi from NHK. Two questions, please. First, Chinese situations, Chinese business. In China, the market situation is very tough now. And in this fiscal year, you're revising your unit sales by 220,000, but you also have a plan to start a new plan for EV production? And what is your forecast or outline of upcoming production structures in China? Please explain. And can I explain the second question too?

[Unknown Executive]

Yes, please.

[Unknown Analyst]

Question 2, it is about ForEx, foreign currency exchange. And we have assumption of JPY 140 for dollar, that is same as before -- previous guidance, but now it is fluctuating very dramatically JPY 146, JPY 147 as of today, which is very different from what was yesterday. And in addition, the share price is also fluctuating very dramatically. And how do you take this fluctuation?

[Eiji Fujimura, executive]

Thank you very much Mr. Noguchi. Speaking of Chinese situation, as we mentioned in the start of the fiscal year, we are thinking about 1.2 million capacity -- 1.2 million cars production capacity in China. And by the end of this fiscal year, new EV plant with the 2 new joint venture programs with one and the other 2 starts in sequence. And then we are trying to bring it down to about 1.2 million capacity in the end. And we will try to reduce by 120,000 units reduction that was what we said in the beginning and 1 million in ICE and 200,000 units for EV. That was the plan for the reduction as we explained. But as of today, in the first quarter end of July, we have said the plan of 1.06 million and then we are making it down to 140,000 units. That is the plan of the capacity as of now. And we are going to have the 500,000 units to be adjusted. That is associated with the fixed cost. And in China, as such is -- has been a very sensitive issue, and we couldn't explain to you well about it. We couldn't disclose too much. But now the Chinese headquarters have agreed with the partner company eventually. And then as far as we can make or we could make a decision. We have addressed 1.5 million worth of the capacity and the rest of the 200 million -- 200,000 will be addressed sometime soon. So 1 million or less -- a bit less than 1 million ICE production capacity. This is what we are going to aim and we have done, whether by we could for the end of the fiscal year this year. And ICE market has shrunk as more than we expected, and the NEV market is growing more than our expectations. And also discount competition. Discount competition is going -- continue well and then JPY 400,000 reduction of the actual selling prices because of the discount practice today. Therefore, the commercial and for this very difficult over there. And going forward, as of now, we have not decided fully, but we will watch out the situations and then we will make a decision. And then, of course, we have to watch out our ICE market, I-C-E market going forward. And so BEV-dedicated platform is being prepared for the upcoming winter. And with that, we will try to improve our presence in the market. So we will try hard on that. In conclusion, we explained in the beginning about optimization of the capacity. We are working on the resources and the EV part with the more attractive products for EVs. We are preparing for that too. Though the situation is tough, as we said in the start of the fiscal year, we are going to do -- make our efforts as we explained that before. And ForEx, as we mentioned earlier, JPY 140 for the full year assumption. We thought it would be a very conservative assumption as some people said. However, in retrospect, in the cold week holiday period, we had swing to the yen depreciation. And we see with JPY 145 and JPY 135 for dollar in the first half and second half, respectively. And now the price is approaching JPY 245 as we anticipated. And practically speaking, in the first quarter press conference like today, we discussed and then thought we could say the forecast could be said JPY 445 as we would disclose further now. we had a JPY 220 down already in July and last week onward, we've had JPY 10 differences already. And now not just other where including emerging markets currencies, the ForEx is going to be more difficult to handle. And with 435 first and second half split, that was something the situation is actually realizing itself. And then we decided eventually that we could keep the previous guidance. Our staff made great efforts to try to keep it that way. I'm thankful for the efforts too. But today, the currency is around JPY 145. Going forward, we don't know, second half JPY 135. I'm not sure if that is good enough to contain the yen depreciation potential but in the first quarter, as of July, we have the yen depreciation and then JPY 12 effect for a 4-month period, JPY 3 for 1 month, let's say. And then if that goes that way, maybe JPY 3 depreciation further on based on this assumption. And then we have about JPY 30 billion effect on our business for a dollar change of the currency. And then again, for these currency matters, our principle is to produce the products where the demand exists. Therefore, apart from those currency money matters, we always find the place where the customer exists and is the place for activities of production and sales. And then we can earn money. And then we can reinvest the running earned there in the same place, again, for the investment. So this way, Honda can become the growing company. Growing the market locally too. That is our principle since our founding -- founding time. And eventually, we found that we have a very good pre-currency toughness, as to say, thanks to that principle. But now your question will also pertain to the stock market fluctuation, but I'm afraid I might -- when that goes some impact on the actual economy and then leading to more anxiety kind of mine said for the currency. But in the Motorcycle businesses, we have businesses in Asia where the volatilities are really high. Therefore, we have been tapping our structure so that we can bring down the breakeven point to be related and tough against such a fluctuation in the market. The business structure has to be made that way. And also if the finance situation in the market changes, we have a finance businesses that accounts for half of the balance sheet. The bad debt, for instance, all the residual value losses or the performance situation I think are confused, so on. If such things would happen, that might impact on our operation. However, the residual values, for instance, if we handle that too much, it would disrupt a short-term business operation. So that is not something we would do, but we have a very tough structure, a very strong structure against financial fluctuation already. We have heightened our resilience for the economic fluctuation. And we've made our business structure to withstand such a fluctuation already. So I think we can withstand it again. However, JPY 20 fluctuation in month period will be, of course, a very tough situation. Although we believe that stability is good, however, we need to try to be equipped with the resilient and a tough business structure of Honda.

[Unknown Executive]

Thank you very much, Mr. Noguchi. Next question, in Mr. Okinada. Thank you.

[Unknown Analyst]

I'm Mr. Okinada from Linde. So my first question is regarding North American market with the increase in interest rates, the incentive has been raised by other companies, manufacturers, and they're selling more units. However, they are not seeing more profits. So what is the outlook of the business? Is it growing? Can you please elaborate on that? And my question number two, that is regarding the partnership with Mitsubishi and Nissan. What -- the positive impact from that is not reflected in the business plan for now, however, is there any possibility of productivity coming out from this term? Or would that be from next term onward?

[Eiji Fujimura, executive]

Mr. Okinaga, thank you very much for your question. As for the North American market, as Mr. Noguchi mentioned earlier in his question, from now on, due to the labor situation as well. I think their economy is declining slightly. And also, the interest rate decline reduction will be happening in September by FRB and the recession will be supported and soft lending is also forecasted. So the presumptions, those conditions will impact the future situation. And currently, we can say that our schedule, our plan is going according to schedule. First quarter as for the market, the situation is about the same as last year. However, as for our retail section, that is a positive 1%. Back in June, other manufacturers were impacted a little bit and our dealership and management system was -- went through a cyber attack. And we did have some impact as well at Honda. And that has been resolved as well. However, due to the impact from the first quarter, the positive in retail by 10,000 units was impacted by 1%. So as for the retail, in Mexico, for example, we had a confusion in logistics. So there is actually a negative 20,000 units. However, this can be recouped as well. What's meaning this is hybrid vehicles. As for the hybrid vehicles such as CR-V, Accord, the sales is going well. And since June, we have launched Civic Hybrid on top of that. So because of that, for consolidated term, we are aiming for 430 units or beyond. And for example, CR-V and Accord, about 50% is hybrid and the demand is there. However, we had to also consider the production capacity. So it will be hard for us to further increase the production there. However, from next term onward, it will take time, but we aim for increase our production capacity for those models. As for the inventory, other manufacturers are increasing. And also their incentive level has come back to the for corona level. However, as I have mentioned repeatedly, since corona era, before Corona or COVID, the inventory is standard days or 60 days, and we were in collaboration with our dealers and working with the inventory. And we decided to control the inventory station based on 30 days instead. Due to the dealership system problem, that I mentioned, it had some negative impact on the situation. However, excluding that, we have been able to control based on 30 days. So as for incentive level, ours is the lowest level in the industry. And we are spending semi cash at a total of $1,600 and Acura is having a hard time. But as Honda overall, we have been able to limit that to a lowest level. So our assumption is to -- is for us to be able to go forward throughout the term throughout this year at the same level. And as for the partnership with Nissan and Mitsubishi, I'm not positive about seeing any positive impact from that in this term, as Mibe mentioned and explained, we are looking at the EV models coming in the future. Complementarity models might happen even after that. But software development investment, those things, we have been discussing. So we are at the phase of MOU. So it's not like we will see anything positive from this term.

[Unknown Executive]

Thank you, Mr. Okinaga. Next question is come from Nakamura. [Operator Instructions]

[Unknown Analyst]

Nakamura speaking from Yomiuri Paper Estimate. Earlier NHK general question about the interest rate. The back of Japan is posing to know that they cannot reach the interest rate if the market is not really good. And how do you take those policy? And U.S. presidential election today including your U.S. businesses, what is your forecast or outlook about your businesses in the U.S. with regard to the election?

[Eiji Fujimura, executive]

Thank you very much, Mr. Nakamura. So Mr. Uchida, the Vice President of the Bank of Japan, because of his statement, the market kind of stabilized or settled down in a way after that. We are not really looking for a very drastic changes that is almost causing a sort of a panic reaction. It is not something we would wish, of course. And if the market reacts with that sort of attitude in place, it is good. JPY 155 was the level from 2 weeks before or last week even. At the time, we thought that the interest rate hikes by the Bank of Japan was already factored in. And we were surprised after all, and to manage our operations. It was a bit of a surprise. However, of course, we are subject to any changes that could happen any given time, and we will try to open up our business structure to be able to withstand. However, if the changes are too dramatic and too fast, it is not easy to catch up, of course. And the impact of the presidential election, I don't think it is appropriate to say who would win then. But based on the current situation in the United States, before the election -- presidential election things coming up already, we've had EV market in the United States sort of stalling, kind of coming to kind of a stagnant stage. And the used car prices of EVs in the U.S. is staying very low. That means the EV users, the customers who bought EVs then see that the same type of the car they bought sold at a very cheap prices. They thought they bought EVs because it is run of their kinds. But now the prices are not high and they don't find the EVs have a good value as one of the assets they should own. So that then relate to the confidence in the companies like ours. And we need to -- we want to respect the customer loyalty as well, and that is something being impacted maybe. And in the presidential election questions, you may like to hear from us how we would take the regulations and so on going forward. Mr. Trump or the Republicans would have a certain tendency for the regulation matters. And this is something you already know of. So I'm not going to explain from myself today. But by 2028, or no matter about President election to '28 or so on, our aim is -- our business aim is going over the longer perspective by 2035 or so. That is to try to resolve the social issues, and those have to be handled and addressed by the society on the whole. And we want to realize our targets in the long run, and we want to focus on such long-term target. With that being disrupted. And then, of course, politics matters in some cases. And -- however, those changes or impact will be within the full year period of the tenure. And then we will have to try to craft our business management way so that we can go and withstand the period.

[Operator]

Thank you very much, Mr. Nakamura. Next question is from Shukan Toyosi, Mr. Yokoyama. Excuse me. It seesm the connection is not going well. So would you like to go for the next questioner? Mr. Yokoyama, thank you very much.

[Unknown Analyst]

I'm Yokoyama from Tayo KSI. I have 2 questions as well. The first one, regarding the consolidated outlook, I'd like to confirm something. So the profit progress seems like it's going well based on the operation profit. As for motorcycles and automobiles, you said you're not making any projection or change. And so the risk and opportunities based on those two, I was wondering why you did not change anything there. Maybe you were looking at the second half of the year. And because you said -- you mentioned earlier that expenses are expected to increase in the second half. So please elaborate on that. Question number two, is regarding supplier support. The incentive or the cost to shouldering for the inflation and against inflation, what kind of support or initiatives are in place if you know including figures. If you could elaborate on that, that would be great.

[Eiji Fujimura, executive]

Thank you, Mr. Yokoyama. So for question number 2 maybe Kawaguchi can answer, including concrete figures. So the financial results for the first quarter as for motorcycles and four-wheel drives or automobiles rather, both performing very well. ROS, 9%, which is the highest level in the history, so -- our history. And in Thailand, there is some fluctuations there and also some problems in Vietnam. But overall, we are seeing upward trend. Brazil, India and Turkey are leading the trend. As for India, until July, the top share has been achieved in the past 4 months. And for this month, they were aiming for achieving the first place. So that's what's happening in India. And since 2018, their target or they have achieved 5 million per term per quarter, and they have achieved that. So it's going strong. And for the consolidated year, it's still first 3 months, so we want to monitor a little more. However, we are expecting that they will surpass 20 million. And as for motor mobiles, centering on the head, it's going well in North America, and incentive increase is naturally there. However, we are only leveraging it slightly. As for the price hike and pricing as well, we are going according to plan from the onset of this fiscal year. For each model, we have -- we cannot increase the production capacity in North America any further. So it's not like we can adjust much more in line in this area. On the other hand, we have China's impact at 220,000 units. And we have a negative of several hundred millions. So including automobiles or motorcycles rather, we would like to recoup the negative of JPY 1.048 trillion, through our efforts, corporate efforts and also our outlook for the the profit is also going down, unfortunately. However, the interest rate to shareholders as for the first quarter, the tentative impact is seen on the corporate taxation system. So we can offset our negativity through that and JPY 1 trillion that we mentioned at the onset of the fiscal year or the term, we would like to maintain that because this is only the first quarter. So the progress is going well. And like I said, there is some negativity from China. So from that perspective, it looks like it's going well. However, we do have to make more effort to maintain at a high level that we are aiming for throughout the year. So I believe I answered both of your questions. So Mr. Kawaguchi will answer your question number two, regarding the support for suppliers.

[Masao Kawaguchi, executive]

So basically, of course, we have to have suppliers support in order for us to do our manufacturing activity in order to deliver our products to our customers. So of course, e-supplier has their own reasons and background for their performance. So we would like to collaborate well, and we are collaborating with each supplier in order for them to be able to perform well. And there is also inflation impact, including labor costs. There is some burden on the suppliers -- some suppliers. And if that's the case, we are ready to help them, especially last year, we had a semiconductor problem, and our production was not stable. It was not only in Japan. However, in North America, where inflation is quite significant. We have been discussing with suppliers, and we have been shouldering partially their costs as well. So that is the current situation. And this situation will continue on in a similar manner this year. And it is hard to forecast the inflation trend, but we cannot tell you specific numbers, but our cost is reflecting such a situation. And for the first quarter in the documents that we shared with you today, there is a profit fluctuation of factors compared to the same period last year. And there was an impact of selling price and cost explained in a material and document. And there is JPY 150 billion impact, as I explained here. And this is the impact of selling price. And this is slightly a positive impact. However, this is the market situation of materials, including metals, and that has loosened compared to last year. So excluding that, our cost is almost even, not much change is happening there. So the suppliers activity to counter inflation, we are supporting them in such an activity in a similar way as last year.

[Unknown Executive]

Thank you, Mr. Yokoyama. Next question is Inajima from Bloomberg, please.

[Unknown Analyst]

Bloomberg, Inajima speaking. So some of the answers until now have already resolved my question, but as a follow-up question, especially that you don't change the full year forecast. The ForEx exchange volatility is still high. Is that one of the reasons why you didn't change the forecast? And also, U.S. presidential election-related question. Mr. Trump is back in the office. They say that they're going to have some regulations that might affect on the U.S. -- excuse me, Japanese OEMs who has the likelier higher impact by the tariff increase. Honda as well. And maybe other companies might have to pass on or pass through those incremental tariff to the prices. That much kind of work positively for the businesses I thought. If you have a kind of a similar view, please clarify.

[Eiji Fujimura, executive]

Thank you very much, Mr. Inajima. So the reason why we didn't change the operating profit forecast for the full year. The reason is -- one of the reason is ForEx currency because it is not a clear-cut trend we see, therefore, we didn't change our outlook. In the recent 2 weeks changes, we couldn't make our decision for U.S. dollar. And also, we have other currencies involved because we have a rather complicated price component transactions in different regions. The cost transaction with the different currencies involved, quite complicated, therefore, change of the forecast within a 3-month situation might be really justified with that. And then we have other segment businesses and radio businesses, and quite a few of those can be or are being -- going on in line with our expectations, like a Chinese one, the equity-based businesses, for instance. However, your question is operating profit-related, right? So the forecast of the OP with regard to the Chinese impact, the -- Honda Motor received a royalty money from the parent company in China, and we send a KD partial components to China as well, where we get some profit as well. But where we have less fewer number of the vehicles in China, we would have an impact. It will be like lows of some tens of billion yen sort of impact. However, JPY 1.24 trillion forecast still stands because we could absorb such impact with some efforts still. And again, presidential election, in the previous Trump administration, we had USMCA. We had a tariff in place, and then we still have an impact by that even today in relation to the Mexico businesses involvement, the impact still is in place. So we don't know what sort of regulations they would impose. For instance, local content ratio, that may be one of the impact earlier. However, we need to know the details of what is coming up. And in comparison, CBU complete unit, we don't have bigger portions of CBU transactions. However, what is the impact on that? That's another question because we don't send to many CBUs from the U.S. or from Asia to the U.S. So depending on the origin and the destination of those CPUs, impact will be variable. And from Canada to U.S., from Mexico to the U.S. and other routes, the U.S. headquarters have like a 3 country or 3 patchy trading, which is sort of complementary to each other. And it might have some impact but we could try to sustain our business. And from Mexico to America, maybe less impact to that pass. But without details known to answer, it is very difficult to explain.

[Unknown Executive]

Thank you. I apologize, due to time constraints. The next question will be the last one. Last question, Nikkei Shimbun, Mr. Tori, please.

[Unknown Attendee]

I'm Mr. Tori, Nikkei Shimbun. So I have 2 questions regarding hybrid. The first one is regarding last page on the PowerPoint. The number of sales is there, I believe. So looking at the number, the hybrid sales units, it looks like it's increasing. You said it's going well in North America. And overall, there is a reason for sales unit reduction actually. So can you please elaborate on that? And also the second question is related to this as well. The overall sales is going not so well in China. So what is the positioning of HEV in China? Toyota is enhancing HEV in China, and they're trying to improve the situation even further. So how are you going to do with HEV positioning in China?

[Eiji Fujimura, executive]

Thank you, Mr. Mizudori. So as for the sales units of HEV in China, the 5% reduction in the passenger car category is what's being planned. So the change in the category, including hybrid, we have seen a 30% reduction in ICE including hybrids, and contrary in NEV is increasing. So the hybrid included in ICE is decreasing in China, slightly. Last year, it was 60,000, but now it's less than half of that. So that's impacting -- that's an impact from China situation. So excluding that, Chinese factors, the HEV for this quarter, about 60% increase is observed compared to last year. So how it's going in China, we had to still monitor. But as we mentioned at the onset of the term, last year, global model of a hybrid at 800,000, we are aiming for 1 million this year. That is our plan currently. So the production unit sales in China is going down at the moment. So we are still struggling in that area. By the way, this year, our target is to increase the production volume to 1 million in the ICE presence, including hybrid. In some way or another, we are going to have to support. So in China, as market is struggling, we have to consider how to fight in such circumstances. Within ICE segment, SUV, for example, we are losing an ICE market as well with those models. So we also have to make effort in such categories as well. By the way, as I mentioned earlier, on top of that, the battery EV exclusive platform is what we are planning for a full-fledged production in China for those models. So we will be focusing on that category. Does that answer your question?

[Unknown Executive]

Thank you, Mr. Mizudori. This concludes our financial results briefing. The financial results materials are available on our company website, please refer to them. Thank you, everyone, for your participation. [Statements in English on this transcript were spoken by an interpreter present on the live call.]