Yamaha Motor Co Ltd

TSE:7272

Earnings Call Transcript 2020-Q1

[Yoshihiro Hidaka, executive]

This is Hidaka speaking. Thank you very much for participating in our financial results briefing today.

First of all, I'd like to express my deepest sympathy to those infected with the COVID-19. And I'd like to convey my sincere condolences to those who lost their lives. In addition, I'd like to share my heartfelt appreciation and respect to the medical staff who are making earnest effort through day and night and other people engaged in maintaining life lines around the world.

Let me move on to the financial results for the first quarter.

First, I'd like to go over the impact and our responses to COVID-19 situation. Please turn to Page 4. The company has set up 3 emergency response policies. First is to prioritize the lives of our employees and stakeholders in order to prevent the spread of the infection. For that, we temporarily closed business sites and factories, and we have implemented telework and staggered work styles at appropriate timings. As you can see at the bottom, we are implementing contribution to the community and society on a global basis as far as we can.

Second point is to minimize the business losses through quick decision makings. At the time of Lehman shock crisis, we suffered from excessive inventories. So based on the proper inventory level and demand trend, we are cutting production without hesitation, reducing expenses and freezing the investments.

Thirdly, we are enhancing BCP in response to the pandemic. By introducing a new way of working, such as teleworking, we are maintaining and improving the productivity, and we are also visualizing the global supply chain. Even if we see a problem in production or part supply in certain areas, we can be flexible and prioritize our shipments. So we have reinforced the supply chain management.

Please turn to Page 5. This table shows that year-on-year shipments for January, February and March alone for major markets and regions. Despite some variation, the shipment trended almost flat to the previous year in January and February. But in March, we saw a sharp decline in sales due to the lockdown triggered by the COVID-19.

Looking by different businesses. Motorcycle business in ASEAN countries represented by Indonesia, The Philippines, India and Europe saw huge declines in March. Whereas in China, there was a huge drop in February, but followed by a huge recovery in March. In Marine business, in addition to the inventory adjustment from the beginning of the year, March was affected by the lockdown in major markets, such as in the U.S. and Europe to have further declines in water vehicle and outboard motor businesses. Robotics business, due to a recovery in China with orders since last year, we saw a little impact on the sales volume in Q1, but we expect to see the impact to come from Q2 and beyond.

Please turn to Page 6. This table shows the number of suspension days against working days and the current operational status for major markets from March to May. Showing April to June just for Japan, along with the spread of COVID-19 throughout the world, calling for declarations of state of emergencies, based on the instructions by various governments and municipalities, we have suspended, the factory operations and adjusted the production according to the demand appropriately. And right now, we've resumed the production in many regions, gradually increasing the utilization level. So we'll pay extra attention for not spreading any infection at our factories and we'll improve utilization, making sure there's no delays in sales recovery. Also in order to flexibly responding to a recovery in demand, we are reinforcing communication with suppliers, considering necessary support measures for them to ensure our supply chain.

So now I want to explain the business results for the first quarter.

Please turn to Page 8. Let me go over the overall numbers. In the table, from the left, we have Q1 results for 2019 and Q1 for 2020 and year-on-year comparison. Net sales were JPY 395.9 billion, which was 92% of last year. Operating income was JPY 25.4 billion, 71% of the previous year. Operating income ratio was 6.4%, down by 2 percentage points year-on-year. Ordinary income was JPY 26.8 billion, 72% of the previous year. Net income was JPY 9.6 billion, 34% of the previous year. FX rate was JPY 109 to $1, JPY 120 to EUR 1. As the emerging currencies, IDR 14,119 for $1, BRL 4.4 for $1.

We have modified our full year guidance to be determined status. We will be immediately disclosing the numbers as soon as we are ready to make reasonable calculations.

Please turn to Page 9. This is showing the factors affecting operating income for Q1 of 2020. Let me go over the changes for each business, strategic growth spending and FX impacts. We started with JPY 35.9 billion of last year, and we had additional JPY 2.6 billion for Land Mobility business. For its breakdown, in developed country Motorcycle business, that sales increased in Japan by the new model introduction, product mix improved in Europe, factory utilization increased at head factory and in Europe, which resulted in an increase of JPY 4 billion year-on-year. In emerging market Motorcycle, sales decline and product mix deteriorated in Vietnam and India causing negative JPY 1 billion impact. RV, recreational vehicles, was neutral. SPV, electrically power-assisted vehicles, had a negative JPY 500 million impact due to sales declines for E-kits in Europe and CBUs in Japan.

In Marine business, sales decreased by JPY 4.8 billion by the outboard motor inventory adjustment and sales decline of outboard motors, water vehicles and sports boats. The Robotic business brought down JPY 2 billion due to the deteriorated model mix of surface mounters and JPY 1.2 billion negative impact by consolidating Yamaha Motors Robotics Holdings. Financial Services business had a negative JPY 600 million impact due to the increased provision for doubtful accounts. Other business declined by JPY 900 million due to the sales volume impact for golf cars and generators. In addition, another minus JPY 1.3 billion due to the increased growth strategy expenses and negative JPY 3.6 billion FX impact, resulting in JPY 25.4 billion OP for Q1 of 2020.

Next, let me go over details for each business segment.

Please turn to Page 11. So this is a net sales and operating income for each business segment. In Land Mobility business, overall sales decreased to JPY 260.3 billion. Operating income saw some improvement in developed countries Motorcycle business, but due to the declines in emerging market Motorcycle, RV and SPV, it came up to be JPY 8.6 billion decrease in both revenue and income. In Marine business, net sales decreased to JPY 90.8 billion, operating income to JPY 15.5 billion decrease in both revenue and profit. In our Robotics business, the net sales increased to JPY 17.9 billion by consolidating Yamaha Motors Robotics Holdings, whereas operating income came out to be JPY 300 million, including JPY 1.2 billion operating loss from Yamaha Motors Robotics Holdings increase in sales but decrease in profit.

In Financial Services, net sales increased to JPY 11.8 billion. Operating income declined to JPY 1.3 billion increase in sales, but decrease in profit. In other business, net sales decreased to JPY 15.1 billion, making operating loss of JPY 300 million.

Let me explain the situation for major segments in the following pages.

Please turn to Page 12. Left-hand side shows Motorcycles in developed markets. Sales volume went up in Japan to increase revenue. In Europe, sales volume decreased affected by COVID-19 since March, but revenue increased due to the improved model mix. In North America, the business was substantially affected by COVID-19 since March, causing a decline in sales volume to have a sales drop. As a result, the net sales decreased from JPY 59.2 billion to JPY 58.7 billion. On the profit side, we had an improved loss amount due to the higher utilization at the head factory and European factories. Operating income ratio improved from minus 10.1% to minus 5.4%.

Next, motorcycle business in emerging markets on the right-hand side. Sales decreased in The Philippines, India and Vietnam, resulted in a net sales to go down from JPY 188.8 billion to JPY 173.5 billion. The profit increased due to the improved model mix by strong high-end products in Indonesia and Thailand. But overall profit declined due to the decrease in sales volume and deteriorated model mix in Vietnam and India. As a result, operating income ratio came down from 7.4% to 6.4%.

Please turn to Page 13. Marine product business on the left. Outboard motor sales decreased because of production and inventory adjustments. Water vehicle and sport boat businesses declined since March due to reduced sales volume. As a result, the overall net sales declined from JPY 103.9 billion to JPY 90.8 billion. On the profit, because of the FX impact and decreased sales in outboard motors, operating income ratio went down from 20.6% to 17.1%.

Next, the Robotics business. In 2020, the sales volume of surface mounters increased in Asia, but the model mix deteriorated due to the restrained investments in automotive industry, resulting in a sales decrease down from JPY 15.3 billion to JPY 14.1 billion for the existing businesses. But because of Yamaha Motors Robotics Holdings subsidiary consolidation, then sales came out to be JPY 17.9 billion. Operating income ratio declined from 15.7% to 1.4% due to the deteriorating model mix in existing businesses and consolidation of JPY 1.2 billion operating loss from Yamaha Motors Robotics Holdings. By excluding the Yamaha Motors Robotics Holdings impact, operating income ratio was around 10%.

Please turn to Page 14. Lastly, let me go over the Financial Services business. On the left graph, we are showing the receivable balance and the breakdown by regions. On the right-hand side, we have net sales and operating margin. As to the receivable balance, now we have in-house the financial programs for the prime customers in United States, which allowed us to offer all financial programs as our own services for retail customers and sales channels for every layer. As a result, our receivable balance expanded to be JPY 385.3 billion at the end of Q1 2020, as you see on the left graph. Net sales increased to JPY 11.8 billion. However, the profit declined due to the increased provision for doubtful accounts, which lowered the operating margin to be 11.2%.

Now let me go over the future outlook. Please turn to Page 16. This table shows year-on-year comparison. Our shipment volume for April results and forecast for May and June in major products and regions. Sales volume is starting to recover by hitting the bottom in April. However, the speed of recovery varies among different regions. In China, since March, businesses are performing strong, which is expected to continue. In developed markets, Motorcycle, ATV, ROVs, outboard motors, in all those categories, the recent recovery is faster than expected, but still yet to reach the level of previous year during the first half. And we forecast a recovery in ASEAN and Indian markets will need a little more time.

Please turn to Page 17. Let me introduce our recent activities for long-term measures, ART for Human Possibilities. In the new fields, we are shifting the focus from exploration into the commercialization. We have narrowed down focus areas to mobility service, low-speed autonomous driving vehicles, labor-saving in horticulture and labor-saving in medical services, which is not written here. We have decided to focus only on those 4 areas to move forward to commercialization. Also, we will continue to grow the core business themes. Especially in the Robotics business, now that we have fully consolidated Yamaha Motors Robotics Holdings, we are able to integrate the business management to speed up the synergy generation, so that we can turn profitable as planned, even under such difficult environment. Within the post-corona environment, we are feeling those changes in people's values and the lifestyles will be in line with the direction of our ART for Human Possibilities. We will be narrowing down the overall spending and investments, but we'll make sure to ensure resources for the remaining themes.

Please turn to Page 18. Let me now go over the upcoming actions. Due to the impact of lockdowns in various regions, we were exposed to severe business environment. But we started to see a demand recovery and resumption of productions by lifting lockdowns in some regions. As to our business management, we'll ensure safety as we accelerate normalizing our factories and supply chain, while we continue to implement [ 0 ] expense reduction to prepare for the potential risks. Regarding securing funds, we'll optimize inventory by production adjustment and reduced investments. And we have completed securing necessary funds by flexible borrowings, assuming the impact could be as severe as the Lehman shock financial crisis. As to the growth strategy expenses and investments, as I mentioned earlier, we have narrowed down the target themes and decided to postpone or freeze some investments. While we try to narrow down the over spendings by selection and concentration, we'll continue to make minimal investments for the future.

Lastly, on shareholder returns, we have canceled the interim dividend in order to secure liquidity at hand because this difficult situation is expected to continue in the first half, and we've decided to pay only the year-end dividend for the year. Regarding the annual dividend amount, in line with our dividend payout policy of 30%, we will be announcing immediately as soon as our forecast becomes more visible.

This concludes my presentation. Thank you for your attention.