Yamaha Motor Co Ltd

TSE:7272

Earnings Call Transcript 2023-Q1

[Shitara Motofumi, Director and Senior Executive Officer]

I am Shitara from Yamaha Motor Company Limited. Thank you very much for taking time out of your busy schedule today to participate in the Yamaha Motor Company Limited Earning Presentation for the First Quarter of Fiscal Year Ending December 31, 2023. I would like to take this opportunity to thank you for your continued interest, understanding and support of our business.

I will now give an overview of the financial results. Please refer to page four. First of all, I would like to explain the key points of our first quarter results. Our first quarter results achieved record high net sales, operating income and operating income ratio. Both sales and profits increased significantly in the core motorcycle and the marine product business supported by strong demand and increased production and shipments.

On the other hand, the robotics business posted lower sales and profits, due to continued sluggish semiconductor market and weak domestic demand in China, since the second-half of last year. On the outlook for the current fiscal year, we expect the continued uncertainty in the U.S. and European countries and while economic recovery is expected to continue in many emerging markets.

Regarding market trends, while demand for outdoor, leisure activities expected to decline, strong demand for motorcycles in emerging markets and for large outboard motors is expected to continue. In the SPV business, the e-Bike market is expected to grow moderately and the robotics market is expected to recover from the second-half of this year. We continue believe that both of these markets will grow in the medium to long-term.

Based on this recognition of the environment, the entire group will work together to deliver as many products as possible to customers as quickly as possible, while keeping in mind the breakeven point and cost efficiency.

Please go to page five. The table on the left shows a comparison of our shipments by major products with the actual results for 2022. Except for Vietnam, where the economy is in recession, shipments of motorcycle increased due to strong demand in all markets. On the other hand, premium scooters continued to be in short supply. Unit shipments of outboard and motors also increased, due to solid demand for large models.

ATV/ROV unit shipments increased as production issues at the U.S. production site is resolved. In SPV, the production volume increased, due to the improvement of supply chain disruptions and e-Kit shipments increased as well. Motor sales volume to Asia decreased significantly. The graph on the right shows inventories of March with appropriate levels of inventory, except for Vietnam inventories are still insufficient.

Please see page six. I will now explain the overall business results. From left to right, the chart shows the results for the first quarter of 2022, the first quarter of ‘23, the year-on-year changes and 2023 full-year forecast. In the first quarter, net sales was 126% of last year at JPY606.5 billion, operating income 182% of previous year at JPY72.8 billion, operating income increased 3.7 percentage points to 12%, ordinary income was 157% of previous year at JPY71.7 billion and net income attributable to owners of the parent was 137% versus ‘22 at JPY44.8 billion, EPS reached 146% versus previous year at JPY132.5, increased sales in motorcycle and marine products led to higher sales and profits.

We achieved a record high operating income ratio by increasing scale and by improving cost efficiency. The actual exchange rates are JPY132 to the U.S. dollar and JPY142 to the euro and the exchange rates of emerging currencies against the U.S. dollar are shown at the bottom.

Please go to page seven. Please find operating income factors for the first quarter FY 2023. As you can see, the sales increase contributed JPY27.6 billion out of which sales increase is JPY14.3 billion positive price raises JPY23 billion positive, unrealized profits plus JPY9.4 billion, financial services minus and down JPY1.4 billion and product mix and others was down JPY17.7 billion.

Cost reduction was minus JPY3.6 billion of which cost reduction plus JPY5.2 billion, cost to increase minus JPY8.9 billion and an increase in growth strategy expenses minus JPY1.7 billion, higher SG&A expenses had a negative impact of JPY7.5 billion and the FX impact was positive JPY17.9 billion. The scale expansion and effective price hikes implemented in stages since last year contributed positively. In addition, the appropriate control of SG&A expenses resulted in a significant increase in profits.

Please refer to page eight. I will now explain the progress of medium and long-term measures. There has been three developments in our efforts to become calm on neutral as you can see. Firstly, by applying that theoretical value production improvement method used at the production sites was applied to the Hamakita plant to save energy and achieved a model line with 32% of energy reduction without spending any additional cost to full improvement. This activity was recognized and Hamakita plant receive the energy conservation Grand Prix in 2022. We will expand this initiative to other plans to achieve further energy conservation.

We will also began using green aluminum and recycled polypropylene materials in motorcycles. Furthermore, in order to accelerate the carbon offsetting efforts toward the carbon neutrality by 2050, we invested in CO2 removal biotechnology startup in the United States.

Next, I would like to discuss business restructuring. Discussion is underway to conclude our business transfer agreement for the business subject to the structural reform as defined in the portfolio strategy of our medium term management plan.

Let me now give you the details by business segments. Please see page 10. Net sales and operating income by business segments are shown on this page. Land mobility segment of motorcycles RVs, SPVs, marine products and other products segments had higher revenues and profits. In the financial services segment reported higher revenues yet lower income, while the robotics reported lower revenue and operating income. I will provide more details by business segments on the following pages.

Please see page 11. First, the core business. On the left is the motorcycle business. The graph shows sales by region. Supporting by robust demand in developed markets and recovery in emerging economies, sales increased in all regions, resulting in higher operating income. In particular, sales increased significantly in North America, Europe, Indonesia, Brazil, Thailand and the Philippines. On the profit, the operating income ratio improved by increasing scale and controlling SG&A expenses.

Next on the right is marine product business. The bar shows sales by each product category. In outboard motors, demand for small and mid-size models has been slowing down, but demand for large models remained strong. Demand also increased for water vehicles and we were able to increase the supply as the production issues at the U.S. plant were resolved improving net sales, as well as operating income ratio.

Most recently, we launched our most powerful 450 horsepower outboard motor model. The response from the market at boat shows has been favorable and we will continue to further expand our lineups of large outboard motors to strengthen the competitiveness of our business.

Please go to page 13. On the left, please find RV business. In the U.S., our major market ROV sales volume increased achieving higher sales. In addition, production efficiency improved as a result of resolving production issues at our U.S. plants and we achieved higher profit margin of over 10%. However, demand has softened, faster-than-expected and the competitors have begun their sales promotion. Going forward, we will closely monitor the market and competition and implement appropriate sales promotions and inventory control.

Next on the right is the financial services business. Revenues increased due to higher finance receivables in all regions along with higher sales volume. On the profit, the sharp rise in interest rates since last year had a negative impact on financing costs. In addition, the increase in receivables led to grew later allowance for doubtful accounts resulting in a decrease in profit.

Please refer to page 14, next the growth business. On the left is the SPV business. For 2023, the supply chain disruption is coming to an end. Production volume is increasing and the supply of e-Kit has improved significantly as a result both sales and profits increased. However, the market now faces low and the inventory level is getting higher. So we are planning to have production adjustment.

Next on the right is the robotics business. Both sales and profits declined due to sales drop caused by the slow recovery in China and Taiwan. We expect the recovery from the third quarter toward the end of the year and the sales expected to recover by introducing new models and by capturing automotive demand.

This concludes our presentation for the first quarter of the fiscal year ending December 31, 2023. Thank you very much for attention.