Yamaha Motor Co Ltd

TSE:7272

Earnings Call Transcript 2019-Q2

[Yoshihiro Hidaka, executive]

This is Hidaka. Thank you for gathering together to attend our meeting today. I will now begin my presentation of the financial results for the first half of fiscal year 2019. First is an overview of performance.

From the left, the table shows results for the first half of 2018, results for the first half of 2019 and year-on-year changes.

For the first half of 2019, net sales were 101% versus previous year at JPY 855.9 billion. Operating income was an 84% versus previous year at JPY 69 billion. Operating income margin was down 1.6 points year-on-year to 8.1%. Ordinary income was 89% versus previous year at JPY 70.2 billion. Net income attributable to owners of parent amounted to JPY 52.2 billion, 92% of the previous year.

Net sales were almost unchanged from the previous year, and operating income was down year-on-year.

For the first half of this year, our expectation was to see some inventory adjustments in the developed countries in India in preparation for new regulations that was already incorporated in our plan. The results were mostly in line with this expectation.

The assumption exchange rates were JPY 110 to the dollar, JPY 124 to the euro. For emerging countries, USD 1 was IDR 14,126 and BRL 3.8.

Please move to Page 5. I will explain the factors affecting operating incomes in the first half of 2019. I will explain changes in each business, growth strategy expenses and exchange rate effects.

From JPY 82.2 billion for the first half of 2018, operating income declined to JPY 69 billion for the first half of 2019. In the Land Mobility business, developed markets motorcycle grew JPY 1.8 billion year-on-year, driven by cost reduction.

Emerging markets motorcycles declined JPY 4 billion year-on-year due to lower profits in Vietnam and Taiwan, exceeding the increased profits from Indonesia and the Philippines.

Recreation vehicles increased by JPY 1.3 billion due to increased sales in North America. SPV increased JPY 800 million on the back of increased sales of domestic finished products and E-kit export to Europe. All in all, Land Mobility, as a whole, is down JPY 100 million year-on-year.

The Marine business increased JPY 3.3 billion due to increased sales of outboard motors, water vehicles and boats, respectively.

The Robotics business was down JPY 3.9 billion due to the impact of trade friction between the U.S. and China. The Financial Services business was down JPY 3.1 billion, due to the positive temporary factor in Brazil last year. Others were down JPY 1.6 billion. The increase in growth strategy expenses pushes down earnings by JPY 2.7 billion. Foreign exchange effects were negative JPY 5.2 billion. As a result, operating income for the first half of 2019 was JPY 69 billion.

Please turn to Page 6. Forecast for 2019 are revised as shown on this page. Taking into account the impact of the robotics market as well as the Yamaha Motor Robotics Holdings, which became a subsidiary from the second half and the downturn of Vietnam and Taiwan. Despite the impact of these downturns, thanks to the consolidation of the Yamaha Motor Robotics Holdings, revised net sales are JPY 1,670 billion, which is 100% of the previous year. Operating profit is 89% of the previous year at JPY 125 billion, with operating margin of 7.5%, down 0.9 points year-on-year.

Ordinary income is 91% of the previous year at JPY 125 billion. Net income attributable to owners of the parent is 86% of the previous year at JPY 80 billion. The assumptions for the exchange rate for the second half are JPY 105 to the dollar, JPY 120 to the euro, and for emerging currencies, IDR 14,200 to the dollar and BRL 3.8 to the dollar. And the annual exchange rate assumption is as shown on the table for your reference.

Please turn to Page 7. Regarding the revised earnings forecast, first, I will explain the factors affecting operating income for the second half of 2019. In the Land Mobility business, developed markets motorcycles is up JPY 13.1 billion year-on-year due to the increase in scale, as new regulation compatible models are launched in the second half, increasing plant utilization in the second half and improvement in profitability. Emerging markets motorcycle is down JPY 1.9 billion due to declining profits in Vietnam, despite increased profits in Indonesia and the Philippines. Recreation vehicles is up JPY 100 million. SPV is down JPY 500 million. All in all, the Land Mobility segment is up JPY 11.1 billion.

Marine business is down JPY 400 million. The Robotics business is down JPY 5.3 billion due to continued severe market conditions and the negative impact of Yamaha Motor Robotics Holdings consolidation of JPY 2.9 billion. The Financial Services business is up JPY 500 million. Others are up JPY 800 million. The increase in growth strategy expense pushes down earnings by JPY 2 billion. Exchange rate impact is negative JPY 7.4 billion. All in all, the operating income forecast for the second half of 2019 is expected to be JPY 56 billion.

The key points of the forecast for the second half is that it is in line with the last year, except for Yamaha Motors Robotics Holdings' impact of JPY 2.9 billion. The plan is to secure almost the same level as the previous year by absorbing foreign exchange effects and growth strategy costs. The key is to establish a new model for developed countries as planned and absorb the downswing of Vietnam with Indonesia and the Philippines.

The combined variance analysis for the first half actual and the second half forecast is shown on Page 8. Please check it at your leisure.

Please turn to Page 9. Next, I will explain the return to shareholders. With regards to dividends, our main objective is balance between growth investment and the shareholder returns within the range of cash flow, while maintaining earning power. Despite the downward revision, we will maintain the annual dividend forecast of JPY 90 per share and interim dividend will be JPY 45 per share.

Please turn to Page 10. This page explains the activities of ART for Human Possibilities, an initiative under our medium- to long-term growth strategy.

Since the beginning of 2019, we have implemented various measures. From the MaaS perspective, demonstration tests of low-speed autonomous driving vehicles based on land cars are conducted throughout the country. We have a total of 4 new trials in fiscal year 2019.

From the standpoint of autonomous driving, we decided to invest in AI computing company, DMP, and to make additional investment in Tier IV, an autonomous driving technology development company. We would like to continue to propose Yamaha-like solutions through such mobility trials.

From electrification perspective, the first model, EC05 was launched in August after an alliance with Gogoro Taiwan was made.

Regarding sharing, we established a strategic business alliance with Grab of Singapore. We will collect and utilize big data of motorcycles in Southeast Asia, especially Indonesia.

With regards to LMW, our unique, leaning, multi-wheel technology, we have conducted a demonstration test in Niigata Prefecture of TRITOWN, a front 2-wheeled vehicle announced at the previous Tokyo Motor Show.

With regards to Robotics, we will consolidate business with Shinkawa and Apic Yamada and to consolidate the business as the Yamaha Motor Robotics Holdings. Starting on the second half, in the field of agriculture, we have started running test drives for agricultural unmanned ground vehicles in Hamamatsu city, Shizuoka Prefecture. Going forward, we will continue to work on various measures aimed at growth, aiming at achieving both social solution and sustainable growth. That's all I have for today.

[Tatsumi Okawa, executive]

Next, I will give an outline of each business. Please turn to Page 12. I would like to explain sales and operating income by business for the first half.

In the Land Mobility business, although sales decreased in the motorcycle business, sales increased in ROV and SPV, pushing the segment sales up to JPY 555.3 billion, unchanged from the previous year. Operating income declined to JPY 21.1 billion due to the struggle of motorcycles in emerging countries, while the developed markets motorcycles were on par with the previous year and ROV, SPV improved year-on-year.

In the Marine business, sales increased for all of the products, outboard motors, water vehicles and boats. Net sales increased to JPY 197.7 billion, and operating income increased to JPY 39 billion, making positive growth on sales and profits.

In the Robotics business, net sales were JPY 32.3 billion, and operating income was JPY 5.2 billion, affected by trade disputes between the U.S. and China, marking negative growth on sales and profits.

In the Financial Services business, net sales were JPY 20.4 billion, and operating income JPY 3.8 billion due to a temporary increase in income last year, marking a year-on-year increase in sales and a decrease in profits.

In Other businesses, net sales were JPY 50.3 billion due to increased sales of golf cars, and operating income was negative JPY 40 million due to a one-off cost of generators and impact of additional tariffs in the U.S. and China.

The following pages will explain the detailed situation of major segments.

Please turn to Page 13. This is the developed markets motorcycle business. The graph on the left shows sales by region. Net sales declined from JPY 128.8 billion in 2018 to JPY 124.2 billion in 2019 due to lower sales in Japan and North America and impact of foreign exchange rates in Europe. Operating income remained almost unchanged from the previous year.

The graph on the right is annual income forecast for developed markets motorcycles, which is revised upward. In the second half of the year, all-new model and EU5 compatible model are to be launched in Europe. The increase in production should contribute to the increase in plant utilization in Japan and Europe substantially, resulting in a significant decrease in operating loss. We expect to make progress according to the explanation given at the previous earnings briefing in February this year.

Please turn to Page 14 for emerging markets motorcycle business. The graph on the left shows sales and operating margin in the first half. Sales of motorcycles in emerging markets increased from JPY 376.3 billion in 2018 to JPY 373.1 billion in 2019.

The graph on the right shows changes in sales of major countries and the variance analysis between the first half last year and the first half this year. While the demand in Indonesia decreased, thanks to an increase in the high value-added models, the Philippines and the Brazil also increased. But due to a decrease in Argentina, Vietnam and Taiwan, net sales for the first half of 2019 came to JPY 373.1 billion.

Operating margin fell from 8.4% to 6.3% due to the loss of sales in Vietnam and Taiwan, which have relatively high profit margins and operating losses of Argentina, which had a negative impact from inflation accounting. The details of the situation by country will be explained in the next slide.

Page 15, please. This table shows the year-on-year rate of change in total demand and unit sales by country in the emerging markets motorcycle business for the first half of the year and summarizes future outlook and the measures to be taken.

First, sales were strong in Indonesia, the Philippines and the Brazil. Each country has its own strength, such as high-end and sports. These are the products which have grown well. Although it is expected to be in line with the outlook for the full year, attention needs to be paid to the impact of exchange rates and so forth.

In Vietnam, total demand declined and so was our sales. The effect of introduction of new models was not realized. That was a major factor behind the weaker results. We are accelerating promotions and strengthening communication with dealers, but we believe that it will be difficult to see a recovery within this fiscal year. The effect is expected from next year.

In Taiwan, our sales decreased significantly, while the total demand remained at the same level as the previous year. Demand for engine vehicles decreased due to subsidy support for electric vehicles and the price actions taken by other companies. Those were the main factors. In addition to strengthening promotions, sales of electric vehicles developed in partnership with Gogoro will be promoted. With this already launched model, we should make recovery from the second half.

In Argentina, total demand decreased significantly on the first half basis, and net sales of our company was greatly affected by price hike led by inflation. However, this is due to comparison with the first half of last year. In fact, the performance was in line with the plan and the annual outlook is kept unchanged.

Lastly, in India, total demand is down, and our sales were down slightly, as you can see. Compared with the decline in total demand, however, our sales performed better. In particular, the scooters business struggled because we did not have models to respond to market trends. However, with sport models, our brands are strong, and our sales trends are stronger. Retail finance service is heavily restricted in India. But since we have our own financing business, we can increase sales through unique financing campaigns. So the annual outlook is kept unchanged.

Please turn to Page 16. Recreation vehicles and SPV in the Land Mobility segment. In the RV business, sales increased from JPY 34 billion in 2018 to JPY 36.9 billion in 2019 due to the increase in sales of ATV and ROV in North America, and operating margin also improved from minus 7.3% to minus 3.5%, reducing the amount of losses.

In the SPV business, sales increased from JPY 18.5 billion in 2018 to JPY 21.1 billion in 2019 due to an increase in sales of child-carrying models, and operating margin improved from 14.5% to 16%.

Please turn to Page 17, Marine business. The graph on the left shows sales for each marine product in the first half. Net sales increased from JPY 185.7 billion in 2018 to JPY 197.7 billion in 2019 due to increased sales of outboard motors, water vehicles and sports boats. Operating margin is also maintained at a high level at 19.7%. In particular, large outboard motors continued to perform well.

On the right is DRiVE, the steering system for sports boats, announced at Miami Boat Show in February this year and the large sports boats 275SD equipped with it. The paddle shift on the left and right of the steering wheel is operated to make it easy to take off and dock. Pursuing a safe and comfortable marine life as with steering systems of outboard motors, we will promote the system supplier strategy for the entire Marine business.

Please turn to Page 18. I will explain about Robotics business. Net sales increased from JPY 38.1 billion in 2018 to JPY 32.3 billion in 2019 due to a sharp decline in machinery and equipment investment in each region due to the impact of U.S.-China trade friction and a decline in the number of surface mounters and industrial robots sold. Sales declined and the operating margin fell from 24.5% to 16.2%.

The right side shows the sales results of each surface mounter area. U.S.-China trade friction trends and exchange rate movements have become more consistent. In particular, China has suffered from a decline in mobile-related demand, resulting in a decrease in device-related sales.

In Japan, Europe and the United States, device-related sales similarly decreased. On the other hand, sales increased in Asia due to the accelerating demand for manufacturing bases moving from China to Asia. In the future, we will continue to capture solid automotive demands, while paying close attention to Asian demand and Asian shift.

Yamaha Motor Robotics Holdings will be consolidated from the second half. The company announced its financial results and the business briefing yesterday. And we expect the impact as shown in the lower right. Although the overall Robotics business, including Yamaha Motors Robotics Holdings is not expected to improve in the short term due to recent market conditions, in the medium term, due to the increase in onboard equipment for autonomous driving and 5G compatible chips, there is no doubt that the demand will rise. So we will establish a business model that can provide total solutions and meet customers' needs, capitalizing on this subsidiary.

Please turn to Page 19. Finally, I will explain the Financial Services business. The graph on the left shows the balance of receivables and their breakdown by region, and the graph on the right shows sales and operating margin. Sales means interest income in finance.

As shown in the graph on the left, the balance of receivables is steadily increasing from JPY 264.8 billion at the end of June 2018 to JPY 292.8 billion this year. Sales on the right side increased from JPY 19.8 billion in 2018 to JPY 20.4 billion in 2019.

In terms of profits, the operating profit margin decreased from 35.4% to 18.4% in the previous fiscal year due to a temporary increase in profits in Brazil and the negative impact of changes in U.S. accounting standards this fiscal year. However, it is a highly profitable business that can maintain an actual performance level of 23%. We will like to continue to increase the receivables balance globally to promote sales and make a stable profit. The business is doing well, exceeding the initial expectations.

In summary, in motorcycles, the gap that was made by Vietnam was filled by strong business of Indonesia and the Philippines, and the gap will continue to be filled in the future. India is doing well in spite of a very low total demand. In the developed countries, the improvement is progressing as planned in motorcycle business. In the Marine business, we will continue to maintain good performance. In Robotics, we will try to pull off a V-shaped recovery of Yamaha Motors Robotics Holdings, while turning the business into a total solution.

This concludes our presentation. Thank you very much for your kind attention.

[Statements in English on this transcript were spoken by an interpreter present on the live call..]