Yamaha Motor Co Ltd

TSE:7272

Earnings Call Transcript 2018-Q2

[Yoshihiro Hidaka, executive]

Good afternoon, ladies and gentlemen. Thank you for taking time today, despite the poor weather, to attend our financial results meeting.

I'd like to start by explaining the outline. First, I will explain the business results. The table shows, from your left, actual results for the first half FY 2017, actual results for the first half 2018, change versus the previous year and 2018 full year forecast.

Actual results for the first half 2018 was JPY 851.3 billion in net sales, up 3% year-on-year; JPY 82.2 billion in operating income, unchanged year-on-year; 9.7% in operating margin, down 0.3 points year-on-year; JPY 79.3 billion in ordinary income, down 5% year-on-year; and JPY 57 billion in net income attributable to owners of parent, down 6% year-on-year. For ForEx assumptions: the yen rate, JPY 109 to the dollar; JPY 132 to the euro; Indonesian rupiah 13,758 to the dollar; and the Brazilian real, 3.4 to the dollar. Summing up, we had a positive growth in net sales and flat growth in operating income year-on-year. These results are generally in line with the expectations despite some gaps in individual businesses, and so we will keep the full year forecast unchanged. Now I will take you through the factors impacting operating income and net income on the next slide. The slide shows factors impacting operating income for the first half of fiscal year 2018. Compared with JPY 82.2 billion operating income for first half 2017, there were positive factors, namely, effect of sales increase, JPY 4.5 billion; profitability improvement, JPY 4.3 billion, while there are negative factors, namely, exchange effects, JPY 1.5 billion; raw material price fluctuations, JPY 2.2 billion; development cost increases including growth strategy expenses, JPY 2.7 billion; and increase in SG&A expenses, JPY 2.3 billion, totaling JPY 82.2 billion in operating income for the first half 2018, which is slightly up or mostly flat from the previous year. On the other hand, net income attributable to owners of parent declined from JPY 60.8 billion to JPY 57 billion for the first half 2018. We believe that the decline is attributable to a temporary factor of FX rates and therefore, as mentioned on the previous page, we kept the full year forecast unchanged. Next, allow me to discuss shareholder return. During the current medium-term period, our benchmark is 30% payout ratio of net income attributable to owners of parent.

For the full year, since we kept the forecast unchanged, we will distribute JPY 90 per share for the full year or JPY 45 per share for the interim period, representing an increase in dividends for 6 consecutive years.

This concludes my explanation of the outline. Next is details per business segment. I'll explain the breakdown by business for the first half 2018. The 3 bars on the left show net sales trends for the first half for the last 3 years, and the 3 bars on the right show operating income trends for the same time frame.

For the Motorcycle business, in developed markets, net sales down to JPY 131.7 billion, operating income down to negative JPY 3.9 billion, while in emerging markets, net sales up to JPY 383.7 billion and operating income up to JPY 35.2 billion. For the Marine business, net sales up to JPY 188.7 billion and operating income up to JPY 38.2 billion.

For the Power products business, net sales up to JPY 71.3 billion, operating income up to JPY 1.1 billion. For the other business, net sales up to JPY 75.9 billion and operating income up to JPY 11.7 billion.

Thus, except for the developed market Motorcycle business, which suffered a decline in both sales and profit, all businesses showed positive growth in sales and profits. From this point on, let me discuss each business one by one starting with ASEAN. I will discuss emerging market Motorcycle business first. The graph on the left shows net sales and operating margin for full ASEAN countries. Indonesia, Thailand and the Philippines saw an increase in sales volume while Vietnam experienced a decline in sales volume. All in all, thanks to the strong sales of the platform model and the export growth of the global model, total net sales increased from JPY 260.9 billion to JPY 280.3 billion year-on-year. Operating margin remained at a high level at 8.4%, almost flat from 8.5% last year.

The chart on the right shows first half sales status in the 4 countries. Over the past 4 years, we saw an increase in the share of the platform model and the global model, which are exported also to developed countries in the total sales in response to the trend of customers demanding high added-value models, contributing to a growth in sales and profit. We will continue to enhance the profitability through the platform model.

Allow me to introduce platform model, which enables constantly high profitability in ASEAN. There are 3 photos on the slide. The one on the left is scooter called Mio, which enjoys strong sales in Indonesia and high popularity in the Philippines. The photo on the right-hand side shows NMAX, which exceeds sales plus every year since the launch and boasts an unwavering position in the ASEAN premium scooter market. In the middle is a model we introduced this year, the LEXi. It is a product that fills a price category we had not been able to address previously, a step-through product in the premium segment. Since launch, it has been seeing strong sales.

Each of these products adopt our carbon engine platform, the Blue Core. By further building on these kinds of unique development and production methodologies, we aim to deliver fresh products to our customers.

Next, I explain about the developed market Motorcycle business. Left-hand side graph shows net sales and operating income ratios by region. With total demand declining mainly in Japan and North America, and this new product impact of TMAX and others run its course in Europe, net sales declined from JPY 143.7 billion last year to JPY 131.7 billion this year. Operating income ratio was minus 3%. Right-hand chart shows total demand for products 51cc and over in the 4 developed market regions and our market share. In the first half of 2018, the wearing out of new product impact that I mentioned earlier and the prolonged winter in Europe from which we could not fully recover in terms of shipments led to lower market share and that, in turn, was the main reason for declining sales and profit. Going forward, we will further promote structural reform and press on to building new business models. The photo you see here is the YZ65, the newest addition to the motocross series for the developed markets launched this year. It is, on one hand, lightweight and compact, making it easy for kids riders to handle, and on the other, it boasts high performance.

In the developed markets, there is an established culture of the whole family enjoying off-road motorcycling together. We have strengths in this bike segment, so we launched this model with the hope that it will create a natural evolution of kids enjoying riding bikes from a young age and stepping up to superior models that they aspire to.

It so happens that there are very few brands that have a full lineup of a models from kids' bikes to competition models for adults. We have just one missing link in achieving full lineup and that was the 65cc product. Off-road bikes have basic colors by company, and Yamaha's is blue. I heard one child comment that his younger brother's bike is blue, father and mother's bikes are also blue, and only mine is orange. I feel that this cannot stand, and we launched this model to fill the gap in our product lineup. That child has since been very happy. Next, I talk about the Marine business. Left-hand side shows net sales and operating income ratio by products in the first half. In terms of sales, mainly due to sales increases in water vehicles and sport boats, we saw an increase from JPY 179.7 billion last year to JPY 188.7 million this year. Operating income ratio was 20.2%, essentially unchanged since last year. This was due mainly to a slightly lower ratio of the outboard motor segment, which has a relatively higher margin. Right-hand side graph shows the number of outboard motors that we sold in the North American and European markets. We have tightness in terms of production capacity for the last outboard motors, and so the sales is flat, and we have seen a drop in unit sales for smaller products.

The main market for small motors of less than 100 horsepowers is Europe. Europe this year had a very long winter, with snow falling as late as April, so the start of the season was very late. And so we could not see a steady pickup of sales.

As for expanding our production capacity for the larger outboard motors, we have already started to take measures and production increase impact is expected to materialize from the second half.

Going forward, we will continue to introduce larger outboard motors and promote our system supplier strategy where we connect various systems to enhance the total value of our offerings. This is a manifestation of our system supplier strategy, our largest horsepower outboard motor, the F425. It will propel the boat faster and to more distant seas. It was launched this year as a motor to allow users to enjoy fishing and cruising with a peace of mind. An electric steering system providing nimble response was introduced for the first time that combined with the Helm Master, allowing control of the boat by joystick, and a 7-inch touchscreen color display, CL7, provides high level of convenience. Next, I talk about the Power products business. As you can see in the graph on the left, sales led by high gross of all-terrain vehicles and golf cars increased from JPY 67 billion last year to JPY 71.3 billion this year. Operating income ratio also increased from 1.4% to 1.6%. We launched the ROV platform model, the Wolverine X2, this year. You see the photo on the right-hand side. This is a 2-seater, following up on the 4-seater launched last year. Going forward, we will deploy platform-based models like these to improve our business. Next, I explain about the industrial machinery and robot products business. Due to the improvement in the product mix of surface mounters, sales grew substantially, and operating income ratio also grew to as high as 25%. This first half orders were strong. However, due to tight supply of some parts, there were situations where we could not produce enough to meet demand. However, due to an increase in the share of higher value-added products, we were able to achieve increased sales and profit overall.

The right-hand side photo is of the product that uses our surface mounter technology. It is a medical system called the CELL HANDLER. This year, at the SLAS Europe 2018, a global trade show attended by medical professionals, this won the New Product Award.

Going forward, please continue to expect new value-creating initiatives capitalizing on our robotics technology. Lastly, I want to explain about other products. As you see on the left, due to product mix deterioration of electrically power-assisted bicycle, sales declined from JPY 41.3 billion last year to JPY 40.6 billion this year. Operating income ratio also fell from 10.3% to 7.1%.

As for electrically power-assisted bicycles, we have launched 3 new models, including the YPJ-XC. By promoting the YPJ series, which are road bike-type products in Japan and the U.S., we intend to make a comeback.

That concludes our explanation. Thank you for your attention.