Yamaha Motor Co Ltd

TSE:7272

Earnings Call Transcript 2019-Q3

[Tatsumi Okawa, executive]

This is Okawa. I would like to take you through the business results for the first 9 months of fiscal year ended in December 31, 2019, starting with the general overview.

Please turn to Page 4, which shows the overall business results. From the left, the table shows the 2018 Q3 results, 2019 Q3 results and year-on-year changes. For the third quarter of fiscal year 2019, net sales were JPY 1.2672 trillion, unchanged from the previous year; operating income, 87% of the previous year at JPY 100 billion; operating income ratio down 1.3 points year-on-year at 7.9%; ordinary income, 90% of the previous year at JPY 102.4 billion; and net income attributable to owners of the parent was JPY 75.6 billion, 92% of the previous year.

Net sales remained flat, while operating income was down year-on-year. Excluding foreign exchange rates and growth strategy expenses, however, the results were almost on the same level as last year. The actual exchange rates were JPY 109 for the U.S. dollar, JPY 123 for the euro. And for emerging countries, $1 was IDR 13,889 and BRL 3.8. Although there were differences depending on the business and the region, we believe we can aim to achieve the annual operating income guidance of JPY 125 billion disclosed at the time of the interim results briefing. I will explain the details on the next slide.

Please turn to Page 5. These are factors impacting operating income for the first 3 months of fiscal year 2019 such as changes in respective businesses, growth strategy expenses and exchange rate impacts. In comparison with operating income of JPY 115.5 billion for the first 3 months of fiscal year 2018, first of all, the Land Mobility business was up JPY 7.3 billion. The breakdown was: developed market motorcycle was up JPY 7.8 billion year-on-year mainly due to an increase in plant utilization and European models. Emerging market motorcycles was down JPY 5 billion due to the downturn in Vietnam and Taiwan. RV was up JPY 3 billion due to increased sales in North America, especially of ATV. SPV was up JPY 1.5 billion due to increased sales of E-kit for exports to Europe as well as completed units for Japan.

The marine business was up JPY 4.6 billion due to increased sales of outboard motors, motor vehicles and boats. The robotics business was down JPY 6.4 billion, reflecting a global decline in demand arising from the U.S.-China trade friction; and a JPY 1.3 billion impact of the consolidation from this quarter of profits and losses of Yamaha Motor Robotics Holdings, which was established in July this year. The financial services business was down JPY 3.9 billion due to a one-off positive factor we had in Brazil in the last fiscal year. The other business was down JPY 800 million.

In addition to these factors, we had JPY 5.1 billion as the impact of ongoing execution of the growth strategy and JPY 11.2 billion as negative impact of foreign exchange rates. As a result, operating income for the third quarter 2019 was JPY 100 billion. Excluding the impact of foreign exchange and special factors of the financial service businesses, the company was able to absorb both the negative impact of the robotics business as well as growth strategy expenses.

Page 6 shows the factors impacting operating income for the 3 months from July to September of fiscal year 2019. As you can see, trends are similar to what was explained for the first 9 months. Excluding the impact of the foreign exchange, operating income was up year-on-year driven by the improvement of the developed country businesses such as motorcycle, RV and the marine, absorbing the impact of growth strategy expenses.

Please turn to Page 7, which shows a summary of recent activities designed to realize our long-term strategy, ART for Human Possibilities. In the area of autonomous driving, in Okinawa, we have commenced the service of SC-1, the entertainment vehicle jointly developed with Sony. In the area of EV, electric vehicles, we have exhibited 125cc and a 50cc equivalent electric motorcycles at the Tokyo Motor Show.

In the area of Leaning Multi-Wheel, LMW, we have announced YAMAHA MW-VISION, which is our unique mechanism for LMW new concept model. In the area of agriculture, we have announced the Land Link Concept. We will continue to launch new initiatives which bring about solutions to social issues while ensuring sustainable growth.

Next, I will explain details of each business. Please turn to Page 9, net sales and operating income by business. In the Land Mobility business, net sales were JPY 832 billion, almost unchanged from the previous year. Although sales declined in the motorcycle business, it was offset by the increase in the RV and SPV businesses. Operating income was down year-on-year to JPY 35.8 billion. Although the income improved in the developed market motorcycle, RV and SPV businesses, it declined in part of the emerging market motorcycle business.

In the marine business, net sales were up year-on-year to JPY 274.2 billion, and the operating income was up year-on-year to JPY 52 billion mainly driven by strong sales of large outboard motors in North America and Europe. In the robotics business, sales were down to JPY 53.3 billion due to the market conditions, and the operating income was also down year-on-year to JPY 6.4 billion due to the market conditions as well as the consolidation of a new company. Both sales and profits were down year-on-year.

In the financial services business, sales were JPY 30.8 billion, and operating income, JPY 6.2 billion due to a one-off factor. Sales increased but profits declined year-on-year. In the other business, sales increased year-on-year to JPY 76.9 billion mainly due to increased sales of golf carts, and an operating loss of JPY 400 million was incurred due to the onetime generator-related expenses as well as additional tariffs in the U.S. and China.

In the following pages, I'll explain the details of major segments. Please turn to Page 10, developed market motorcycle business. The chart on the left shows net sales by region. Although sales decreased in Japan and North America, sales increased in Europe driven by an increase in total demand compared to the previous year. Overall, net sales decreased from JPY 180.2 billion in FY 2018 to JPY 176.7 billion in FY 2019. Excluding the impact of foreign exchange, however, net sales would have been increased year-on-year. Operating income ratio improved to minus 4.2% year-on-year due to an increase in sales as well as in an improvement in plant utilization both in Japan and Europe. The amount of deficit was reduced.

The chart on the right shows a breakdown of profit improvement in developed market motorcycle business for the first 9 months. For the July to September quarter, production of models that comply with the new regulations increased, and the plant utilization at the headquarters increased, resulting in a major improvement in profitability. We will continue to maximize production and distribution of new regulation-compliant models through the fourth quarter.

Please turn to Page 11, emerging market motorcycle business. The chart on the left shows net sales and operating income ratio. Net sales of the emerging market motorcycle business decreased from JPY 575.6 billion in FY 2018 to JPY 565.1 billion in FY 2019.

Regarding net sales, the chart on the right shows variance of each major country. In Indonesia, as you can see, as total demand declined, the company grew sales driven by consistently strong sales of high-end products. The Philippines and the Brazil also increased sales. While on a year-on-year basis, Argentina, Vietnam and Taiwan decreased sales rather substantially. As a result, net sales for the first 9 months of FY '19 were down year-on-year to JPY 565.1 billion.

Operating income was affected by a decline in sales in Vietnam and Taiwan, which are countries with high profit margins as well as negative profits in Argentina. As a result, operating income ratio declined from 8.9% to 6.9%.

In Vietnam, under the new organization structure, we have been working on sales promotions and sales channel relations and gradually generating tangible outcome. India has recently experienced a decline in total demand, making future outlook unclear. We will monitor the situation closely while introducing new regulation-compliant models one by one.

Please turn to Page 12, RV and SPV businesses in the Land Mobility segment. The RV business, shown on the left, continues to perform well mainly with ATVs in North America. Net sales increased from JPY 55.6 billion in FY '18 to JPY 58.3 billion in FY '19. Operating income ratio also improved from negative 6.4% and to negative 1.9%, reducing the amount of deficit.

In the SPV business, on the right-hand side, sales increased from JPY 26.3 billion in FY '18 to JPY 31.9 billion in FY '19 due to increased sales of E-kit for exports in Europe as well as completed units for Japan. Operating income ratio also improved from 14.8% to 16.4%.

Please turn to Page 13, marine business. The chart on the left shows the sales of each product in the marine business. Net sales increased from JPY 263.5 billion in FY '18 to JPY 274.2 billion in FY 2019 due to increased sales of large outboard motors in North America and Europe and increased sales of water vehicles in North America and other countries. The operating income ratio was down year-on-year to 18.9%, though it's still at a high level, mainly due to the impact of foreign exchange rates.

The chart on the right shows the sales volume of outboard motors by size in North America and Europe. There are some changes in trend. While the demand for the medium-size or smaller, of less than 150 horsepower, is relatively weak, large outboard motors of more than 200 horsepower continue to perform well. The large-sized products, thanks to measures taken to increase production last year, we are able to make the brisk demand and meet the demand without causing shortage.

Please turn to Page 14. I will explain about the robotics business. Machinery capital expenditure has dropped sharply in each region, and our sales volume of surface mounters and industry robots decreased. As a result, overall sales in this business decreased from JPY 55.8 billion in FY '18 to JPY 53.3 billion in FY '19, and operating income ratio also decreased from 23.7% to 11.9%. The numbers include sales and operating income of Yamaha Motor Robotics Holdings.

On the right-hand side, sales results of surface mounters in each area are shown. As the market maintains a wait-and-see stance, our sales for subcontractors and devices have declined. However, there are signs of recovery in terms of 5G-related base stations and mobile devices as well as automotive case-related investments.

Regarding sales by region, although not shown here, sales continued to grow in Asian region, where manufacturing shift away from China is progressing.

We will proceed with the restructuring of Yamaha Motor Robotics Holdings as planned. And to prepare for market recovery, we will quickly build a business model that can provide total solutions to the market.

Please turn to Page 15. Finally, I will explain the financial services business. The chart on the left shows receivables balance and the breakdown by region, and the chart on the right shows sales and operating income ratio. As the chart on the left shows, the balance of receivables has been steadily expanding mainly in North America, increasing from JPY 269.1 billion at the end of September 2018 to JPY 284.5 billion at the end of September 2019.

Sales, shown on the right, increased from JPY 29.4 billion in FY '18 to JPY 30.8 billion in FY '19. In terms of profits, operating income ratio decreased from 35.2% to 20.1% due to the temporary factor in Brazil last year and the negative impact from changes in the U.S. accounting standards this fiscal year. Excluding these factors, however, the underlying profit margin has been solid at above 26%. Also, please be aware that we are ready, and we will launch our financial services business in Europe on a full-fledged basis starting next year.

In summary, excluding foreign exchange and one-time factors in financial services, we were able to offset the negative impact of the robotics and part of the developing country motorcycle businesses with the improvement of developed country motorcycle and the marine businesses. Increasing growth strategy expenses were also absorbed. As I mentioned at the beginning, we will do our best to achieve the guidance of JPY 125 billion.

That's all I have for today. Thank you very much for your kind attention.

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