Honda Motor Co., Ltd. Reports Consolidated Financial Results For The Fiscal Second Quarter and The First Half Ended September 30, 2005
TOKYO, Oct. 27, 2005 -- Honda Motor Co., Ltd. today announced its consolidated financial results for the fiscal second quarter and the first half ended September 30, 2005.
Second Quarter Results
Honda's consolidated net income for the fiscal second quarter ended September 30, 2005 totaled JPY 133.7 billion (USD 1,181 million), an increase of 5.2% from the corresponding period in 2004. Basic net income per Common Share for the quarter amounted to JPY 144.89 (USD 1.28), compared to JPY 135.70 for the corresponding period in 2004. Two of Honda's American Depository Shares represent one Common Share.
Consolidated net sales and other operating revenue (herein referred to as "revenue") for the quarter amounted to JPY 2,337.6 billion (USD 20,653 million), an increase of 11.7% over the corresponding period in 2004. Revenue was positively affected by currency translations, which were translations of foreign-currency-denominated revenue from Honda's overseas subsidiaries into yen. Honda estimates that if the exchange rate of yen had remained unchanged from that in the corresponding period in 2004, revenue for the quarter would have increased by approximately 9.6%.
Consolidated operating income for the fiscal second quarter totaled JPY 162.6 billion (USD 1,437 million), a decrease of 5.9% compared to the corresponding period in 2004. This decrease in operating income was primarily due to the negative impacts of increased selling, general and administrative (SG&A) expenses and research and development (R&D) expenses, which offset the positive currency effects caused by the depreciation of the yen, increased profits from higher revenues and continuing cost reduction effects.
Consolidated income before income taxes for the quarter totaled JPY 169.3 billion (USD 1,497 million), an increase of 2.3% from the corresponding period in 2004.
Equity in income of affiliates, which is mainly attributable to Asian affiliates accounted for under the equity method, for the quarter amounted to JPY 26.0 billion (USD 230 million), a decrease of 7.9% from the corresponding period in 2004.
Business Segment
With respect to Honda's sales in the fiscal second quarter by business category, motorcycle unit sales totaled 2,489 thousand units, a decrease of 7.8% from the corresponding period in 2004. Motorcycle unit sales in Japan decreased 5.5% to 104 thousand units, and overseas unit sales were 2,385 thousand units, which was a decrease of 8.0% from the corresponding period in 2004, mainly caused by a decrease in unit sales of parts for local production at affiliates in India*, which offset an increase in unit sales of parts for local production at the Indonesian affiliate. Despite a drop in unit sales, revenue from sales to unaffiliated customers increased 12.4%, to JPY 287.7 billion (USD 2,542 million), due mainly to positive currency translation effects. Operating income increased by 48.1 % to JPY 29.6 billion (USD 262 million), due mainly to increased profits from higher revenues, an increase in royalty income and the positive currency effects caused by the depreciation of the yen, offsetting the negative impacts of the change in model mix in North America and Europe, and an increase in sales incentive in North America.
Honda's unit sales of automobiles increased by 5.0% from the corresponding period in 2004 to 834 thousand units. In Japan, unit sales of automobiles decreased 3.7% to 183 thousand units. Overseas unit sales increased 7.8% to 651 thousand units, due mainly to continued strong sales in the U.S. as a result of a lineup of attractive models, such as the Odyssey, the Civic and the Ridgeline. Revenue from sales to unaffiliated customers increased 11.7%, to JPY 1,892.6 billion (USD 16,721 million) during the quarter, due to the positive currency translation impact and an increase in unit sales. Operating income decreased 15.9% to JPY 101.0 billion (USD 893 million), due mainly to the negative impacts of the increased SG&A, including the expenses for model change and expansion of the production capacity, change in model mix and an increase in sales incentives in North America and Europe, which offset the positive impacts of the increased profits from higher revenues and depreciation of the yen.
Revenue from sales to unaffiliated customers in financial services increased 15.7% to JPY 75.0 billion (USD 663 million), due to the growth of the automobile business in North America. Operating income decreased 3.1% to JPY 24.7 billion (USD 219 million), due primarily to increased funding costs.
Unit sales of power products in Japan totaled 118 thousand units, an increase of 15.7%. Overseas unit sales were 1,023 thousand units, increased by 4.1% and total unit sales of power products were 1,141 thousand units, up by 5.2 % from the corresponding period in 2004. Increased unit sales of general-purpose engines in Europe, Asia and Middle and Near East regions were the major contributing factors to this increase. Revenue from sales to unaffiliated customers in power product and other businesses increased by 4.3% to JPY 82.2 billion (USD 727 million), due mainly to the increase in unit sales of power products. Operating income was JPY 7.2 billion (USD 64 million), which was almost the same level as the corresponding period in 2004, due mainly to the negative impact of the increase in SG&A expenses, which offset increased profits from higher revenues in power product business.
Geographical Segment
With respect to Honda's sales for the second quarter by geographical segment, in Japan, revenue for exports and domestic sales was JPY 1,078.6 billion (USD 9,530 million), up by 5.7% compared to the corresponding period in 2004, due primarily to increased unit sales for exports sales in the automobile business. Operating income in Japan was JPY 62.9 billion (USD 556 million), up by 17.0%, due primarily to the positive impacts of increased royalty income, increased profits from higher revenues in the automobile exports business, ongoing cost reduction efforts and positive currency impact from the depreciation of the yen, which offset the negative impacts of the increases in SG&A and R&D expenses.
In North America, revenue increased by 15.0% from the corresponding period in 2004 to JPY 1,263.4 billion (USD 11,163 million), due mainly to the positive currency translation effects and increased unit sales in the automobile business. Operating income in North America decreased by 19.5% to JPY 68.5 billion (USD 605 million) from the corresponding period in 2004, due primarily to the negative impacts of the increase in SG&A, funding costs in the financial services business, sales incentives and prices for raw materials, which offset the positive impacts of the increased profits from higher revenues in the automobile business and the currency effects caused by the appreciation of the U.S. dollar.
In Europe, revenue for the quarter increased by 11.2% to JPY 266.9 billion (USD 2,358 million) compared to the corresponding period of the previous year, due primarily to the increase in unit sales of the motorcycle and automobile businesses. Operating income in Europe decreased by 91.0% to JPY 0.8 billion (USD 7 million), due mainly to the changes in the model mix, increased SG&A expenses, which include expenses for model change and the increase in sales incentives, offsetting the positive impact of the increase in profits from higher revenues in the automobile business.
In Asia, revenue increased by 8.8% to JPY 231.2 billion (USD 2,043 million) from the corresponding period of the previous year, due mainly to an increase in unit sales in the motorcycle and automobile businesses caused by the change in model mix, and an increase in unit sales in the power product business. Operating income decreased by 10.0% to JPY 15.8 billion (USD 140 million) from the corresponding period of the previous year, due mainly to an increase in SG&A expenses, including expenses for the expansion of the production capacity, rising prices for raw materials and the negative currency effects, offsetting the positive impact of the increased profits from higher revenues and change in the sales prices.
In Asia, in addition to subsidiaries, many affiliates accounted for under the equity method manufacture and sell Honda-brand products. Operating income does not include income from these affiliates. Income from these affiliates is recorded as equity in income of affiliates and reflected in net income.
In Other regions, revenue for the second quarter increased by 25.9% to JPY 146.7 billion (USD 1,297 million) compared to the corresponding period of the previous year. The positive currency translation effects and the increased unit sales in all business segments, namely motorcycle, automobile and power product businesses were the major contributing factors to the increase in revenues. Operating income increased by 43.2% from the corresponding period of the previous year to JPY 15.1 billion (USD 134 million), due mainly to the positive impact of the depreciation of the yen, increased profits from higher revenues and change in the sales prices, offsetting the negative impacts of the increase in SG&A expenses and prices for raw materials.
First Half-Year Results
Honda's consolidated net income for the fiscal first half ended September 30, 2005 totaled JPY 244.3 billion (USD 2,159 million), an increase of 1.2% from the corresponding period in 2004. Income taxes in the fiscal first half in 2004 included JPY 11.7 billion payments for a transfer pricing assessment, relating to the motorcycle business in Brazil. Basic net income per Common Share for the fiscal first half amounted to JPY 264.64 (USD 2.34), compared to JPY 257.35 for the corresponding period in 2004. Two of Honda's American Depositary Shares represent one Common Share.
Consolidated net sales and other operating revenue (herein referred to as "revenue") for the period amounted to JPY 4,602.2 billion (USD 40,660 million), an increase of 10.5% over the corresponding period in 2004. Revenue was positively affected by currency translations, which were translations of foreign-currency-denominated revenue from Honda's overseas subsidiaries into yen. Honda estimates that if the exchange rate of yen had remained unchanged from that in the corresponding period in 2004, revenue for the fiscal first half would have increased by approximately 9.6%.
Consolidated operating income for the fiscal first half totaled JPY 333.0 billion (USD 2,943 million), which was almost the same level as the corresponding period in 2004. This was primarily due to currency effects from the depreciation of the yen, increased profits from higher revenues and continuing cost reduction efforts, which offset the negative impact of increased SG&A and R&D expenses.
Consolidated income before income taxes for the fiscal first half totaled JPY 313.7 billion (USD 2,771 million), a decrease of 7.6% from the corresponding period in 2004.
Equity in income of affiliates, which is mainly attributable to Asian affiliates accounted for under the equity method for the fiscal first half amounted to JPY 47.2 billion (USD 417 million), which was almost the same level of the corresponding period in 2004.
Business Segment
With respect to Honda's sales in the fiscal first half year by business category, motorcycle unit sales totaled 5,070 thousand units, which decreased by 4.0% from the corresponding period in 2004. Motorcycle unit sales in Japan decreased 3.9% to 199 thousand units, and overseas unit sales were 4,871 thousand units, which was a decrease of 4.0% from the corresponding period in 2004, mainly caused by a decrease in unit sales of parts for local production at affiliates in India*, which offset an increase in unit sales of parts for local production at Indonesian affiliate. Revenue from sales to unaffiliated customers increased 3.9%, to JPY 550.9 billion (USD 4,867 million), due mainly to the positive currency translation impacts, offsetting the decrease in unit sales. Operating income increased by 7.4% to JPY 39.9 billion (USD 353 million), due mainly to the positive impacts of the depreciation of the yen, increased profits from the higher revenues and ongoing cost reduction efforts, offsetting the negative impact of the increase in R&D expenses.
Honda's unit sales of automobiles increased by 6.9% from the corresponding period in 2004 to 1,674 thousand units. In Japan, unit sales of automobiles increased 1.7% to 350 thousand units. Overseas unit sales increased 8.3% to 1,324 thousand units, due mainly to increased sales in North America. Revenue from sales to unaffiliated customers increased 11.6%, to JPY 3,738.6 billion (USD 33,030 million) during the period, due to the positive currency translation effects and increased unit sales. Operating income was JPY 234.2 billion (USD 2,069 million), which was almost the same level as the corresponding period in 2004, due mainly to the negative impacts in increase in SG&A and R&D expenses, which offset the positive currency effects caused by the depreciation of the yen, increased profits from higher revenues and ongoing cost reduction efforts.
Revenue from sales to unaffiliated customers in financial services increased 16.5% to JPY 143.7 billion (USD 1,270 million), due to the growth of the automobile business in North America. Operating income decreased 6.7% to JPY 44.6 billion (USD 394 million), due primarily to increased funding costs.
Unit sales of power products in Japan totaled 239 thousand units, an increase of 8.6%. Overseas unit sales were 2,384 thousand units, an increase of 5.9%, due primarily to increased unit sales in Asia, and total unit sales of power products were 2,623 thousand units, up by 6.1 % from the corresponding period in 2004. Revenue from sales to unaffiliated customers in power product and other businesses increased by 2.9% to JPY 168.9 billion (USD 1,492 million), due mainly to increased unit sales of power products. Operating income increased 18.0% to JPY 14.3 billion (USD 127 million), due mainly to increased profits from higher revenues, offsetting the negative impact of the increase in SG&A expenses.
Geographical Segment
With respect to Honda's sales for the first half by geographical segment, in Japan, revenue for exports and domestic sales was JPY 2,139.1 billion (USD 18,898 million), up by 8.1% compared to the corresponding period in 2004, due primarily to increased unit sales for both domestic and exports sales in the automobile business. Operating income in Japan was JPY 110.1 billion (USD 974 million), up by 27.0%, due primarily to the positive currency effects caused by the depreciation of the yen, increased profits from higher revenues and ongoing cost reductions, which offset the negative impact of the increase in SG&A and R&D expenses.
In North America, revenue increased by 12.5% from the corresponding period of the previous year to JPY 2,512.0 billion (USD 22,193 million), due mainly to the increased unit sales in automobile and power product businesses. Operating income in North America decreased by 14.8% to JPY 141.2 billion (USD 1,248 million) from the corresponding period of the previous year, due primarily to the negative impact of the increase in SG&A, which offset the positive currency effects caused by the depreciation of the JPY and impact of increased profits from higher revenues.
In Europe, revenue for the period increased by 9.7% to JPY 564.2 billion (USD 4,985 million) compared to the corresponding period of the previous year, due primarily to the increased unit sales in all business segments, namely motorcycle, automobile and power product businesses. Operating income in Europe decreased by 43.5% to JPY 13.5 billion (USD 120 million), due mainly to increased SG&A expenses, offsetting the positive impacts of the increased profits from higher revenues and ongoing cost reduction efforts.
In Asia, revenue increased by 11.3% to JPY 462.8 billion (USD 4,089 million) from the corresponding period of the previous year, due mainly to the increases in unit sales in the automobile and power product businesses. Operating income decreased by 6.5% to JPY 34.9 billion (USD 309 million) from the corresponding period of the previous year, due mainly to the negative impacts of an increase in SG&A expenses, offsetting the positive impacts of the depreciation of the yen and increased profits from higher revenues. In Asia, in addition to subsidiaries, many affiliates accounted for under the equity method manufacture and sell Honda-brand products. Operating income does not include income from these affiliates. Income from these affiliates is recorded as equity in income of affiliates and reflected in net income.
In Other regions, revenue for the first half increased by 20.4% to JPY 263.7 billion (USD 2,330 million) compared to the corresponding period of the previous year. The increase in unit sales in the motorcycle, automobile and power product business were the major contributing factors to the increase in revenue. Operating income increased by 49.3% from the corresponding period of the previous year to JPY 28.7 billion (USD 254 million), due mainly to the positive currency effects caused by the depreciation of the yen and increased profits from higher revenues, offsetting the negative impact of the increase in SG&A expenses.
Forecasts for the Fiscal Year Ending March 31, 2006
In regard to the forecasts of the financial results for the fiscal year ending March 31, 2006, Honda projects consolidated and unconsolidated results to be as shown below:
As stipulated in the Japanese Welfare Pension Insurance Law, the "Honda Employees' Pension Fund" (a confederated welfare pension fund, the "Fund"), of which the Company is a member, has obtained approval from the Japanese Ministry of Health, Labor and Welfare for exemption from benefits obligations related to past employee services with respect to the substitutional portion of the Fund on July 1, 2005.
With respect to the forecast of the Company's consolidated financial position and results of operations for the year ending March 31, 2006, the effect of the transfer of the benefit obligation of the substitutional portion of the Employees' Pension Fund to the Japanese government is not reflected in accordance with the applicable U.S. regulations. According to the regulations, the difference between the fair value of the obligation and the assets to be transferred to the government, which should be disclosed as a subsidy, will be determined upon completion of the transfer to the government of the substitutional portion of the benefit obligation and related plan assets. At this moment, the date of such transfer and its effect has not yet been determined.
With respect to the forecast of the Company's unconsolidated financial position and results of operation for the year ending March 31, 2006, the Company recognized the gain on the transfer of the benefit obligation of the substitutional portion of the Fund to the Japanese government as an extraordinary gain in accordance with the Japanese accounting standards.
FY2006 Forecasts for Consolidated Results
Yen (billions) Changes from FY2005
Net sales and other
operating revenue 9,600 +11.0%
Operating income 675 +7.0%
Income before income taxes 655 -0.3%
Net income 490 +0.8%
FY2006 Forecasts for Unconsolidated Results
Yen (billions) Changes from FY2005
Net sales 3,720 +6.6%
Operating income 215 +45.7%
Ordinary income 308 +45.8%
Net income 290 +100.7%
These forecasts are based on the assumption that the average exchange rates for the yen to the U.S. dollar and the Euro for the second half of the year ending March 31, 2006 will be JPY 110 and JPY 135, respectively, and for the full year ending March 31, 2006, JPY 110 and JPY 135, respectively.
Dividend per Share of Common Stock for Fiscal Year 2006
Honda has decided to increase the interim cash dividend by 12 yen, to JPY 40 per share of common stock, and projects that year-end cash dividend will be JPY 40, an increase of 3 yen. As a result, total cash dividends for the year ending March 31, 2006 will be JPY 80, an increase of 15 yen.