Honda Motor - Q1 2023

Transcript

Operator (participant)

Thank you very much for taking time out of your busy schedule to attend our briefing today. We would now like to start Honda Motor Co., Ltd.'s financial results briefing for the first quarter of fiscal year to March 2023. First of all, allow me to introduce the attendees today. Mr. Kohei Takeuchi, Director, Executive Vice President and Representative Executive Officer. Good to see you. Mr. Eiji Fujimura, Operating Executive and Head of Accounting and Finance Supervisory Unit. Thank you. Good to see you. Mr Takeuchi will first present the overview of the first quarter financial results and the forecast for fiscal year to March 2023. Mr Fujimura will present the details. Over to you, Mr Takeuchi.

Kohei Takeuchi (Director, Executive VP, and Representative Executive Officer)

First of all, we'd like to express our deepest gratitude to our loyal customers around the world and all stakeholders who are supporting Honda. Thank you very much indeed. Currently, we have a number of customers waiting for the delivery of our vehicles. We will do our utmost to deliver products to our customers as soon as possible. We hope to gain your understanding. I'd now like to explain our fiscal year 2023 first quarter financial results and FY23 financial forecasts. First, FY23 first quarter financial results. Automobile production and unit sales, despite a semiconductor supply shortage and Shanghai lockdown bringing down unit sales from the same quarter last year in mainly China and North America, they were in line with the previous forecast. Operating profit was down from the same quarter last year.

However, despite drop in automobile unit sales and soaring raw material costs, motorcycle unit sales were up and company-wide efforts were made to improve profit, resulting in operating margin equivalent to that of the same period last year. Next, FY23 financial forecasts. The outlook remains uncertain due to semiconductor supply shortage and inflation. Honda's group unit sales plan for FY23 remains unchanged from the previous forecast. But given the profit increase effect of the currency rate and forecasted cost increase due to inflation, we have revised upward our sales revenue and operating profit forecasts. At today's board meeting, a decision was made to acquire our own shares up to JPY 100 billion. Honda will continue to accelerate efforts to enhance corporate value and promote electrification and other new growth initiatives. Next, I will explain our main market automobile sales.

Despite the effect of new model launches, such as the Step WGN in Japan and HR-V in the United States, shortage of chips and the Shanghai lockdown effect resulted in unit sales lower than the same quarter last fiscal year in the respective markets. In the United States, though there was solid demand, sales were down from the same period last year because last year, dealers had inventory to sell. FY23 sales forecasts remain unchanged. Though we expect demand to stay strong, outlook remains uncertain due to semiconductor supply shortage and resurgence of COVID-19. Honda will actively launch new models to the market, such as CR-V and ZR-V, so as to boost sales. Next, motorcycle business. Due to semiconductor shortage, unit sales dropped from the same period last year in some countries.

Unit sales increased significantly in our largest market, India, and overall, we exceeded the same period last year. Regarding FY23 sales, taking into account semiconductor shortage, we decided to stick to the previous forecast. However, by replacing some models on sale and utilizing alternative parts, we will aim to further increase unit sales. Next, FY23 three-month results summary consolidated. Despite drop in unit sales due to semiconductor supply shortage and Shanghai lockdown, combined with rising raw material costs, due to price cost impacts, reduction in incentives and currency effects, operating profit was JPY 222.2 billion. Profit for the period was JPY 149.2 billion due to decrease in China's investment profits under the equity method. Unit sales and income statement are as shown. Next is the FY23 consolidated financial forecasts.

In the forecast announced last time, despite uncertainty attributable to semiconductor supply shortage and COVID-19 resurgence, given the currency and inflation impact and cost increase, we revised upward operating profit to JPY 830 billion. The assumed US dollar/yen currency rate in the first half is JPY 130, second half JPY 120, annually JPY 125. The forecast profit for the period remains unchanged from the previous forecast at JPY 710 billion. Unit sales and income statement are as shown. Next, FY23 annual dividend is JPY 120, unchanged from the last announcement.

At today's board meeting, a resolution was adopted to acquire our own shares. In order to improve efficiency of capital structure, implement a flexible capital strategy, Honda will acquire its own shares. Total amount of shares to be acquired will be maximum JPY 100 billion.

Operator (participant)

Next, Eiji Fujimura, Operating Executive and Head of Accounting and Finance Supervisory Unit, will explain the details of the results and forecast.

Eiji Fujimura (Operating Executive and Head of Accounting and Finance Supervisory Unit)

Okay. Allow me to start the explanation. To begin with, Honda Group's unit sales for first quarter of fiscal year to March 2023, in motorcycle operations, unit sales grew year-on-year, particularly in Asia, and it came to 4,251,000 units. Automobile came to 815,000 units, mainly due to declines in China and North America. In power products, volume came to 1,546,000 units, mainly due to decline in North America. Next, I'd like to explain the factor analysis of pre-tax profit for quarter one compared to the same period last year. Pre-tax profit was JPY 237.4 billion, which was lower by JPY 73.9 billion compared to the first quarter last year. Operating income was JPY 222.2 billion, which was lower by JPY 20.9 billion year-on-year. To give you a breakdown of the substantive decline of eight.

JPY 85.1 billion net of the currency impact on sales came to, though there were reduction in incentives, decline in automobile sales volume and other factors led to decline of JPY 89.4 billion. Selling price and cost factors, while there was impact from surging material prices, we strove to raise our selling prices and to reduce cost. We reached an increase in profit by JPY 14.4 billion. Expenses, due to increase mainly in quality related expenditures, this gave us a negative impact of JPY 12.0 billion. Next, to explain sales revenues and operating income by business segment. For motorcycles, operating income was JPY 97.8 billion. Automobile income was JPY 38.2 billion. Operating income from financial services was JPY 78.8 billion.

The sum of the automobile business' operating income and that associated with automobile sales, including in financial services, is estimated to be JPY 113.9 billion. Next, for power products business and other businesses, operating profit came to JPY 7.3 billion. Of this amount, the operating loss from aircraft and aircraft engine was JPY 3.8 billion. Next, I will explain the cash flow. Free cash flow of the operating entities for the first quarter of fiscal year 2023 came to -JPY 149.3 billion. The end of term balance of net cash came to JPY 2,310.1 billion. Next, I'd like to talk about the consolidated financial forecast for the FY ending in 2023. Firstly, speaking of Honda Group's unit sales, we are keeping the previous forecast unchanged.

The forecast in motorcycle is 18,560,000 units. In automobiles, 4.2 million units. In power products, 5,665,000 units. Next, I'd like to explain the factor analysis of pre-tax profit compared to the actual results from last fiscal year. Pre-tax profit is forecast at JPY 1.04 trillion, down by JPY 30.1 billion from the previous year's results. Operating income is forecast at JPY 830.0 billion, down by JPY 41.2 billion from the previous year's results. I will explain the substantive decline of JPY 207.2 billion, net of currency effects. Impact from sales is positive JPY 169.8 billion due to increase in motorcycle and automobile sales volume. Selling price and cost impact is -JPY 146.0 billion due to impact of surging material prices.

Expenses impact is expected to be -JPY 148.0 billion due to increase of quality related expenses and selling expenses. Next, the changes compared to our previous forecasts are +JPY 5.0 billion for pre-tax profit and +JPY 20.0 billion for operating income. The decline of JPY 60.0 billion, net of the currency effects, is because the impact from inflation has been taken into account. Lastly, compared to our previous forecast, Forex impact has been incorporated in the forecast for capital expenditure, depreciation and R&D expenditure for full year to March 2023. This completes my presentation. Thank you very much for attention.

Thank you very much for attention. We'd like to move on to the Q&A session. As informed in advance, we would like to take questions via Zoom. Due to the time restrictions, we'd like to limit it to two questions per speaker, please. We ask for your cooperation. If you have any question, please let us know by Raise Hand button. Thank you.

Operator (participant)

The first question from Nikkei. Mr. Tanabe, please.

Yu Tanabe (VP of the Western Region)

Ms. Tanabe, excuse me. This is Tanabe from Nikkei speaking. Well, about my first question about the semiconductor situation. Well, the first quarter, there was a Shanghai lockdown, and there was this impact, and there was a reduction in production volume. Currently, the Shanghai lockdown, how much of the effect is still with you now? And about the shortage of semiconductor supply, when about do you think that this can be resolved? And also, if you are seeing some improvements, what initiatives that Honda is taking is resulting in these good results?

Kohei Takeuchi (Director, Executive VP, and Representative Executive Officer)

May I? Tanabe-san, thank you very much. Well, about your question about the Shanghai impact and also the impact of the semiconductor supply shortage, allow me to try to explain to you what the situation is.

Now, about the lockdown in China. Well, yes, in April, I think you've already seen the numbers, but the Shanghai lockdown, compared to the same quarter last year, we have seen a significant negative number. That is true. When we made our forecast announcement for automobile group sales, it was 4.2 million units. As we had factored in the prolonged Shanghai lockdown. Compared to our plan, we think that things were within the scope of our assumption. Please understand that this is the case. In fact, the Shanghai lockdown has almost been totally lifted. In June, July, compared to the same period or same month the previous year, there were positive numbers.

Therefore, I think things have normalized. That is how we understand this. In the second half, we want to work hard to recover. Now, about the semiconductors themselves. Currently, as you have seen in the newspapers and others, other industries like computers and cell phones, in those sectors there is some excess supply. We're thinking that semiconductors will become available. When it comes to the automobile industry, that is not the impression that we are getting. For the time being, we think that we will continue to see a shortage. This is our current understanding. There are different types of semiconductors, and we have to manage the semiconductors depending on the type.

We are continuing to allocate based on what is available. Now, when do you think that we can resolve this? We think that until the end of this fiscal year, we'll continue to see impact of this semiconductor shortage. Until the end of this fiscal year, we need to handle the situation taking into consideration that there will continue to be this shortage. We want to make every effort to deliver our products to our customers as soon as possible. Now, how are we going to recover this shortage? As we said earlier, with our suppliers, so we are negotiating one-on-one, have them hold inventory where possible, and also try to develop alternative parts.

Depending on the type, I think, that we have to sense and do risk management depending on the different types of semiconductors. For some of the suppliers, including the price, we are entering into a long-term contract, so as to secure the necessary supply of semiconductors. As I've explained, we are continuing to see this situation of shortage. That is all. Thank you.

Operator (participant)

Thank you very much, Ms. Tanabe. The next question, I'd like to move on to the next question. From Asahi Shimbun, Mr. Kamiyama, please. Okay.

This is Kamiyama from Asahi Shimbun. Hope you can hear me.

Jun’ichi Kamiyama (Journalist in the Economics Section)

Yes. I have two questions. The first one is, in the presentation earlier, you talked about. It looks like you've raised some of selling prices. I would like to know specifically what prices you raised in which region. I believe other companies are trying to raise prices as well, but I guess transferring the raw material price hikes, I think that is becoming an issue. I would just like to know if you are considering that kind of transfer. That's what I would like to know. That was my first question. A second question concerning production. From April to June, you said you were on plan. Compared to the previous year, when would you say you will be recovering compared to year on year? Starting this term, or do you think your recovery will come from third quarter? What would you say?

Eiji Fujimura (Operating Executive and Head of Accounting and Finance Supervisory Unit)

Okay, thank you. About the selling price, let me answer that one. As to going back to previous year, previous fiscal year, the two previous years ago, we have started seeing impact from JPY 270 billion or so from two years ago to previous year. We did have some impact, including inflation as well, and then the transportation and labor would raise.

We were thinking JPY 290 billion raise is expected. Plus, we have JPY 60 billion in addition. Soaring raw prices and then the cost inflation, everything included. We have accounted for those. From two years ago to last year, we have made the efforts to reduce cost. As Mr. Kamiyama mentioned, we raised prices. That was the biggest area, the Americas, in USA. We have been recovering that. For this year, actually, from previous year to this year, we do ex-

We cannot absorb the cost increase of JPY 300 billion each year. We do have a new model, 2023 model year, 23 models launched in there. We would somehow hope to manage absorbing those costs. I guess you must be interested in Japan. In Japan, we have the competitors. We need to monitor the situation, how it plays out with others. We will consider raising prices if there's an opportunity. Next question, your production. We are set at 4.2 million units at the beginning of the fiscal year. You know, this was still. Well, the first quarter we had the impact from the Shanghai lockdown, so it was like 0.8 million.

We would raise in stages and then get better per quarter. In the first quarter, we had to struggle with the semiconductor supply. We are short by about 20,000 units or so compared to the original plan. We can catch up with this. We can make up for this with the second quarter, and then we should be able to recover this on the second and the third quarter so that we should be able to build up. We should reach 1 million in a quarter so that we can reach 4.2 total.

We will go gradually and then try to reach 4.2 million that was forecasted at the very beginning of the term. Thank you.

Operator (participant)

Thank you very much, Mr. Kamiyama. Next question. The Yomiuri Shimbun, Mr. Nakamura, please. Nakamura from Yomiuri Shimbun Newspaper. Can you hear me?

Jin Nakamura (Senior Journalist and Media Editor)

Yes? Thank you. I have two questions. About the Shanghai lockdown impact, well, to the extent that you can disclose, what components have been impacted? If you're seeing some improvements, which components are you seeing improvements in? The second question. Well, the raw material costs are continuing to rise, but what kind of components do you see a significant impact of the raw material price increase?

Eiji Fujimura (Operating Executive and Head of Accounting and Finance Supervisory Unit)

Well, about the lockdown impact and which component was mostly impacted, well, it's very difficult for me to specify any specific components. Because we have in Wuhan and Guangzhou factories, and there are many of the suppliers in the Shanghai area. Many of the manufacturers were producing in Shanghai, being the components or sub-components. They have all seen a reduction in production, and this is the impact of the Shanghai lockdown. In June, July, compared to the previous month, and thanks to the lifting of the lockdown, these numbers have improved and they're in the positive. I think that overall in China factories, because they're located in these locations, our suppliers have been impacted by the lockdown.

Please understand that that is the case. About the raw material price increase, rather than any specific component, from the past 2 fiscal years, the precious metal catalysts, those that are gonna use for catalysts, those precious metals, these are the ones that have been impacted. From last fiscal to this fiscal year. Well, from last year, in the fourth quarter of last fiscal year in North America, steel prices, because of the revision in January, we've seen an increase of 150%. That was 3 months for last fiscal year and 12 months for this fiscal year. I think that this is the area that we're seeing a major impact.

Other raw materials likewise, we are seeing the impact, not just the raw materials, but due to inflation, there are increases in prices overall. The precious metals, I think, compared to the past, the increase is less and it's more or less plateaued, but it's not going down to the extent that it's having a positive impact on our profit. From last fiscal to this fiscal year, I think, the biggest impact is the steel prices in North America. That was the biggest from last fiscal year to this fiscal year. Thank you.

Operator (participant)

Thank you very much, Mr. Nakamura. The next questions are from Toyo Keizai. Mr. Yokoyama, please, from Weekly Toyo Keizai. Can you hear us, Mr. Yokoyama?

Junya Yokoyama (Journalist)

Yes, yes, we can hear your voice. Okay, I have two questions as well. My first questions is, you announced this sales of Honda Lock to MinebeaMitsumi. Could you tell me the, let me know the background why, what's your aim or the background to it? Then, related to that, among your subsidiaries and related companies, I guess, you do have some internal combustion related suppliers, but, are you considering some support to them while you shift to electrification? Then my second question also relates to suppliers. I believe we heard about the cost pressure to the suppliers. Are you thinking of any support? If you have any specific plans for that, please let us know.

Eiji Fujimura (Operating Executive and Head of Accounting and Finance Supervisory Unit)

Okay. First about Honda Lock sales. This will be from MinebeaMitsumi. Originally this company, Honda Lock, the supplier, this is not a engine-related lock. Keys, door mirror outer, those parts manufacture rather than internal combustion related. MinebeaMitsumi, they are not a dedicated automotive supplier, but they wanted to utilize our technological advantages of Honda Group, so they can. They feel that they will be able to expand their business horizon. That is why they approached us, so we started discussing.

It's nothing to do with the internal combustion suppliers at all. For those suppliers related to internal combustion systems, we would like to discuss individually. We will be discussing. We would like to see what technological expertise each supplier has and what can be utilized for EV. That's something up to the individual discussions. About the price reduction, the supplier. Another manufacturer said that they are not going to try to pressure to reduce cost to suppliers. To us, our suppliers are our business partners which help us in delivering good products to our customers. Of course, the raw prices that the supplier needs to buy, that the prices are going up, and then logistical cost is going up.

For example, in the States, the inflation is pushing up the labor cost as well. Of course, we need to work together to enhance efficiency and reduce cost due to competition. We still will need to discuss individually with the suppliers, trying to take actions as appropriate and necessary with the individual suppliers. That is our approach. In considering, I cannot really say how much that would be or anything like that. We would like to. We are saying as 60 that we are estimating a cost increase that we mentioned earlier.

Operator (participant)

Thank you very much, Mr. Yokohama. Next question. Automotive News. Mr. Hans Greimel, please.

Hans Greimel (Asia Editor)

May I speak in English?

Kohei Takeuchi (Director, Executive VP, and Representative Executive Officer)

Yes.

Hans Greimel (Asia Editor)

Thank you for taking my question. This is Hans Greimel from Automotive News. I'm wondering if you could give us an outlook for the recession possibilities in the United States, what the economic forecast is for a possible recession in the United States, and what Honda is doing for countermeasures there. Also, can you give us more details about the price increases in the United States? How sensitive is the market there to price increases? And is this something that you expect to keep doing further into the rest of the fiscal year and into the future, possibly next year as well?

Eiji Fujimura (Operating Executive and Head of Accounting and Finance Supervisory Unit)

Well, first about the recession, the possibility of recession in the United States and how we try to deal with that. Well, as Hans Greimel has mentioned, the United States it was 9.1% inflation rate last month, and the interest rates, well, the 0.75 increase is continuing by the Fed. Also, in order to curb inflation, the interest rates are continuing to increase. Eventually in North America, I think that this will have an impact on the economy in North America. We're keeping an eye on the developments. So far, well, looking at our automotive sales with the dealers, I think have an inventory of 20,000, which is very low inventory. And as pre-orders of customers are constantly...

Well, in the past, we would look at the inventory and try to take orders. In Japan, we take orders and try to look into whether we can sell and have customers buy and deliver the cars later, at a later date. I think that currently we have a large back order, and we have to supply to our customers their products as soon as possible. This is the current situation, and therefore, with the recession, rather than taking immediate measures, we have to focus on delivering our cars and vehicles to our customers.

Now, if there were to be a recession, recently, due to the pandemic, we have seen a large dip in the sales, unit sales, but we have been generating profit. I think that we have become more efficient in terms of fixed cost, et cetera. We have to keep an eye on possibility of recession, and if necessary, we'll try to further reduce our fixed costs. About the sales price, the selling price, from the past two fiscal years, we have been doing a number of measures. For North America this fiscal year, rather than increasing the prices, our normal prices, we will increase it to the rate of inflation.

It's not the case we're going to increase it by 9% for the FY23 model year. I think, our most competitive, CR-V, Accord and also Pilot, will see a model change. Therefore, with the equipment, we will increase the value of our products. In line with the value that is being offered, we think that we can increase the price. We will continue to seek for that possibility. We will try to deliver quality, good products to our customers, and have our customers recognize the value of our products and accept price increase. That is all. Thank you.

Operator (participant)

Thank you very much, Mr. Greimel. Going on to the next question. From NHK, Mr. Yamane, please.

Motoyo Yamane (Announcer and Narrator)

My name is Yamane from NHK. Yes, we can hear you. One question for you. The decline in the first quarter, you talked about the decline in equity in China due to equity methods. I'd like to know about it.

Eiji Fujimura (Operating Executive and Head of Accounting and Finance Supervisory Unit)

Okay. For the first quarter, the equity method, the interest, I'd like to answer that one. I believe you see this waterfall graph. We have this JPY 33.3 billion decline. This was this portion. The biggest portion came from China. As I mentioned, we've announced already the other day, we will have to be selective for EV. What we will do in China, for the Acura business, we will discontinue the Acura business. That's what we have in cooperation, so we have some losses from there. It's temporary, and also compliance. We also have some domestic subsidiaries.

We recently had some impairment losses due to the share prices, the equity method. This is only some of the domestic subsidiaries. Then the pension system was changed, amended, and there were some losses in accounting. Those are the parts. Of the JPY 33.3 billion, about half of that is coming from those factors. That remaining half is coming from the business operations. From the first quarter, the volume unit sales are impacted in China, as well as in Japan. This is at the same range as the operating income.

Operator (participant)

Okay, thank you very much, Mr. Yamane. Next question. Nikkan Jidosha. Mr. Oribe, please.

Speaker 10

Can you hear me?

Operator (participant)

Yes, please.

Speaker 10

Nikkan Jidosha Shimbun. Oribe is my name. Well, I have one question. Well, the semiconductor shortage and others, you say that the delivery date has been delayed. What measures is Honda trying to take to make up for this delay?

Eiji Fujimura (Operating Executive and Head of Accounting and Finance Supervisory Unit)

Well, as for the measures, well, we are very keen to deliver our vehicles to our customers as soon as possible. Depending on the model type, there are cases in which we have to keep our customers waiting for a long period of time. In some cases, we had to suspend acceptance of orders. It's been resumed. We are trying to avoid causing inconvenience to our customers. As I've explained, there's a serious shortage of semiconductor supply. We are trying to resolve this. To the suppliers which are supplying us with semiconductors, we are talking with them. On a weekly basis and a monthly basis, we come up with a production plan.

We are working hard to deliver our vehicles to our customers as soon as possible. As I earlier said, until the end of this fiscal year, we think that the shortage of semiconductors, especially automotive semiconductors, will continue. We have to look at which models can be delivered at an early date in which markets. Especially for those customers who are waiting long, we are trying to resolve the situation as soon as possible. We understand that we are causing inconvenience to our customers. We want to apologize, but we hope that people will understand the situation that we are currently placed in. Thank you.

Operator (participant)

Thank you very much, Mr. Oribe. The next questions are coming from Reuters. Mr. Sugiyama.

Satoshi Sugiyama (Journalist)

Okay. This is Sugiyama from Reuters.

Eiji Fujimura (Operating Executive and Head of Accounting and Finance Supervisory Unit)

Yes, we can hear you.

Satoshi Sugiyama (Journalist)

I have two questions. The first question is about the semiconductor-related one. Earlier, with the, I think there's a risk with the restrictions on the Taiwan Strait. I guess there's a focus about it that the military practices by China. So I believe for a stable procurement of semiconductors, are you going to assume that there could be some incidents in Taiwan, so that they will try to reduce the procurement percentage from Taiwan or from China? Are you doing anything to ensure a stable supply? That's one question. The second question, in the States, a senator came up with the Inflation Reduction Act, and then they came up with a tax. They made stringent the qualification for the EV, the EV incentive. Sorry, EV incentive factory. This would be if you have this may become a hindrance adoption of the electric EV. I would like to hear what you have about that.

Eiji Fujimura (Operating Executive and Head of Accounting and Finance Supervisory Unit)

Okay. Geopolitical risk about Taiwan. Well, it is true that semiconductor production is really concentrated in Taiwan. Outside Taiwan, this would be China and then the States. There are some semiconductor factories, new ones, built in Japan, but they are still taking some time. We need to continue, try to do dual sourcing. It is true that other locations are different. We need to do design changes and also keep a higher level of inventory. Those aren't really specific maybe, you might say that, but we will continue to take those actions and think of the further actions. It is true, this geopolitical risk is difficult.

With JAMA as well, we are consulting every party we can, engaging the whole automotive industry, and then considering options for the future. That's what I can tell you at this point in time. About the Inflation Reduction Act to curb inflation, so it's difficult to say what our view is, that the current model may not be eligible. We want to aim for carbon neutrality, so we would like to utilize our technology that we have, EV and FCEV. Those are the technologies available. So we would like to be able to launch EV, electric vehicle. That's before the factory becomes eligible for tax credit.

We need to be able to come up with vehicles in terms of tank-to-wheel. We will focus our efforts, all our efforts in trying to from first come up with being able to launch a vehicle that will help in this carbon neutrality. Thank you.

Operator (participant)

Thank you, Mr. Sugiyama. Next question will be the last question. Nikkei. Ms. Masta, please.

Speaker 11

Masta from Nikkei, and thank you very much. I have just one question here. About the fiscal year outlook forecast you've revised, the operating profit has increased and the net profit remains unchanged. What is the logic of this upward revision and retaining of the net profit?

Eiji Fujimura (Operating Executive and Head of Accounting and Finance Supervisory Unit)

Masta-san, thank you very much for that question. Well, about the FY23 forecast and the relationship between net profit and operating profit. As for the operating profit, Takeuchi has explained that we are taking into account of the currency of JPY 130 and JPY 120 in the first and second half. It's a plus JPY 20 billion for the operating profit. Whereas, I said that the first quarter for the equity method, the related companies in Japan, there was the impairment of their shares in Japan, and therefore, the equity method profit has been reduced. Also the operating profit, as it increases, there will be more corporate tax to be paid.

We have to factor in this negative and therefore the JPY 20 billion and also 15 billion and then of 15 billion, 10 billion has been offset as a result of this. That is the reason why we have retained the net profit as originally planned. With this, we would like to end today's briefing. As for the materials that have been used, they will be posted on our website for you to refer to. Thank you very much for your viewing.