Honda Motor - Earnings Call - Q4 2020

Transcript

Matt Watanabe (Manager of Corporate Communications)

Thank you very much for joining today for the broadcast meeting for the FY20 and the fourth quarter financial results meeting for Honda Motor Co., Ltd. today. I am Matt Watanabe, MC for this meeting, corporate communications. Thank you very much. I'd like to first introduce the participants of the conference today: Representative Director and President, Mr. Takahiro Hachigo. Hachigo speaking. Nice to meet you. Representative Director and Executive Vice President, Mr. Seiji Kuraishi. Kuraishi, nice to meet you. Senior Managing Director Mr. Kohei Takeuchi.My name is Takeuchi. Nice to meet you. In this conference, we decided to have the live broadcast conference without a physical audience in place because of the COVID-19 impact. Thank you very much for your understanding. First of all, I'd like to invite Mr. Hachigo to give us remarks.

Takahiro Hachigo (Representative Director and President)

Good afternoon, everyone. I am Hachigo. Thank you very much indeed for sparing your time for us today despite your busy schedule. Before presenting our financial summary, I would like to make some remarks. First of all, I would like to express my condolences for all those people in the world who lost their lives due to COVID-19, as well as my deepest sympathies for those people who were infected and their families. In addition, I would like to extend my sincere gratitude for the healthcare professionals who fight against the hardships at the front line every day, and to the essential workers who keep on supporting our lives at places such as public transportation systems and supermarkets.

In order to prevent further spread of the global coronavirus infections, Honda is trying to take advantage of our manufacturing capabilities to serve the society by producing the transfer vehicles for the infected or parts or components of the face shields and ventilator systems. We are trying to do everything we can now at various regional operations. By the way, today's press conference for our financial result is different. Instead of the usual style, we hold this meeting using the internet. Due to the influence of the global coronavirus pandemic, we also are under the difficult environment presently. The financial result following after my talk indeed is very difficult. As of today, we also have decided to put off our disclosing of our full-year estimates for the current financial year because of the work of the estimation being too difficult.

When it becomes possible to estimate our consolidated financial results and expectations, we will disclose the information for you.

Although unclear and uncertain situation continues, we have embarked on our efforts aimed at solidifying existing businesses with the automobile business as the core, as we explained at the corporate update last year. We are proceeding with the preparation for further growth in the future, including the Honda eMaaS, which we introduced at the Honda meeting. From last month, we have started a new organization and operation system to implement them. However, the grave impact that the coronavirus has had on the world must make a big difference not only in our business environment but also in the people's values in the future. In addition to the various measures that Honda is currently deploying, we would like to establish new business policies which are viable to respond to any changes that may occur in the future.

We will schedule a conference to give you the explanation on this matter as soon as we are ready. Honda has repeatedly faced great difficulties and has overcome them each time. This time again, the situation is very tough, but we are confident that Team Honda will work as one to overcome this difficult situation. As soon as this difficult situation is over, we will endeavor so that the industry on the whole can provide brighter topics. We ask for your cooperation. Thank you very much.

続きまして、代表。

Matt Watanabe (Manager of Corporate Communications)

Next, I'd like to invite Mr. Kuraishi, the Representative Director and Executive Vice President, to explain about the financial results of the fourth quarter.

Seiji Kuraishi (Representative Director and EVP)

Today, I will explain the operating status of the major manufacturing sites briefly, and then we will go on to the financial results of the FY2020. As for the forecast of the FY2021, the estimates are not finalized because, as of now, it is difficult to reasonably calculate the impact associated with the COVID-19. Going forward, we will disclose the estimates when the expectations of the consolidated results can be calculated. Let me start. This is the operating status of major manufacturing sites. In association with stay-home restrictions due to the COVID-19 pandemic, we suspended productions in the countries listed here. In the U.S., we have resumed our operations starting May 11th.

In China, as per the guidelines of the local governments, we had suspended our productions since Chinese New Year holidays in February, but all of the factories have resumed their normal operations by the end of April. With regard to the factories that are suspended now, we will mind the prevention of the further contagion of the disease and keeping an eye on the safety of employees and their families, market and supply chain situations, and so on. We will consider our future operations. Let me explain the results of FY2020. With regard to the group's unit sales for FY2020, motorcycles: 19.34 million units, automobiles: 4.79 million units. In Life Creation businesses, it was 5.701 million units sold. Next, regarding the situations of the major market, in Japan, the overall market enjoyed the effect of new models offered by various OEMs.

However, the market declined from last year due to the influence of the consumption tax hikes. Honda enjoyed a good sales performance of N-BOX and others. However, due to the influence of the consumption tax hike and the restricted parts supplies for new N-WGN, our unit sales went below the last year. N-BOX series achieved the highest unit sales amongst other new car sales in Japan in FY2020. Honda accomplished the best unit sales performance with the series for a consecutive three years for the first time. In the U.S., the overall market declined from last year due to the impact associated with the pandemic. Honda enjoyed the effect of a possible launch and the incremental sales of HR-V, which marked the record sales in the month of February.

Nevertheless, because of the impact associated with the pandemic, our unit sales declined from last year due to a large drop in the market of the West Coast and Northwest Metropolis regions, where Honda usually has major unit sales. Further, the U.S. Environmental Protection Agency recognized Honda as the best automaker for the average fuel efficiency in the United States. In China, the overall market declined from last year due to the sluggish trend of the market, as well as the impact associated with the COVID-19 pandemic. Honda enjoyed the effect of new launches such as NWX, Inspire, and Breeze, as well as the incremental sales of CR-V and Accord. Despite the impact of the pandemic, we sustained the equivalent sales to the last year on the whole. Dongfeng Honda enjoyed the effect of the commissioning of the new plant to have marked the highest-ever unit sales until now.

Next, of the motorcycle businesses, in India, the largest market, due to the economic stagnation and worsening unemployment in addition to the impact associated with the COVID-19 pandemic, consumer spending continued to be sluggish. The overall IC market declined from last year. Honda enjoyed some increase of the businesses in Vietnam and the Philippines. However, because of slowing down in their market, our businesses declined from last year. The unit sales in Vietnam and the Philippines marked the record highest so far. Next, when we summarize the consolidated financial results for FY2020, the operating income decreased by JPY 92.7 billion from the previous year to JPY 633.6 billion.

Excluding the impact of foreign exchange effect and the one-time issues and the COVID-19 pandemic, the actual profit increased by JPY 100.8 billion from the previous fiscal year due to cost reduction effects and the decrease in selling general and administrative expenses, or SG&A. As you can see, these are the unit sales and the profit and loss situations. Next, we have decided to pay an annual dividend of JPY 112 per share for FY2020 and a dividend for the end of fourth quarter to be JPY 28 per share. The annual dividend forecast, or the outlook for FY2021, has not been decided because it is currently difficult to reasonably calculate the business outlook. Next, Kohei Takeuchi, the Senior Managing Director in charge of Finance and Management, will explain the details of the financial results.

Kohei Takeuchi (Senior Managing Director)

Let me start the explanation.

First of all, regarding the summary of consolidated financial results for the three months in the fourth quarter, as for the Honda Group's unit sales due to the COVID-19 pandemic and other factors, in the motorcycle business, though there was an increase in Vietnam, the unit sales decreased in India, Indonesia, and Thailand and other countries. In the automobile business, the unit sales decreased in China, the United States, and India. Next, regarding the profits and losses, although the sales revenue increased in the financial service businesses due to a decrease in the automobile business and other factors, the sales revenue came down to JPY 3 trillion 458 billion. As for the operating loss, although there were cost reduction effects and decrease in SG&A expenses, due to factors including sales fluctuation and decrease in profits due to change in product mix, the operating income was JPY 5.6 billion.

Next, I will explain the factors behind the increase and decrease in profit before income taxes. Profit before the income for the fourth quarter was JPY 3.7 billion, a decrease by JPY 107.3 billion from the same period of the previous year. As for the operating profit, though there were cost reduction effects and decrease of SG&A, but due to the impact along with the COVID-19 pandemic, it was down by JPY 47.9 billion compared to the same period last year. If we exclude the foreign exchange impact and other one-time issues, it is estimated to be plus JPY 32.4 billion. The one-time issue includes the impact from the change in production organization of the automobile business. The impacts of the COVID-19 pandemic include a decrease in unit sales, an increase in sales incentive provisions, and an increase in credit loss provisions in the financial business.

Next, I will explain the financial results by business segment. As for operating income for the motorcycle businesses, despite the decrease in the unit sales, due to factors such as decreasing SG&A expenses and the effect of the cost reduction, it came down to JPY 63.4 billion. The operating loss of the automobile business came down to JPY 75.6 billion due to a decrease in the unit sales due to the COVID-19 pandemic in the U.S. and an increase in provision for sales incentives. Operating income in the financial services business came down to JPY 22.9 billion due to an increase in provision for credit losses despite an increase in operating lease sales. The operating loss of the Life Creation business and other businesses was JPY 16.3 billion due to the decrease in the unit sales in the United States and Thailand.

Operating loss of aircraft and aircraft engines included in Life Creation segment and other businesses came down to JPY 13.8 billion. Next, what you are seeing here is the profit and loss situation for the 12 months. To explain the factors behind the increase or decrease, profit before income tax was JPY 789.9 billion, a decrease by JPY 189.4 billion from the previous year. The operating income was JPY 633.6 billion. Although there was a cost reduction effect due to the impact of the COVID-19 pandemic and other factors, it came down to the down by JPY 92.7 billion. When we exclude the foreign exchange and one-time issues and the impact related to the COVID-19 pandemic, it is calculated as positive JPY 100.8 billion. Free cash flow of, excuse me, what you're seeing here are the actual results of the capital investment depreciation and R&D expenditures for FY2020.

Free cash flow of operating companies for the 12 months in FY2020 turned out to be positive JPY 470.6 billion, and the balance of cash and cash equivalents at the fiscal year end is JPY 2 trillion 462.6 billion. Net cash was JPY 1 trillion 930.6 billion, which is estimated to be equivalent to about 1.9 months of monthly sales. At this point, we have no major concerns about liquidity at hand, but we will continue to secure liquidity at hand by curbing cash expenditures such as investments and expense across the globe, raising funds as appropriate. That is all for the explanation. Thank you very much.

Matt Watanabe (Manager of Corporate Communications)

Thank you very much. That concludes our explanation about FY2020 financial results.

From now on, we'd like to address the questions from those from media, and this time we are accepting the questions using the email address that has been announced to the media people prior to this conference. We are going to resume our session at 4:30, so please. Thank you. Now, I would like to reopen the session for Q&A. As we announced earlier, we are accepting the questions through the email address that we specified starting at 3:00, and we've selected the questions out of those pools. I'll introduce the questions from the media myself, and then I'll let the participants respond to your questions. Let's move on to the first question. From Nikkei Shimbun, Mr. Ohara, in April, you consolidated the Honda Motor Co. and the development department of the automobile of the Honda R&D.

Could you tell us about how come you decided such a way, and what is the effect of that effort? If you have any policy or investment that you're going to keep on going despite the corona pandemic, please tell us. The second question is, you said that a full year estimate is not finalized, but what is the overall directions and overall feeling or estimate, so to say? You have successfully managed through the financial crisis and Great East Japan earthquakes with the profits always on the book. Please also tell us about China and the U.S. production and sales.

Takahiro Hachigo (Representative Director and President)

The answer, Hachigo speaking. As you said, in April, we made a big change of the organization of the motor company and the automobile operations. That is to strengthen the automobile businesses and to strengthen the R&D.

With regard to the automobile production operations, automobile business operations, excuse me, we had SEDB elements, as we always say, and those are independent. We had them in collaboration with each other based on the independent functions of each. Now we changed the total system so that they can be more closely collaborating together in the consolidated system. What is unique about Honda's product development with regard to SEDB, we actually had a good advantage of that because we had a good team of those four elements. However, we had bigger businesses now today, and naturally, we had a tendency where the department-specific orientation sort of highlighted. As a result, the efforts for coordination between the departments and duplication of the work are seen in many different places. That was the duplicate waste.

Also, because of the collaboration organization, it was not easy to see who is really responsible for certain efforts. However, instead of that system now, we have the integrated organization this way, all the way through the product development, R&D, all the way to the production sales. We have the thorough operations with which we have a clear understanding of who is responsible. This way, we can make a quicker decision and then optimize the business operations in the best way. This was why and how we strengthened our automobile business operations. The other thing is R&D strengthening. Until now, at R&Ds, they developed a product assuming it will be produced for mass production. At the same time, they assumed the responsibility to have the innovation too. However, we have a big business now.

Because of that, they are required of 100% perfection for the quality for the business. At the same time, if you look at the innovation part, you would have to give in some failures in order to make a very good success of the innovations. In order to have the most appropriate operations for both ends, we had our unique R&D operations. However, because of the size of the business now, we have such a global operation being big, that means a lot of mass production-oriented technology highlighted where innovation is rather weaker. We decided to consolidate mass production-related technology development together with the automobile business operations, whereas we can keep on going for the innovations to produce the strong products for Honda going forward. This way, we can strengthen our products in the future.

This is the reason we integrated our automobile development in Honda Motor Company. Now, in R&D, they can focus on the new value creation innovation more. This was the way we changed our organization in order to strengthen the automobile business and R&D. In terms of its effect, in fact, this new organization started only in the last one month, so I can't say the effect right too soon at the moment. We have done the development of motorcycles and Suzuka development in the area for the mini cars, so Kei cars. I think we will be able to see some effect specifically for those. In a way, it is a difficult start for the new organization. However, we should take this as an opportunity to strengthen our organization for the good benefits.

If you look at the automobile business on the whole, despite the pandemic situations, what is the investment to be kept up through this situation? I talked about the efforts to firmly solidify the existing businesses. For instance, optimizing the production globally and the hybrid system introductions and Honda architecture introduction as well. We can harmonize the models across the different regions. We can reduce the number of derivatives, so to say. In those areas, we'd like to speedily take up our initiatives. In terms of current business situations, we will look at the priorities once again and the current situation so that we can take up the ones with the priorities first. However, as I said earlier, R&D has been reborn, let's say, from April, and investment in there is going to be the one for the future.

Therefore, despite the difficulties we experience, we will continue to invest in the R&D all along.

As for the second question, that is the overall direction and also the trend of the major market, Mr. Kuraishi, could you respond?

Seiji Kuraishi (Representative Director and EVP)

As I explained in the presentation, the outlook of the corona pandemic, it is very difficult to forecast. At the current stage, it is very difficult to actually calculate reasonably what will be the outlook. The current situation is as follows. As for the automobile, the major production sites is 70% for automobile, and also 50% of the motorcycle production have resumed the operation. As for China, thanks to everyone's effort, Guangqi, March, and also Dongfeng Honda also started the operation in April. As for North America, the production sites in North America, including the U.S. and Canada, started the operation from yesterday.

As for the market situation in China, the April sales actual was 113,000 units. That's 90%. For the wholesale, it's more than 100%, and we are getting the orders steadily. As for North America, in April, the difficult situation continued, and it was year on year, 44%, and it was 58,000 unit sales. As for the outlook, as for China, due to the COVID-19 pandemic impact, especially we have the production site in Wuhan, so we have been impacted gravely in recent situation because of the extension of the preferential treatment at the China government and also the alleviation of the regulation on the number of plates. The market has become vigorous again.

For us in China, there is a concern about the second wave or the third wave of the pandemic, but we would like to make the utmost effort to deliver the car to the customers. As for North America and the United States, the East Coast is impacted mostly, and also it is where we have a very strong market. Dealers have started the operation gradually. On a national level, it may be this summer at the earliest that all the sales activity will resume to normal. We will closely communicate with the suppliers and the dealers to resume the operation as soon as possible. We are not able to give the concrete numbers today. That is all.

Matt Watanabe (Manager of Corporate Communications)

Next is from Mr. Inagaki of the Asahi Newspaper. This year, Honda is scheduling to introduce the autonomous driving Level 3 model, Honda e.

There will be a delay in the launch due to the COVID-19 pandemic. The second question is, because of the pandemic, many companies are trying to secure the cash on hand. What measures are you taking? Do you think the current cash level is sufficient? Please also respond. The first question is from Hachigo.

Takahiro Hachigo (Representative Director and President)

The questions are about level 3 or limited driving. On the highways, in limited conditions, hands-on driving technology has been established so far. As of now, as for the commercialization, we are looking at the social acceptance of the system because the customer has to understand how to use it. Depending on the way to appeal the technology and the way to sell the technology, the product is different. We have already started taking orders from Europe for the technology from September last year.

Our plan is to launch the Honda e technology in Europe by the end of this year. Because of the corona pandemic, there are some concerns about some component supplies, and we need to confirm and finalize the supply situations. Therefore, that might delay the commercialization finally. However, we try to manage, and we hope that we can launch that by the end of the year. When the timing comes where we can give you the right information, we will share that with you. The second question, Mr. Takei is going to answer.

Kohei Takeuchi (Senior Managing Director)

手元のキャッシュ。

Matt Watanabe (Manager of Corporate Communications)

I think the question is about the cash on hand. I would like to respond. First of all, at the end of the last fiscal year, we actually issued the corporate bond. That is a three-year, five-year, and seven-year. Also the short-term commercial paper, that is the amount of JPY 100 billion.

In total, JPY 200 billion. On a consolidated basis, we have JPY 2.7 trillion. That includes the business company and also the financial company. We still have sufficient cash for the business company. At the net cash level that deducts the borrowing, we still have JPY 1.9 trillion. That is equivalent to 1.9 months of the monthly sales. Also, when we consider the pandemic from April and after, we actually have the borrowing from the major banks. Currently, as for the cash, when we consider the cash on hand, there will not be any problem for the time being. There is still the possibility that the pandemic will further expand, considering the second wave and the third wave. If it is the case, we may have to consider issuing the corporate bond.

We have the new credit line from the major banks. Within that credit line, we would like to secure the liquidity on hand. That is all. Thank you. Next is from Automotive News, Mr. Hans Greimel. The first question is, what is the preferred approach to restarting the industry in a fragmented market like the U.S., where every state has its own lockdown rules? Does there need to be better instance-based coordination to bring suppliers back into operation? The second question is, the coronavirus pandemic is causing tremendous financial pain. Will that change how you invest in futuristic technologies that have no immediate payoff, such as autonomous driving and electrification? Are you delaying investment into these areas? The first question will be answered by Mr. Kuraishi.

Seiji Kuraishi (Representative Director and EVP)

グローバルにホンダは。

Matt Watanabe (Manager of Corporate Communications)

As you know, in order to have a stable supply of the parts and components, in North America, we get supplies of those globally, not just within North America. Of course, there are state-based differences. In fact, there are different times of the restarting of the situations as per different states. We will watch that to have the right timing. We will have close communication with the parts suppliers in the process. We have a corona pandemic team where the information is collected to see what is going on. We are in the process of validating information globally. For the second one.

Seiji Kuraishi (Representative Director and EVP)

ということで、こちらにつきましてはハチ公よりお答えします。お願いします。 次の。

Matt Watanabe (Manager of Corporate Communications)

The investment at the next generation technologies, in order for us to survive, this is what we have to do.

At the current stage, we do not have any plan to delay or to reduce the investment there. In terms of the funding, we are in a difficult situation. However, we will review the priorities set in the current business plans and decide which one to go and which one to hold. Those are the investments that we need in order to survive, and we will continue to invest. Due to the pandemic, how the automotive driving should be and electrification should be may change due to the change in the people's sense of values. The direction that we are aiming, though the basics are the same, where we need to grow may need to be reviewed and modified. Once we make the decision on that, we will allocate appropriate investment.

As for the investment for the future, we steadily make investment so that we are making, in order to do so, we are making our best effort. Thank you very much.

Seiji Kuraishi (Representative Director and EVP)

の質問は日経新聞のオシキリさん。

Matt Watanabe (Manager of Corporate Communications)

Next question is given from Mr. Oshikiri from Nikkei Shimbun. Question one, expectations of the first quarter, April through June, its performance. I'd like to know how you view that expectation, including the free cash flow, and what are your measures to have additional cash in hand. We've answered that question already. For the second question, please. Up until 2022, your plan is to reform your automobile operations structure to adapt to the production capacity below JPY 5 million. However, because of the corona pandemic, you might need to speed up the process of the structural reform because of the global demands being sluggish.

If you have additional ideas for the rationalization and so forth, please tell us about it. Mr. Hachigo.

Takahiro Hachigo (Representative Director and President)

With regard to optimizing the production capacity, we've talked about them in the past. 2022 is our target year where the global full capacity is to be optimized, including China. That initiative is to be pushed forward as planned. In terms of the additional rationalization initiatives, rather than the rationalization, maybe I've touched upon that before, but in terms of the North American manufacturing sites, in fact, it is rather complicated today. Therefore, specifically for the manufacturing site in that region, I'd like to simplify the structure. Light truck vehicles and passenger cars, those are the type of product they produce in North America.

I would like to have the flexibility of those productions, for instance, three models in one plant and one model in two plants. We try to keep the allocations of those models in the plants. Finally, we would like to have the most efficient allocation of the model production in North America. Including the changes we are experiencing today, we would like to accelerate the process finally. Basically, the principle is, as I said before, we will optimize the production capacity globally. At the same time, we can improve, or we want to improve, the efficiency of the production in North America. Thank you.

質問は読売新聞。

Matt Watanabe (Manager of Corporate Communications)

Next is from Shimo Zato from Yomiuri. The first question is, why did you postpone the announcement of the Outlook for the FY2021? When was the last time you postponed the announcement of the Outlook?

How do you estimate the sales target of the automobile? What is required for the recovery of the sales? For the pandemic impact to the operating profit, it is estimated to be JPY 129.8 billion. What will be the negative impact to your sales revenue? The second question is, the operating margin for the automobile business is 1.5%. That is very low compared to the margin for the motorcycle business, which is 13.9%. What is your future measure in terms of the improvement of the margin? First question by Mr. Takeuchi.

Kohei Takeuchi (Senior Managing Director)

The pandemic, we postponed the announcement of the outlook because of the difficult situation. How much the unit sales will be? When will the customer come back to the dealer? It is still uncertain. In some regions, we have resumed the production. In Japan, we are continuing the production.

In Asia, including motorcycles, there are many uncertainties. That is why we have actually postponed the Outlook announcement. In the past, have we actually postponed the Outlook announcement before? We have actually postponed the Outlook, the FY2012, because of the Great East Japan Earthquake. As for this JPY 130 billion impact of the operating income, and what will be the negative impact of sales revenue? As for this JPY 130 billion impact of the operating income, let me give you the breakdown: motorcycle and automobile and Life Creation or the Power Product. The sales unit, the impact was JPY 60 billion. In automobile, especially in North America, the dealership closed. They could not sell to the customers. The inventory accumulated at the dealership. Also, other automakers provided the incentives.

We also had to provide the incentive to the loyal customers and also to support the money to our dealership. We've actually booked JPY 30 billion for the provisioning. Next is the impact of the financial service. Because of the unemployment rate increase due to the pandemic, those who are using our finance service, though they are the high-profile customers, generally speaking, because of the high unemployment rate, we have to book the bad debt allowances by consulting with our CPA. That's JPY 40 billion. JPY 60 billion from the unit sales. In terms of the unit sales, that's 62,000 units of the automobile and 290,000 units of the motorcycle. Also the life cycle, that's 190,000 units. It is very difficult to calculate the sales, but it's around JPY 200 billion, a little strong of JPY 200 billion.

Matt Watanabe (Manager of Corporate Communications)

The second question is the OP margin of the automobile, and it will be answered by Mr. Hachigo.

Takahiro Hachigo (Representative Director and President)

As for the OP margin improvement of the automobile business and solidifying the current business, existing business, we have actually introduced various measures last year. As for the current measures, the timing is 2022 or 2025, where we will see the outcome. That is what we are proceeding. In order to harvest in 2022 and 2025, we will actually optimize the production performance globally. We will consolidate the production sites all over the world. We will make them full utilization by 2022. As for the hybrid, by expanding the mass, we will continue to reduce the cost, aiming at 25% cost reduction by 2025. Excuse me, 2022. As for 2025, we will introduce the Honda architecture and also share the regional model.

We will reduce the derivatives from the global model by one-third. By 2025, we will actually reduce the development efforts, including the development and also the procurement, by one-third. Those reductions will be used to contribute to the future R&D. In North America, we will improve the efficiency of the production sites. By doing so, by 2025, in the production and manufacturing area, production area, what we call the internal production area, we will reduce the production cost by 10%. That is the plan that we have. In any case, because of the COVID-19 pandemic, there are many challenges. We will review the business plan on hand. In a speedy manner, we would like to embark on solidifying the existing automobile business. That is all. Thank you.

お時間の都合で、次の。

Matt Watanabe (Manager of Corporate Communications)

Because of the interest of time, our next question is going to be the last one from Japan Times. Mr. Shiraki, his question to be addressed. The question is addressed to Mr. Hachigo. With regard to the supply chain style, what it should be, because of the pandemic, there was a big impact on the supply chain. The coronavirus was initiated in China, where you have a big dependency on. Some people talk about a possible repatriation of the production and also decentralized supplies. Some government is supporting the idea. Honda has advanced the scheme of local supplies and local production amongst the automotive companies. Do you have an idea to review the supply chain principles because of the coronavirus pandemic today? If you have any idea for repatriation of some parts supplies, for instance, if that is essential, please tell us specifically.

If doing so, would that be the factor for cost increase? Would that be to be accepted? If you are not going to review that, please tell me with the reasons for that. Speaking about the supply chain, when we had the Great East Japan Earthquakes, we had a big impact on the supply chain, which stopped the production entirely. We had addressed the situation. We managed that situation too. In case of the corona pandemic this time, apparently, what we are trying to address is not full enough, not sufficient yet. When we have a manufacturing site in one place only, then we would have to transfer that to the alternative sites. However, it is difficult to do that altogether, including the parts supply issues associated. We now experience the difficulty again. Of course, there are things we can do.

The low-hanging fruits, for instance, we could do some efforts of this kind. However, not everything. There are things which may take time. In terms of the cars produced in Japan, I would like to ask the Japanese suppliers to deliver supplies continually so that we can have stable supplies or we try to have a regional support for that as well. However, we have not decided anything now. The thing is that we need to have all the parts and components in place and be ready for the production of a car without any missing. It would not be possible. We would like to try to review whatever possible to make sure the production of the car is always possible. In the last fiscal year, we had parts issues of the N-WGN, which caused bigger problems for the customers.

Of course, rather than cost, quality and stable supplies are paramount. We really feel that way. Therefore, if needed, cost may have to be accepted in order to make sure the right supply chain is established. However, nothing is really decided specifically, but that is a direction going forward. Thank you. The question. What will be the model of the mobility service? And what will be the one that will have the higher demand? In recent years, the users are switching from owning to the usage. After the pandemic, how will the situation change? In order to prevent the infection, people try to avoid the closeness, free closeness. Also, in overseas, Uber and Lyft and all the ride shares have been suspended in the major cities.

The use of the taxis and public transportation in the country has been in a declining trend. We do not know where the pandemic will converge. We may have to coexist with COVID-19, and there may be the concern of the new virus coming up. What will be the value of the automobile in that case? There has been the popularity in the SUV, but in order to avoid the contact with other people, the more economic and compact car, aiming for the short distance ride, may have the bigger demand. Do you think that when the situation comes back to normal, it will go back to the conventional manner? What will be the new model that may have the higher demand and the mobility service?

As was explained, due to the pandemic of COVID-19, many people feel pain of not being able to move. I feel that, and everyone in the world is feeling that way. Also, we had the concern of being close to the people and being in a crowded situation. Rather than going back to the situation before, we have the challenge such as the overpopulation in the major cities. Changing all these may become the top priority challenge all over the world. That is what we think. In this situation, safe and secure personal mobility can be done in a flexible manner. We may have the higher demand. Rather than being concentrated in the major cities, the distributed community may actually be established all over the world.

When we consider the distributed community, as was asked in the question, this short-distance personal mobility service may be a good concept. When we explained about the EMRs using regenerative energy, using both the motorcycle, automobile, and life cycle products, and converging and fusing all these, mobility, and also being environmentally friendly, products and services can be delivered. Though the SUV is still popular, the one that is more personal and more affordable mobility services may grow in terms of demand. Since Honda has motorcycle, automobile, life cycle business, and also the jet products, we'd like to prepare for the future. That is all. Thank you.

大変申し訳ございません。

We apologize that because of the time constraints, we are not able to answer all the questions. However, our corporate communications department will get back to you later on for your questions.

Now, we'd like to conclude our press conference for the financial results. The presentation materials are available on the website of Honda. Thank you very much indeed for joining today.