YAMHY - Yamaha Motor Co. Ltd. (YAMHF) Q4 2022 Earnings Call Transcript

Yamaha Motor Co., Ltd. (YAMHF)

Q4 2022 Earnings Conference Call

February 13, 2023, 01:05 AM ET

Company Participants

Yoshihiro Hidaka - President and Representative Director

Shitara Motofumi - Director

Conference Call Participants

Presentation

Yoshihiro Hidaka

Hello, everyone. I am Hidaka. Thank you very much for joining FY 2022 business results meeting of Yamaha Motor Co., Ltd. today.

At first, I'd like to express my sincere appreciation for all stakeholders who support our activities in this difficult environment. I deeply apologize for the inconvenience this caused to customers by continued production delay and inventory shortages.

Now let me explain the outline of the business results. Please turn to Page 4. In FY 2022, in addition to the robust demand, promotion of breakeven point management and price pass-through with the cost increase, benefited by foreign exchange, the company surpassed ¥2 trillion in net sales and ¥200 billion in operating income for the first time. As for the financial structure, we established a stable financial base, exceeding the midterm plan target in all indicators, with operating margin, 10%; ROE, 18.7%; ROIC, 11.9%; and ROA, 11.2%.

As for the outlook for 2023, regarding the external environment, despite the temporary lull in soaring freight costs, we assumed the continued rise in labor and material costs in our plan. Semiconductor shortage will gradually recover for the end of the year, but still short supply against the demand will continue for some time.

By business, in Land Mobility business, with strong demand in motorcycles in emerging markets, sales will increase. And the fixed price hike from last year will continue. In Marine Products business, the robust demand for large outboard motors in Europe and North America will continue. In Robotics business, automotive demand will remain firm. And the Chinese domestic demand and the CapEx demand, which have been sluggish since last year, will recover in the second half of the year. In Financial Services business, we'll closely monitor the effects of the economic slowdown and interest rate trend and make a plan with a strict risk appraisal.

Finally, as for the shareholder returns, we plan the annual dividend of ¥125 per share for FY 2022 with ¥10 increase for the year-end dividend. And we forecast further dividend increase to ¥130 per share in FY 2023.

Please turn to Page 5. For FY 2022, net sales were ¥2,248.5 billion, 124% of the previous year. Operating income was ¥224.9 billion, 123% of the previous year. Operating income ratio was 10%, down 0.1 points year-on-year. Ordinary income was ¥239.3 billion, 126% of the previous year.

Net income attributable to owners of parent was ¥174.4 billion, 112% of the previous year. And the actual foreign exchange rates are shown at the bottom of the table. Supported by the continued outdoor leisure demand in developed markets and the economic recoveries in emerging markets, we achieved a record high net sales in all incomes. And as a result of the breakeven point management, high operating income ratio of 10% was sustained.

Please turn to Page 6 for operating income change by factor for FY 2022. Sales increase impact was plus ¥50.5 billion. And its breakdown is scale increase with demand recovery is plus ¥37.9 billion. Price raises, et cetera, was plus ¥51.2 billion. Unrealized profit due to increased inventories was minus ¥23.2 billion and increased logistic cost for marine freight was minus ¥15.4 billion.

While cost reduction impact was plus ¥23.9 billion, cost increase for raw materials and procured parts was minus ¥61.3 billion. Growth strategy expense increase was minus ¥5.7 billion. Increase in SG&A expenses, including the variable costs with volume increase, was minus ¥45.1 billion. And including the exchange effects of plus ¥80.3 billion, operating income resulted to ¥224.9 billion. Through the increased scale of sales and the promotion of price pass-through, we strive to offset the cost increase in SG&A negative impacts and benefited by foreign exchange profit increase.

Please turn to Page 7. Last slide shows the operating income change by factor, and this is a change by business. Profit increased in Motorcycle business, even excluding foreign exchange impact. Marine Products business profit decreased.

But excluding the unrealized profit impact with the stock replacement, profit increased. While in many businesses affected by cost surge in material and logistic costs, excluding the foreign exchange impact, profit decreased.

Please turn to Page 8. As for the forecast for FY 2023, although situation varies by business and region, and I'll elaborate on later, as the overall steady demand will continue and we expect that sales and operating income will exceed those in the previous year in our plan. Net sales will be ¥2.450 trillion, 109% of the previous year. Operating income will be ¥230 billion, 102% of the previous year. Operating income ratio will be 9.4%, down 0.6 points year-on-year. Ordinary income will be ¥230 billion, 96% of the previous year.

Net income attributable to owners of parent will be ¥160 billion, 92% of the previous year. And we plan to renew the record highs in net sales and operating income. Assuming the exchange rates for FY 2023 are ¥125 to USD and ¥135 to euro, as for emerging countries, INR 15,500 to $1 and BRL 5.3 to $1.

Please turn to Page 9. This is the unit sales by major product and region in 2023 compared to those in 2022 and '21, which serves as a basis for the annual plan presented before. Demand in motorcycles in 2023 will be strong mainly in emerging markets. That situation will be varied due to semiconductor shortages. Supply shortage will be improving towards the end of the year, but in the first half of the year, it will continue.

PAS and electrically power-assisted bicycle, which suffered in parts procurement, are now in the recovery phase. Sales of large outboard motors will increase year-on-year despite the concern for the impact of U.S. port disruptions.

Please turn to Page 10 for operating income change by factor in FY 2023. Sales increase impact is ¥142.9 billion. Its breakdown is scale increase with demand recovery is plus ¥68.9 billion. Price raises, et cetera, is ¥16.1 billion. Reversal gain from unrealized profit is plus ¥51 billion. Decrease in logistic cost of marine freight is plus ¥6.9 billion.

While cost reduction is plus ¥16.1 billion, cost increase in raw materials and procured parts impact is minus ¥56.2 billion. Increase in gross strategy expenses is minus ¥9.8 billion. Increase in SG&A expenses with labor cost increase and variable cost increase with volume growth is minus ¥56.9 billion, and including minus ¥30.9 billion from exchange effects. Operating income will be ¥230 billion. We observed the cost increase in SG&A expenses increased by sales scale increase. And despite the foreign exchange headwind, profit will increase.

Please turn to Page 11. This is the operating income change by factor in 2023. Excluding foreign exchange, profit is planned to increase in all businesses, except the Financial Services business. In the Financial Services business, our plan is based on the strict assumption for economic slowdown impact and interest hike risk. And we'll increase the growth strategy expenses to accelerate the new business development for the future and the initiatives for carbon neutrality.

Please turn to Page 12. I will explain the key financial indicators. This slide shows the charts of ROE, ROIC, ROA for efficiency and equity ratio, the results of 2021, '22 and the plan for '23. In 2022, ROE was 18.7%, ROIC, 11.9%, ROA was 11.2% and equity ratio was 45.9%. In 2023, due to net profit decrease, each indicator falls, but they continuously exceed the midterm management plan target. Accelerating the investment for growth, we continue to generate returns above the cost of capital.

Please turn to Page 13 for returns for shareholders. For FY 2022, backed by strong performance, we will increase the dividend to ¥125 per share for the full year, up ¥10 from the previous forecast of ¥115. And we will put it on the agenda for the AGM.

In 2023, in addition to the ¥130 of dividend per share, we plan to acquisition the treasury stock of ¥30 billion. We continue to strive for the stable and consistent returns for shareholders.

Please turn to Page 14. In the new midterm management plan announced last year, we announced to aim to create value in new mobility society and towards connecting with people in the striving as a company, we put the offering of safety riding and peace of mind as one of our key priorities.

Aiming for zero traffic fatalities in 2050 with customers, we established a safety vision of Jin-Ki Kanno, Jin-Ki Anzen. We believe it is important to improve driving skills of riders and to connect riders and mobility in addition to the technology to support riding.

As for the progress in 2022, in the field of technology, we announced Tracer 9 GT+, equipped with adaptive cruise control. The world's first millimeter wave radar-linked UBS. In the field of skills, we implemented safety training and promotional activities worldwide for 130,000 people in the least COVID environment.

In the field of connectivity, we are proud of the prominent requests of 920,000 connected vehicles sold and 2.6 million registered Yamaha Motor IDs as a leading performance in the industry. We'll continue to promote these three activities steadily and aim for accident-free society by providing the pleasure and inspirations that will be felt through customers' engagement of their capabilities, while having fun.

This concludes my presentation. Thank you for your attention.

Shitara Motofumi

I'm Shitara.

Next, I'll explain details by business segment. Please turn to Page 16. I will explain net sales and operating income by business. The chart covers the results of 2021, '22 and the forecast for 2023. As for the results of 2022, net sales increased in all businesses, except Robotics. And operating income increased in Land Mobility and the Marine Products businesses. As for the forecast for 2023, net sales will increase in all businesses and operating income will increase in Marine Products, Robotics and other product businesses.

The next page onward are explained by segment. Please turn to Page 17. This is a core business, the Motorcycles business. Chart on the left shows sales by region of developed markets and emerging markets. In 2022, although we were affected by the large impact of parts procurement shortage, development, manufacturing and the sales worked together to minimize its impact.

In Developed Markets, demand continued to be firm. And unit sales increased in Europe and America, and we achieved profitability. In Emerging Markets, demand increased with the recovery in economic activities. And the unit sales increased in Indonesia, Vietnam and India, among others. As a result, net sales increased to ¥1,291.7 billion. And operating income ratio increased to 6.6% with profit increase.

In 2023, we expect that the strong demand centering on the emerging markets will continue, and the unit sales will increase with supply increase. And the net sales will grow to ¥1.391 trillion. While operating income ratio will be 4.8% affected by the material cost surge and the increase in SG&A expenses due to the sales scale increase.

Please turn to Page 18 for core business, Marine Products business. Left chart shows net sales by product. In 2022, in the first half, despite the remaining logistic issues, the shipping from Japan improved and the unit sales increased. As a result, net sales were ¥517 billion and operating income ratio was 21.1%. And the net sales and operating income in Marine Products business marked the record highs.

In 2023, we continued the service supply of large outboard motors for the robust demand. In 2022, unrealized profit with the inventory increases negatively affected profit by ¥18 billion. But in 2023, it will positively affect profit by ¥34.6 billion.

As a result, as the effect of price pass-through implemented from the second half of the previous year will be materialized to the full, net sales will increase to ¥541 billion and operating income ratio will improve to 21.8%, expecting the record high net sales and operating income for three consecutive years. And we'll double the investment for the future growth and accelerate the production capacity expansion of large outboard motors and the new model development.

Please turn to Page 19. For core business, RV business in Land Mobility segment. In 2022, partly due to price pass-through and the positive impact of depreciation of yen, net sales increased to ¥123.3 billion, but operating income ratio decreased to minus 2.3% due to a lower utilization at the production base in the U.S. and the increase in manufacturing cost. But in 2023, through the quick improvement in utilization rate, we achieved a net sales of ¥141 billion and recovery to the profitability was 2.8% of operating income ratio.

Please turn to Page 20 for core business, Financial Services business. Left chart shows the receivables balance and its regional breakdown. And the right chart shows net sales and operating income ratio. As shown by the left chart, receivables balance increased to ¥505.5 billion at the end of 2022. Net sales increased to ¥62.2 billion.

And on the profit front, funding rate increased, affected by the interest hike and in addition to the allowance for the doubtful accounts posted. As the allowance for the doubtful accounts decreased as well will factor in the previous year, operating income ratio decreased to 28.2%.

In 2023, receivables balance will increase in all regions to ¥525 billion, and the net sales will increase to ¥71 billion. But operating income ratio decreased to 21.1%, with stricter assumption of the interest hike risk.

Please turn to Page 21 for growth business, SPV business in Land Mobility segment. In 2022, production delayed substantially caused by parts shortages due to Shanghai lockdown. And despite the recovery effort, unit sales decreased.

But due to the foreign exchange benefit, net sales increased slightly. As a result, net sales in 2022 increased to ¥53.3 billion and operating income ratio was 10.6%.

In 2023, net sales are expected to increase to ¥79 billion, recovering the delay in production in the previous year. SG&A expenses were temporarily increased due to the sales channel expansion in Europe, but operating income ratio will be 8.9% with profit increase.

Please turn to Page 22, for growth business, Robotics business. In 2022, sales grew in a stable manner in developed markets, centering on Japan through the automotive-related large investment in Southwest Motors, but CapEx demand in China and Taiwan decreased due to the delay in economic recovery besides the impact of Shanghai lockdown.

As a result, net sales decreased to ¥115.9 billion. And the operating income ratio was 10.3% due to the soaring parts and logistic costs. In 2023, we expect the moderate recovery in China and Taiwan and the robust automotive demand in developed markets. So net sales will increase to ¥129 billion and operating income ratio will be 10.9%.

With this, I conclude my presentation. Thank you for your kind attention.

Question-and-Answer Session

Q -

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