Earnings Transcript for YAMHF - Q4 Fiscal Year 2023

Yuuko Kurabe: Hello, everyone. Thank you very much for making the time for Yamaha Motor Company's earnings presentation for the fiscal year ending December 31, 2023. My name is Kurabe of the Corporate Communications department and I'll be chairing today's meeting. Before explaining the contents of the meeting, I'd like to introduce the attendees for today. We have Mr. Yoshihiro Hidaka, President and Representative Director and Mr. Motofumi Shitara, Director and Senior Executive Officer. After a brief overview of the financial results from Mr. Hidaka, Mr. Shitara will explain the details of each business segment. And then there will be a Q&A session via Zoom for the members of the present analysts. The earnings presentation deck is available on Yamaha Motor's website. We will now begin our presentation of the business results.

Yoshihiro Hidaka: Hello, everyone. My name is Hidaka from Yamaha Motor Company. Thank you very much for taking time out of your very busy schedules today to attend the Yamaha Motor Company's earnings presentation. First, I'd like to express my deepest sympathies to the victims of the Noto Peninsula earthquake. We pray for the safety of the people in the affected areas and for the earliest possible recovery and reconstruction. We would also like to thank you for your continued understanding and support of our business activities. I will now give an overview of the business results. First, here are the key points. Please see Page 4. In 2023, we achieved record sales and operating income. In the core business of Motorcycles, shipments increased due to firm demand and improved production of premium models from the second half of the year. In Marine, shipments of large outboard motors and water vehicles increased, while the Robotics business continued to face difficult conditions due to the sluggish Chinese economy. Next is the outlook for 2024. Regarding the external environment, emerging countries are expected to continue to experience some economic slowdown in Vietnam, but there is continued strong demand in Indonesia, India and Brazil. In developed countries in Europe and the U.S., the economy is stagnating due to rising interest rates and inflationary effects. But consumption among high-income earners in the U.S. will remain strong. In addition, ocean-sea freights are expected to fall and the surge in raw materials is expected to slow down. In our businesses, semiconductor procurement will normalize, providing a tailwind to produce premium models of motorcycles in emerging countries. In the Marine business, we aim to -- for greater than market growth by introducing new models to the large outboard motor market in the U.S. where demand remains strong. The downturn in the robotics market has bottomed out and is expected to recover in the second half of 2024. We will maintain high profitability and efficiency and enhanced business competitiveness as outdoor leisure demand peaks out and the competitive environment in the market returns to normal. We plan to achieve record high sales and operating income for the fourth consecutive year in 2024 by controlling expenses with a balanced approach. I would also like to explain today our efforts to enhance corporate value. Next is unit sales and inventory. Please see Page 5. The table on the left compares our unit sales by major product against the actual results in 2022. Unit sales increased mainly in Indonesia, India and Brazil, where demand remains strong. Outboard motor unit sales are small and medium-sized models declined significantly. ATV and ROV unit sales declined due to slowing demand. Unit sales of SPVs decreased due to an increase in inventories in the overall bicycle market. Mounter unit sales to China and other Asian countries decreased. The graph on the right compares the current state of market inventories with appropriate levels. In regions and businesses where inventories are above appropriate levels, production adjustments are being made, while at the same time, sales promotion measures are being strengthened to reduce our inventory levels. Next, the overall business results for 2023. Please take a look at Page 6. In 2023, net sales were up 107% from prior year at JPY 2.414 trillion. Operating income was JPY 250.7 billion, 111% for the prior year level. Operating income ratio was 10.4%, up 0.4 percentage points from the prior year. Ordinary income was JPY 242 billion, 101% at the prior year's level. Net income attributable to shareholders of the parent company was JPY 164.1 billion, 94% of the prior year's level. EPS was JPY 163.57, 96% of the prior year's level. Shipments of motorcycles in emerging countries increased due to the improved procurement of semiconductor components. Furthermore, in addition to the expanded effect of passing on prices, a tailwind from the weekend also contributed to the increase in profit. The prevailing exchange rates are JPY 141 to the U.S. dollar and JPY 152 to the euro. Emerging market currencies against the U.S. dollar are as stated. Here are the operating income factors in 2023. Please see Page 7. As you can see, the increase in revenue contributed JPY 22.2 billion. The breakdown is as follows

Motofumi Shitara: Good afternoon. I'm Shitara, and I would like to give you an update per business domains. So first, I want to update you on revenue and operating profit results for 2023 and the guidance for 2024. Please take a look at Page 15. Starting with 2023 results. Motorcycle and RV in Land Mobility business and the Marine business achieved increase in both revenue and profit. Financial Services and Other segment finished the year with increase in revenue but decrease in profit. Both top line and operating profit declined for SPV and Robotics business. For 2024 guidance, we are expecting increase in revenue and operating profit for Marine, Robotics, Financial Services and Other segment. Each subcategories under Land Mobility business are expected to see increase in profit but decrease in operating profit. And let me go into the details of each businesses. Please go to Page 16. The graph on the left is the year-on-year market demand in major markets. The one on the right shows revenue in each region. In 2023, excluding Vietnam, China and the Philippines emerging markets as well as Europe and America enjoyed solid demand. Starting from the second half, demand has started to slow down in China and Thailand, but thanks to improvement in premium model supply, we have seen increase in number of shipments globally. In addition, benefit of a pass on to price expanded in turn, pushed up revenue and operating profit. For 2024 forecast, we are expecting strong demand to continue in Indonesia, India and Brazil. Meantime, Vietnam, China and Thailand are expected to see sluggish demand due to economic conditions. So there will be difference in colors between markets. Yamaha is going to increase premium model supply in emerging markets, but return of competition, increase in expenses due to increase in promotion costs to boost up sales in markets with decreased demand will bring up top line but push down profit. Now let me introduce our new product. Please turn to Page 17. We have launched our XSR125 ABS in Japan back in December 2023. In addition to the fusion of XSR Series identity of timeless and pure style and the latest components, Neo-Retro concept, it offers lightness and ease of handle, which is a unique to 124cc engine. For the last few years, 51 to 125cc motorcycle with a shift gear has been drawing an interest of customers in their 20s. After announcing the launch of XSR125, we have received many orders. Next is Marine business. Please go to Page 18. The graph on the left side shows year-on-year outboard motor retail registrations in the United States. The one on the right shows revenue per each product. In 2023, demand for large-sized outboard motor remains strong. Our model with 300 horsepower and above had higher unit shipment. Meanwhile, consumption among the middle income people in Europe and the United States declined, leading to a drop in the demand for small and midrange outboard models. As a result, outboard motors sales in Europe and the United States declined. On the other hand, outboard motors in other regions, water vehicles and sports boat shipment increased. Hence, Marine business as a whole finished with increase in both top line and operating profit. For 2024, we are expecting similar trend to continue in each market. Small and midrange outboard motors inventory adjustment will continue, but we will launch new model for large-sized model, which still enjoy strong demand. We will be meeting large-sized model needs, which is expected to expand going forward. So let me show you our new models in outboard motor launching in spring 2024 and later. Please turn to Page 19. This F350B is outboard motor using newly developed V-type 6 cylinder engine. It achieves both overwhelming power and lightness with a sophisticated design suitable for premium motors. After launching in the North American market, we will be launching them in other major markets like Europe and Australia. Please check it out. Next is RV business and Financial Service business. Please turn to Page 20. The left is RV business. In 2023, demand slowdown and the shipment had dropped. But thanks to improvement in production efficiency at the U.S. factory, this segment recorded increase in both revenue and operating profit. We are expecting a replacement demand to support in 2024, but supply has been normalized at all players, price competition expected to be fierce. Yamaha 2 is expecting to increase our promotion costs and other expenses, a forecasting increase in top line but decrease in profit. The one on the right is the Financial Service business. In 2023, in tandem with increase in sales volume, receivables are increased across the region, pushing up revenue. However, due to sharp rise in interest rate, funding cost has been increasing. In addition, higher allowance for doubtful accounts and our interest swap valuation loss were recorded, bringing down operating profit year-on-year. We are expecting revenue and operating profit to increase in fiscal year 2024 coming from higher receivables and passing the cost onto the new receivables, while still experiencing impact for higher rate. Lastly, this is growth business, SPV and Robotics. Please turn to Page 21. The left is SPV. Bicycle market around the world was going through inventory adjustment in 2023. And the Yamaha Motor undergone production adjustment, resulting in big drop in sales volume, ending the year with a revenue and a profit decrease. We are expecting the trends to continue in 2024 as well. We will adjust model launch timing and enhance our promotion activities at global offices but expecting it will take until the end of the year to normalize inventory level. The one on the right is Robotics. Demand for application for automobile and industrial devices in developed markets remain strong. However, slowdown in Chinese economy impacted significantly pushing down revenue and our profit from previous year. We are expecting demand to recover in the second half of 2024. And we are expecting revenue and profit to grow, thanks to new surface mounter launching in March and by strengthening our sales organization in overseas growing markets. This is the end to the explanation for the fiscal year ending December 2023. With this, Yamaha Motor's 2023 December of -- term -- of fiscal -- financial result meeting. Thank you very much for watching the YouTube Live.

End of Q&A: