Toyota Motor 2027 Q2 Earnings Call

Since it is time, we would like to begin the Toyota Motor Corporation FY 2027 second quarter financial results press meeting briefing. I am Hashimoto, serving as your moderator. Thank you very much for attending despite your busy schedules. I would like to introduce our speakers today. Yoichi Miyazaki, EVP of TMC. From the Accounting Finance Group, Chief Officer Takanori Azuma. External and Public Affairs, Hiroyuki Ueda, Chief Officer. To introduce you the schedule, we will receive the explanation about the second quarter financial results from Mr. Azuma, and then Mr. Miyazaki will explain about the progress of our structural reform activities, restructuring activities. Then we would like to receive questions from the floor and participants.

Azuma-san, please. I am Azuma, Chief Officer of the Accounting and Finance Group.

For the customers around the world who has been supporting us and love Toyota cars, and our shareholders who support our efforts, our dealers and suppliers, as well as all other stakeholders, we would like to start by sincerely thanking you. We will now explain the summary. Our operating income for the first half of this fiscal year was JPY 2.2 trillion. Through swift responses to changes in the external environment, including the situation in the Middle East, we mitigated the impact on earnings. Vehicle sales, mainly driven by hybrids, increased steadily, supported by strong demand. We have revised our full-year operating income forecast upward by JPY 500 billion from our previous forecast to JPY 3.9 trillion. Despite the impact of rising material prices and production disruption caused by earthquakes and floods, we expect to maintain consolidated vehicle sales through recovery efforts at our production sites and optimize global supply.

In addition, to reduce tariff-related costs through the accumulation of improvement efforts, including the expansion of value chain earnings, we expect year-on-year profit growth and have revised our forecast upward. As for shareholder returns, consistent with our policy to increase dividends in a stable and continuous manner, the interim dividend is set at JPY 50 per share, and the full-year dividend forecast is JPY 100 per share. We will also increase our share repurchase authorization by JPY 300 billion, while additionally canceling 1 billion shares of treasury stock. We will reduce the level of treasury stock holdings and will pursue capital policies with a greater focus on capital efficiency. Next will be the second quarter FY 2027 financial performance. Consolidated vehicle sales for this period decreased by 25,000 units year-on-year, mainly due to the exclusion of Hino from consolidation.

Excluding the impact of Hino, consolidated vehicle sales increased by 26,000 units year-on-year, primarily in Japan and Europe. Toyota and Lexus vehicle sales totaled 5,059,000 units, or 96%, compared to the same period of the previous fiscal year, due to weaker demand in China and the impact of the Middle East situation. The electrified vehicle ratio increased, led by BEVs and HEVs in North America and Europe, reaching 55.6%. Consolidated financial results were sales revenues of JPY 26 trillion 962.4 billion, operating income of JPY 2 trillion 191.1 billion, income before income taxes of JPY 2 trillion 954.4 billion, and net income of JPY 2 trillion 236.4 billion. Let me explain the factors behind the changes in operating income.

Despite the challenges such as rising material prices and the impact of the situation in the Middle East, we steadily accumulated improvement efforts, including cost reductions carried out together with suppliers, price revisions, and the expansion of value chain profits, which helped mitigate the impact on our performance. In addition, we captured positive effects from changes in the operating environment, including the effects of foreign exchange rates and the mitigation of the impact of U.S. tariffs, resulting in a year-on-year increase in operating income. This slide shows operating income by geographical region. In Japan, operating income increased mainly due to foreign exchange rate fluctuations and increases in vehicle sales. North America returned to profitability largely due to price revisions and the reduced impact of U.S. tariffs. In Europe, operating income increased mainly due to the effects of price revisions and expanding value chain profits.

In China, due to the decreased sales and so forth, there has been a negative impact. The financial result, because of increased loan outstanding, that we enjoyed the increase. Now we would like to turn to the outlook for 2027 on March. Therefore, this forecast that the consolidated vehicle sales remain unchanged from the previous forecast by region. We have reflected solid demand in Japan, while in Asia, we have factored in elements such as a slower market condition in China and the impact of flooding in Thailand. The forecast for Toyota Lexus vehicle sales and electrified vehicle ratio have been revised downward, primarily reflecting slower market conditions in China. Now let me explain the full-year consolidated financial forecast. We have adopted the full-year foreign exchange rate assumptions of JPY 157 per U.S. dollar, EUR 182 per euro.

Forecast for the full-year consolidated financial performance is sales revenues of JPY 53 trillion 500 billion, operating income JPY 3 trillion 900 billion, income before income taxes of JPY 4 trillion 960 billion. Net income, JPY 3 trillion 570 billion. The factors behind the changes in operating income forecast compared with the previous fiscal year are shown here. Despite the impact of the situation in the Middle East and approximately JPY 1 trillion in rising material prices, we will work to offset these hardships and maintain our earnings power through continued marketing efforts and cost reductions. Given that, as well as positive changes in the business environment, we are forecasting operating income of JPY 3.9 trillion, representing a year-on-year increase.

While we expect year-on-year profit growth, we remain focused on overcoming the impact of significant changes in the business environment, including U.S. tariffs and the situation in the Middle East. We will continue to advance structural reforms and work company-wide to further improve profitability. Now, I would like to explain our shareholders' returns. For this fiscal year, we have set the interim dividend at JPY 50 per share, up JPY 5 from the previous fiscal year. As announced at the beginning of the fiscal year, our full-year dividend forecast at JPY 100 per share, up JPY 5. Our dividend policy is to increase dividends in a stable and continuous manner in order to reward our long-term shareholders.

In response to shareholders' requests to sell their shares, we have increased our share repurchase authorization by JPY 300 billion, bringing the total amount of this fiscal year up to JPY 1.3 trillion. As a result, we expect our total shareholder return ratio for the fiscal year to be 69.4%. We will also cancel an additional 1 billion shares of treasury stock, bringing the total cancellation this fiscal year to 1.2 billion shares, exceeding the amount repurchased this fiscal year. While maintaining flexibility for future strategic use, we have reduced the level of treasury stock holdings, and we will pursue capital policies with a greater focus on capital efficiency.

Next, we will ask Mr. Miyazaki.

Hello, I am Yoichi Miyazaki, CFO of TMC. During our financial results announcements for the fiscal year ended March 26, we followed our financial performance presentation with an outline of our business structure reforms designed to overcome the impact of significant shifts in the business environment, such as changes in U.S. tariffs and the situation in the Middle East. Today, I would like to discuss the progress of these initiatives with the hope of fostering a better understanding of and instilling greater confidence in Toyota's mid-to-long-term strategy. This slide provides an overview of our transformation into a mobility company. Broadly speaking, we aim to achieve further growth in our existing new vehicle and value chain business, while also leveraging the strengths we have cultivated in automobile manufacturing to expand into new business domains such as robotics.

Underpinning this growth and business expansion are our people and the strength of our workplaces. To support this strengthening, we have decided to establish two new organizational groups effective this coming January. One of these is the Toyota Philosophy and Education Group, with Chairman Akio Toyoda serving as its first head. Through our work, we will pass on the experience we have gained amid numerous challenges, along with Toyota's philosophy, skills, and ways of working to cultivate the talent that will lead the next generation. The other is the Kanri Group, newly formed by merging our General Administration and Human Resources Group and Accounting Group. This new group's name in Japanese is Kanri Honbu. While Kanri phonetically refers to the Japanese word for management or administration, the Chinese character used for Kan conveys the idea of observing carefully with both one's hands and eyes.

We are shifting our thinking away from conventional administrative management and aim to create a professional support team to foster fulfillment among colleagues and empowers them to take on workplace challenges. From here, I will explain the progress of our business structure reforms broken into several areas. First, let's look at our new vehicle business. By producing well-made products and delivering them quickly to meet diverse customer need, we will overcome the challenges posed by U.S. tariffs and developments in the Middle East. Our working pillars are enhancing product value through our five brands and enhancing earning power, as we explained during our full-year financial results announcement.