Toyota Tsusho Corporation Earnings Briefing for the Nine Month ended December 31, 2015 Condensed Transcript of Q&A Session
1. Date & time: February 3, 2016 (Wednesday) 17:45–18:30 2. Attendees: Hideki Yanase, Managing Director Hiroshi Tominaga, Executive Officer Hideyuki Iwamoto, Executive Officer
Q: What is your overall impression of the Group’s performance? A: Businesses related to auto production performed worse than anticipated in Thailand and North America. The auto sales environment is worse than we expected as a result of the global economic slowdown. Among electronics businesses, the smartphone business appears to have stalled, albeit in line with expectations. In 4Q, we expect to book impairment losses on natural gas projects but do not expect full-year net profits to be much below our revised forecast of ¥35.0 billion.
Q: What is the possibility of earnings being affected by new one-time factors and what is the possibility of additional losses on natural gas projects? A: We currently do not foresee any new one-time factors. In terms of natural gas projects, one negative is that we have lowered our crude oil price assumption since announcing our downwardly revised forecast, but it will be at least partly offset by recalculation of our gas reserves. We are currently quantifying these negative and positive impacts in detail.
Q: The Metals segment looks unlikely to achieve its full-year forecast given its 3Q results. What is your auto production outlook (particularly in Thailand in North America) from 4Q onward? A: North American auto production is tracking roughly in line with our forecast. Steel sales volume is holding up well. Steel trading profits have not been affected much by steel prices' decline in the wake of resource price declines. In the aluminum melting business, however, margins have shrunk as a result of resource price declines. In Thailand, production of the redesigned IMV (Innovative International Multipurpose Vehicle) has fallen short of expectations. IMV exports from Thailand to South America, the Middle East and Africa are tracking below expectations. Looking ahead, if the North American economy holds firm and metal prices remain at current levels, we expect earnings to hold steady. We may avoid an aluminum premium loss this fiscal year. We expect the Thai and Chinese auto markets to recover. Another positive event on the horizon is commencement of production at Toyota's new Mexican plant.
Q: How are auto market trends, particularly in resource-producing countries? A: We are still unsure how resource-producing countries such as Russia and Angola will be affected if crude oil prices remain in the vicinity of $30/bbl. Angolan sales were robust in 3Q, but we have yet to determine whether their robustness was attributable to transitory factors or is a sustainable trend.
Q: What was the driver behind the Automotive segment's ¥3.0 billion increase in operating income in 3Q relative to 2Q? A: Mainly profit growth in Angola.
Q: How are auto sales in non-Japan Asia and Oceania? A: In Papua New Guinea, both unit sales and profits have been growing year on year, but we do not anticipate much further growth going forward. Elsewhere, the Mekong region is contributing to growth.
Q: Do you expect electronics business to continue to perform well beyond the current fiscal year? A: In smartphone-related businesses, recent growth is unlikely to continue from 4Q onward. In automotive electronics businesses, however, we expect growth to pick up from next fiscal year. We expect this pickup to fully offset or modestly outweigh the slowdown in smartphone-related demand.
Q: How is CFAO performing? A: Discontinuation of Nissan and Isuzu vehicle sales in Maghreb continues to weigh on earnings. In West Africa, by contrast, both the auto and pharmaceutical businesses continue to perform well, offsetting the negative impact of Nissan and Isuzu sales' discontinuation in Maghreb. CFAO's operations in Congo and Gabon are performing poorly in the wake of resource price declines. In Cote d'Ivoire, however, CFAO is doing well. In East Africa, we expect the alliance with VW to pay off going forward. In consumer goods, front- loading of Carrefour depreciation expense is tracking in line with expectations.
Q: What is your earnings outlook for CFAO? A: We do not anticipate a dramatic earnings recovery. We look for flat earnings in the auto business. In consumer goods, expansion of the Carrefour venture is a prospective growth driver. We expect African market trends to remain largely unchanged. Including the auto business, CFAO's earnings will likely be flat overall.
Q: Could you provide an update on CFAO's investment program? A: CFAO is investing billions of yen quarterly in both automotive and nonautomotive businesses.