Ladies and gentlemen, thank you very much for joining us despite your occupied schedules. We really appreciate your participation. We would like to start Fiscal Year 2021 Second Quarter Financial Performance Announcement of Toyota Motor Corporation.

In order to directly convey to you the financial results, we have invited some stakeholders who are present here today, and this is distributed online to the media representatives. First of all, let me introduce the participants from TMC side for the part one.

Kenta Kon, Chief Financial Officer and Operating Officer; Masayoshi Shirayanagi, Chief Officer for External Affairs and Corporate Communications. Without further ado, Mr. Kon, is going to share with you the overview of the financial results..

Hello, everyone. Thank you for joining us today. I am Kenta Kon. First and foremost, we would like to convey our deepest sympathy to those who have been suffering from COVID-19, and those who have been affected by the continued spread of the virus.

We also would like to express our heartfelt appreciation to our customers around the world who chose us, as well as our stakeholders, shareholders, dealers and suppliers who support us. Now, I would like to discuss Toyota's financial results for the first-half of the fiscal year ending March, 2021.

First, consolidated vehicle sales for the first-half ended September 2020, was at 3,086,000 units, which were 66.3% of the consolidated vehicle sales for the first-half of the previous fiscal year. Toyota and Lexus brand new vehicle sales was at 4,011,000 units, which was 81.0% of such sales for the first-half of the previous fiscal year.

Although vehicle sales for the first quarter when the impact of lockdown measures implemented in many countries was severe amounted to 69% of that of the quarter of the previous fiscal year. Vehicle sales for the second quarter recovered to 93.1% of that of the previous year.

Once again, we would like to express our sincere gratitude to our customers around the world who chose us, and all of our stakeholders including our sales outlets and suppliers who have made an effort to deliver as many vehicles that our customers want as possible.

Consolidated financial results for the first-half of this fiscal year were sales revenue of ¥11,375.2 billion, operating income of ¥519.9 billion, pre-tax income of ¥728.8 billion and net income of ¥629.3 billion. I would like to explain the factors which impacted operating income year-on-year.

First, the effects of foreign exchange rates decreased operating income by ¥120 billion. Second, cost reduction efforts increased operating income by ¥50 billion. Third, the effects of marketing activities decreased operating income by ¥970 billion, largely due to the decrease in sales volume caused by the spread of COVID-19.

Finally, a reduction in expenses increased operating income by ¥115 billion. As a result excluding the overall impact of foreign exchange rates, stock valuation gains and losses and other factors, operating income decreased by ¥805 billion year-on-year.

As for operating income for each region, although operating income decreased year-on-year in all regions, largely due to the decrease in sales volumes caused by the spread of COVID-19. We succeeded in securing operating income in all regions.

Next, let me explain our consolidated subsidiaries and equity method affiliates in China, as well as our financial services business. As for China business, operating income of consolidated subsidiaries increased by ¥34.2 billion year-on-year to ¥112.4 billion, thanks largely to marketing efforts.

Our share of profit of investment accounted by equity method was up ¥15.5 billion year-on-year to ¥79 billion, thanks largely to marketing efforts. Regarding financial services operating income, excluding stock valuation gains and losses for the fiscal year was broadly flat year-on-year ¥211.2 billion.

Next, I would like to explain our return to shareholders. In this interim period, although the automotive industry as a whole was in a downturn due to the spread of COVID-19, we were able to report a profit for the first-half of this fiscal year with the support of our stakeholders, including our shareholders.

Considering these factors we plan to make an interim ordinary dividend of ¥100 per common share. In addition, we would like to thank our shareholders for their continuous support and have decided to add a special dividend of ¥5 for a total of ¥105 per common share.

As for share repurchases, we have decided not to repurchase our common stock as a form of interim shareholder return.

Although our profitability remains trying an impact of the continued spread of COVID-19 continues to be unpredictable, we remain committed to accelerating our efforts to sow the seeds for the future, through investment in growth for transformation and actions for SDGs.

Now, let us move on to discuss the outlook for the full fiscal year ending March 2021. With regards to our consolidated vehicle sales, we have increased our forecasts from the time of our first quarter results by 300,000 units to 7.5 million units. Regional sales breakdown is as stated in the presentation.

As for Toyota and Lexus brand vehicle sales, we anticipate that vehicle sales will increase by 300,000 units compared to our forecast from the time of our Q1 results to 8.6 million units.

Regarding the recovery of Toyota and Lexus brand vehicle sales, we anticipate that sales will recover to previous year levels, namely approximately 100% in October to December, and approximately 105% in January to March 2021. Next, let me explain the full year consolidated financial performance.

We've adopted Forex rate assumptions for October onwards of ¥105 per dollar and ¥120 yen per euro, which makes the full year assumptions ¥106 yen per dollar and ¥121 yen per euro.

Based on this, our forecast for full year consolidated financial performance is are, sales revenue of ¥26 trillion yen, operating income of ¥1,300 billion, pre-tax income of ¥1,760 billion and net income of ¥1,420 billion.

Now I'd like to explain the factors that will impact the operating income year-on-year comparing to our forecast at the beginning of the fiscal year. Operating income is now expected to be ¥1,300 billion, up ¥800 billion from the previous forecasts at the beginning of the fiscal year. The detailed analysis is as stated in the presentation.

Please see Slide 15, which compares the latest operating income forecast for this fiscal year with the result of the previous fiscal year.

Although, we were able to report a profit, and the first-half of this financial year has just completed, and the environment surrounding us remains highly uncertain considering the risk of a second and a third wave of COVID-19.

In the second-half of this financial year, while continuously making efforts together with all our stakeholders, including cost reduction efforts at all levels and efforts at manufacturing sites and sales outlets, we remain committed to continuing to steadily sow seeds for the future, and to accelerating our transformation into a mobility company.

This concludes my presentation. Thank you for your attention..

We would like to start the Q&A session. [Operator Instructions] Now Mr. Katori [ph] of Yomiuri Newspaper, please. I will switch the screen. So if you find yourself on the screen, please start asking your question, please. We're now switching the screen. So please give us a little time. Now Mr.

Katori please, could you start your question please?.

Katori of Yomiuri Newspaper. Thank you for the opportunity. First of all, with respect to the financial results you have just announced, I would like to ask your appraisal and assessment, especially you made an upward revision.

So what is the most important factor that contributed to that? What is your view on that? And at the same time, some European countries have locked down the countries and COVID-19 is spreading once again in the United States. So toward the second-half, what is your assessment or the likely risk in the second-half? That's my first question.

And second question relates to the production. When you had this announcement in May, you already had impact on your production plans. And you also talked about that, because demand was affected. However, as we look back the recovery since then seems to be going on quite smoothly.

So for the past half year, how have you been able to coordinate your supply chain? If you have been able to do that successfully, what are the keys for that? Those are my two questions..

Thank you for your question. First of all, with respect to my assessment and appraisal of the financial results. First of all, the financial results between April and September, it covers six-month period. The first three months period and the second three months period, so dividing into these two, three months period.

The first quarter and second quarter show different situations. I wish I could show you the PowerPoint or slide showing the quarterly financial results. Could you show the quarterly financial results on the screen, please? Thank you. In the first-half the operating income ¥506 billion.

What you see on the screen it relates to three months period in the second-half, the operating income was ¥506 billion. So if we divide this as April, September period the latter half that is July, September period, compared with the first three months shows significant recovery.

And the marginal decrease in operating income compared to the first three months period, has shrunk significantly. And on the quarterly basis, the operating income of ¥500 billion was generated, which also a great deal to the efforts made by individuals. And that achieved the recovery that we are now seeing in the figure of operating income.

And the fact that we have been able to achieve the recovery to this extent was also mentioned when the financial results were announced previously, which show the projection of 8 million units and ¥500 billion.

But we're not quite sure because the things were so uncertain, despite that, and although this is just the half year place where the first-half was completed, but the fact that we were able to generate positive profit also a great deal to every effort made by dealers and suppliers to deliver as many vehicles as possible.

And it really owes the hard work of those people. And that allowed us to keep our plants running and by us keep the plants running also allowed many related industries or suppliers to keep on their operations. And therefore, the entire automotive industry has been supporting this recovery, and I really felt that in the real field.

So that's what I felt in the first-half year period. And as I said, this shows only the results of the first-half or half year period. But as I look back in specific cases since the global financial crisis, for the past 11 years, we consistently engaged ourselves in various initiatives and activities.

And those efforts created the foundation for what we see today. I strongly feel about that. For example, the financial institutions really supported us and cooperated with us. We were able to take loans from financial institutions, and we were able to secure solidly the financial resources we need.

At the time of the global financial crisis, we had ¥3 trillion, but today with the support of financial institutions, it has been raised to ¥9 trillion or ¥10 trillion. And in conducting activities in business during this fiscal year, those support meant a great deal to us.

At the beginning of the fiscal year, we really didn't know what could happen in charge of financial and accounting activities of the company. I wasn't quite sure how the things will evolve. But the top executives, especially our present Toyota as a top executive, remain very calm and very stable.

And that allowed us to make decision whenever that need to be made on the spot. So that helps us a great deal and I appreciate that a great deal. With respect to the second-half as Mr.

Katori mentioned in his question, we see lockdown in place, and the COVID-19 virus is spreading, and we will continue to remain vigilant on those evolution and developments. And as I said, we only have actual results for the half year period. It's not that we have a clear view of the next half year.

So I continue to watch very carefully the impact of COVID-19. In terms of the status of production, right now at this moment, for example, in North America or Europe, the production in April was almost zero. However, at this point, right now, we have seen significant recovery.

For example, in North America in September, the actual result was compared with previous year 108% of the previous year's level, and in Europe, it's 102% of the previous year's level. And in Japan, the recovery has been made to the extent of the production reaching 104% of the previous year's level.

So in the sense, the suppliers and supporters are working very hard, they're being kept extremely busy. They have a huge workload because of the strong recovery. So while preventing the risk of COVID-19 spreading, working closely together with the suppliers, we would like to keep this production momentum. That's my response. Thank you..

Thank you, Mr. Katori. We'd like to go on to the next question. From Asahi Newspapers Chiba-san [ph] please. We will be switching the screen. When you see yourself on the screen, please start with your question..

Mr. Chiba. This is Chiba speaking.

This is Chiba from Asahi Newspapers do you hear me?.

Yes, we hear you fine. Your question please..

Thank you. I might be asking you on the details. But for the factors that increase operating income for us Asterix number two. The others area for data sales and marketing and there's quite a large more than ¥100 billion, ¥110 billion, and Asterix number three for the increase or decrease and expense and expense reduction efforts.

This is also plus ¥115 billion or ¥130 billion quite a big number. And also Asterix number four, valuation gains and losses from swaps et cetera is ¥45.8 billion. So I think there are some accumulated from the April to June period.

But can you tell me the breakdown of these? And in addition to that, for July to September term, is there any characteristic special factors for the second quarter on the positive side and the negative side? What kind of special factors were there in the second quarter?.

Thank you for your question. So for the contents, starting with the effects of marketing activities. So for the increase, decrease - increase, there is ¥110 billion. The breakdown, there's mainly two factors here and the first will be for the sales expenses. So this has reduced. And particularly in North America, the incentives has gone down.

In order to since we have been effectively utilizing our marketing expenses. So therefore, incentives per unit has gone down. And also there was a drop in the total incentives, because of the drops in the total volume. So this has had an effect on the positive side. And now for the other negative side, this is a global factor.

But for the supply parts, the income from supply parts had reduced somewhat. And these two factors in a net has an effect of ¥110 billion. And the second for expenses, it is among the ¥130 billion, a large part of it will be the general expenses. So the business expenses and also entertainment fees and meeting expenses, event expenses.

In our case, for example, consumables for the office works office supplies. So including those factors this term this quarter, we have been able to reduce significantly.

And for the business travel expenses, of course, it is difficult to move up travel freely, but just looking at a non-consolidated TMC, there's about several billions of reduction in the business travel expenses.

And going into the details for the consumables when the office supplies compared to last year, we have been using only about half of supplies. And also the research and investigations compared to the peak, it's about one-third compared to the peak. So, for example, we are doing research in-house with our in-house resources.

So, those are some efforts that we have been making to reduce the expenses, that has significant impact included in this ¥130 billion effect. And this final part for the swap valuation gains and losses, this is accumulation of various factors. So the Forex swap costs, expenses and also for the securities.

And many of the details have been accumulated in these numbers of the gains, losses from swaps, et cetera..

And also my question was about the three months special factors for the three months from July to September. Sorry for that, I forgot, excuse me.

And especially for looking at July, September items, if there was a special factor?.

Actually there was not. There was no special factors. So looking at the operating income from July to September, no temporary or one-time income or loss, there was no significant item here. Thank you for your question..

Thank you..

Thank you, Mr. Chiba. Let's move on to the next question..

From Daily Industrial Newspaper, Mr. Nagatsuka [ph], please. I will switch the screen so if you find yourself in the screen, please start your question. We are now switching the screen, so please give us a little while. Mr. Nagatsuka please start your question. Mr. Nagatsuka, please turn on the microphone. Your microphone is still off, still muted..

Can you hear me?.

Yes, we can hear your Mr. Nagatsuka..

Nagatsuka of Daly Industrial Newspaper. Thank you for the opportunity for asking this question. In terms of CapEx for the current fiscal year on the full year projection, it is a ¥1,400 billion compared with the outlook shown at the beginning of the fiscal year there is addition by ¥50 billion.

Could you explain the reason for that addition or increase for CapEx? Thank you..

In terms of the outlook for CapEx, it has been increased from ¥1,350 billion to ¥1,400 billion that's the reason for this ¥50 billion in increase. There is no major factor behind that. The yen was lower than we had anticipated at the beginning, and therefore there the difference caused by this translation difference and also in different projects.

There has been some increase in project expenses in certain regions. And in other areas, there has been some decrease in those projected investments, but there has not been any major change that resulted in those fluctuations. It just the accumulation of a small factors and this is the most up to date figure that we have announced today..

Thank you very much..

Mr. Nagatsuka thank you for your question. Now let us move on to the next question..

Chunichi Newspapers Ms. Osada, please. We will be switching the screen. When you see yourself on the screen please start your question. We're now switching the screen. Ms. Osada, please..

This is Osada speaking from Chunichi Newspapers. Thank you for this opportunity. It's a detailed question. For the six months accumulated results in the interim results, number three labor costs. No, excuse me, not labor costs. For the effort made to reduce their expenses. So for the R&D, there was a plus ¥20 billion.

So, specifically what are you talking about here?.

Thank you for your question. Here also, it's not a significant item that's included in here, but for the R&D expenses, especially right now, we are focusing on the case areas. So, we are now shifting the conventional R&D activities to the case areas for about 40%, it will be in the so-called advanced technology research areas.

So the R&D expenses will be in this advanced R&D field, and especially for prototype expenses, those items have been continued to make improvements. And effect on net there will be annual basis a ¥20 billion effect that is, I think, how this number should be understood. So that is the answer. Thank you..

Thank you..

Thank you, Ms. Osada. Allow me to move onto the next question please. [Indiscernible] please. We will switch over the screen. So when you find yourself on the screen, please start your question. Mr.

Noguchi [ph] could you start your question, please?.

Thank you. Noguchi of NHK.

Can you hear me?.

Yes. We hear you well..

Thank you for this opportunity. Relating to the outlook of the future period, as was referred to in the earlier question, to a certain extent going forward, the uncertainty remains very high. The U.S. presidential election has not yet been called.

Depending upon the outcome of that election, the environmental regulations in auto bills or policies likely get implemented in environmental areas might come out differently.

So what is your assessment? What is your take on that at this moment? And in relation to the outlook on the second-half, what are expected likely impact on your second-half results?.

Thank you. With respect to the second-half of our year, as far as the outcome of a presidential election is concerned, the final results are not called yet. But no matter what the outcome may be in the United States, we have been operating our business for many, many years for a long period of time.

We employed many employees, including the dealers and suppliers and also the local community in which we allowed to operate. We are working with them very closely in the United States. And as a result, we want to be a better corporate citizen. And we remain committed to being that that.

That stance will not change by enhancing our competitiveness, by becoming even more competitive. We will continue to work harder to become a better corporate citizen. In terms of the outlook for the second-half, we are not expecting any substantial impact stemming from how the presidential election turns out to be. Mr.

Noguchi, thank you for your question..

Now going on to the next question. [Indiscernible] Tokyokesai. We will be switching the screen. When you yourself on the screen, please start with your question. We are switching the screen, a moment please. Keep your cameras off..

Thank you, now we see you. This is [Indiscernible] speaking. Thank you.

Do you hear me?.

Yes, we hear you..

Thank you. I wanted to ask a question regarding the U.S. So you talked about the sales incentives. And you said that there's positive impact from the reduction of incentives in operating income level compared with the previous quarter. We see a positive impact on the operating income. And for the inventory level for U.S.

auto data shows that it's about 40 days. So in the past, it was around 60 days, I think compared to that it's quite reduced. And incentive it's probably the level is about the same year-on-year. So it's flat. So I think you can say that you have a healthy condition in selling the vehicles. And Toyota shares, it seems that it is increasing.

Therefore, you can probably can say that it's not just in the recovery period, but you're having a good performance. So why do you think that in the U.S. you're having a good performance? And also for the outlook for the inventory level, maybe the dealer side is not having enough inventory.

So on a timeline, when do you believe that table return to the regular level? Some suppliers, we hear that you have quite a tight inventory.

And so what will be the outlook? How do you see the second-half?.

Thank you for your question. For North America, if you can see the per region situation for the segment between July to September the results are here. It's on Page 19, probably in the back of the package. And for North America just looking at second quarter, we have been increasing the profit, operating income.

And with breakdown here, of course, the automobile business is contributing plus the financial business. And so one-by-one to answer your question for inventories, yes, it is still in a quite a tight situation. So according to the model, the situation will differ, but mainly the light SUV pickups.

Light SUVs will be those that does not have enough in inventory. So when we ask the members in North America, they say that based on the inventory level for the incentives, there will be different according to the outlet of the dealer, and different according to the region we're talking about in the United States.

So the incentives are being adjusted accordingly and try to work in detail as possible. And we believe that will be most effective in dealing with a situation, and therefore the reason why we are having a good performance here is right now we're putting a lot of efforts in trying to increase the inventory level.

But when you look at the new products, the new models, we have been able to continuously supply the new models into the channel. So several years ago, the SUVs were said that were quite behind and late in introducing SUV models. But now SUVs are being introduced in the U.S. market and it's being taken quite well. That's what we believe the reason is.

And for the inventory level, there's a lot of effort put by receiving the cooperation from suppliers to continue production and try to come to the level that we think is appropriate. So by the beginning of the term, we think that we will be able to recover to the most appropriate level..

Just one additional question. So incentives from other side, do you think that even without so much incentives cars will sell? Is my understanding correct? We don't have to make too much effort in forcibly pushing up incentives..

Well, looking at the current situation, I think it's just a result of that. As a result, we can say that we did not need so much incentives. Thank you very much [Indiscernible]..

Let's move onto the next question. [Indiscernible]. So we will switch the screen, so if you find yourself on the screen please start your question. We're switching the screen. So please give us a little more time. Mr. [Indiscernible] could you please state your question..

Iwasaki of Ichiro [ph] Economic Journal.

Can you hear me?.

Yes, we can..

Thank you. In terms of suppliers located in Central Japan and Chubu area and not limited to Chubu area, but throughout Japan, in terms of suppliers.

As their production recovers, in terms of a supply chain, do you have any concerns? Or in terms of cash management the suppliers, I am right in understanding, that they have subsided and there is no further concern? As we see rather sharp recovery, what sort of attention should we paid to suppliers going forward? How are you going to work together with suppliers or corporate with suppliers? That's the first question.

Second question relates to the effect of the corporate action. In the first-half you achieved ¥50 billion, but hen different transact.

That may reflect the impact of a production reduction and especially in the first-half, you forgone the price change of the parts and components, so that maybe a factor that moving forward in the second-half in terms of cost reduction efforts, how are you going to achieve higher cost reduction working together with suppliers? What sort of specific activities are you going to engage yourselves in?.

Thank you. In terms of concerns or concern about cash management or financial availability.

Do we have none? We need to remain very vigilant in terms of the development on that front? With suppliers we are working very close together and our procurement department for each supplier that we are working with hearing out of their issues and their conditions. So that's how we are doing.

And this year our procurement department are having very close communication with the suppliers more often than in the past, and more closely than in the past. And by doing so, such information can be obtained from suppliers so that we can take necessary responses as needed.

In terms of cost improvement effort, we announced ¥50 billion in the first-half. In the first-half, usually we took about ¥300 billion of cost reduction benefits in that further for year. And in terms of the first-half, usually it should be around ¥150 billion, but that's a normal situation.

So the normal situation generated ¥150 billion, whereas we actually achieved ¥50 billion. But this ¥50 billion includes ¥40 billion in materials price. On the cross basis, we did have the benefits of reducing cost or saving costs by ¥70 billion.

During this period, the volume especially in the first part of the first-half, between April, May and June, the production volume was very small. And partly due to that the efforts were made to improve productivity to save costs.

And our support plans have been accumulating those cost reduction efforts, but because of the smaller volume the benefits of that was less visible. In the second-half, in terms of the full year outlook, we're expecting slightly below ¥200 billion, that are available in terms of our target.

So in the second-half, we'd like to accumulate and more and more in terms of cost saved. Thank you..

Thank you for your response..

Thank you, Mr. Iwasaki. There's still more questions but the scheduled time is coming closer. So we will just take one last question from Asahi Newspapers, [indiscernible]. We will be switching the screen. When you see yourself on the screen please start with your question. Mr. [indiscernible], please..

I'm from Asahi Newspapers. My name is [indiscernible]. So there was earlier another question, but for the reason why you have good performance in the United States is also my question. In the United States, they're having a large impact from COVID. A number of infections is also increasing.

So among in this environment, why is it that Toyota is able to have a good performance? And also for your outlook going forward, probably it's difficult to forecast. However, even with this wide spread of COVID, you're able to maintain this level of sales.

So does it mean that, because it's not in a panic, you're able to have a forecast thinking from a stable perspective? So can you tell me a little bit more about your forecast going forward?.

Thank you for your question. Well, thanks to everyone's support and cooperation. For the reason why we are able to continue ourselves is what I have explained previously. So, it is, one is because we are able to supply the products and also the dealers.

The outlets are looking very in detail to adjust the incentives and those efforts are bringing out the results. As you have said, as [indiscernible] has said, the infection risk is heightening. And so absentee rate is actually increasing slightly, that is our understanding. Therefore, it's difficult to have a steady view for the next half.

It's not still that kind of a situation. We will be watching every month, and monthly we will be making efforts to build up our volume. And that effort and that attitude will not change, that will not change for a while. So that is my understanding. Thank you..

Thank you, Mr. [indiscernible]. So with this, we would like to end our first part of the - second part of financial results press conference. Thank you very much for your attendance. After this, we will take a 10-minute break, and from 1:40 we will begin with part two. Thank you..