CEO Message
Turning to the economic environment during the fiscal year, in the United States, personal consumption and private capital investment increased gradually, and the economy was on a moderate recovery trend; however, credit contraction and high rates of unemployment persisted. In Europe, economic conditions, in general, improved along with increases in consumer spending and other developments, but unemployment remained high, and there was concern regarding the financial system. In Asia, the economies of China and India expanded, and the remaining countries in the region generally reported recoveries. In Japan, the economy moved into a lull, and, although private capital investment showed some improvement, tough operating conditions continued as trends in consumer spending were weak in some areas and unemployment remained high. It is forecast that the Great East Japan Earthquake will have a depressing impact on the economy for the near term.
Under these business conditions, Honda's consolidated net sales and other operating revenue for the fiscal year ended March 31, 2011 expanded over the previous fiscal year, despite unfavorable currency translation effects, as a result of increases in the sales of motorcycles, automobiles and other Honda products. Such adverse factors as higher selling, general and administrative expenses, increased R&D expenditures, foreign currency movements and the effects of the earthquake had some negative impact. However, operating income and net income attributable to Honda Motor Co., Ltd. grew, reflecting such positive factors as the increase in net sales, changes in the mix of sales, the benefit of higher production volume on costs and overall cost-cutting activities.
Motorcycle Business
Total unit sales of motorcycles increased from the previous fiscal year because of higher sales in Asia and other regions, including South America.
In Asia, expansion in demand was robust, supported by strong economic performance. In particular, sales in Thailand of Honda's new Wave 110i and the Scoopy i as well as sales in India of the new CB Twister and the Activa acted as driving forces in bringing a major gain in sales. On the other hand, in North America, where demand did not fully recover, despite a moderate recovery mainly in the sales of utility all-terrain vehicles (ATVs), recovery in the sales of sports ATVs used mainly for recreation and motorcycles for recreation was lagging.
Sales in other areas, including South America, picked up after mid-year because of the increased availability of credit and improvement in income. Sales of the CG150 FAN, NXR150, CG125 and other models were strong, mainly in the Brazilian market.
Automobile Business
Unit sales increased from the previous fiscal year, despite declines in Japan and Europe, as a result of growth in unit sales in North America and Asia.
In Japan, operating conditions continued to be tough because of the reactionary decline in demand in the latter half of the fiscal year following the termination of government subsidies. New models were introduced to boost sales, including the Fit Hybrid, but because of the impact of shrinking demand, the adverse effects of the Great East Japan Earthquake and other factors, unit sales decreased.
In Europe, in spite of the launch of the CR-Z as a new market entrant and other measures, sales in the region were generally stagnant because of the termination of sales support policies in certain countries in the region, weakness in consumer spending trends and moreintense competition.
On the other hand, in North America, along with the moderate recovery in the United States, sales of the new model Odyssey and light trucks expanded.
In Asia, demand in China was on a growth trend, and sales of the CR-V, in particular, showed major expansion. Sales also grew in Thailand, Indonesia and elsewhere, amid favorable economic trends.
Power Products and Other Businesses
Total unit sales on a consolidated basis increased from the previous fiscal year on the strength of higher sales in all geographical areas.
In North America, Europe, Japan and other regions, including South America, along with the increase in demand for construction equipment accompanying the economic recovery, unit sales of general-purpose engines, mainly on an OEM basis, increased. In Asia, unit sales grew along with market expansion, agricultural subsidies provided by certain governments in the region, the effects of weather conditions and other factors.
Initiatives Going Forward
In recent years, Honda has been experiencing a period of major change in business conditions. Key factors causing this change have been increased awareness on a global scale of issues related to the environment and economic growth in emerging countries, which has brought structural change to the world economy. For Honda to continue to grow and develop, it will be important to create and commercialize advanced environmental technologies, take quick action to strengthen our business position in the markets of emerging countries and, at the same time, restructure our corporate organization to secure profitability.
With this awareness, we have positioned the next 10 years as a time for Honda to reform in the direction of "delivering good products to our customers, with speed, affordability and low CO2 emissions", and right now we are taking aggressive action to do just that. Delivering "good products" means that Honda must create attractive products that customers think are necessary based on our original technology, knowledge and ingenuity. We must do this "with speed" without keeping our customers waiting, and we must deliver them at affordable prices that will make customers think, "I'm glad I bought a Honda". I believe this is what we want to achieve, and, as a "personal mobility manufacturer", we must make more-aggressive efforts than ever before to make major reductions in CO2 emissions.
Motorcycles
Good Products at Affordable Prices
Among motorcycles, there are "commuter" types that play an essential role in providing people with basic transportation, and there are "fun" types that people ride for the joy and pleasure of riding. The market for commuter types in the emerging countries is expanding along with economic growth. With this trend as a driving force, Honda sold approximately 17,952,000 motorcycles last year, the largest number in our history. The principal markets for motorcycles are China, India, Indonesia and other countries that have large populations, and further growth in sales is expected in these countries. In addition, the nations in the African region, especially Nigeria, are new and expanding markets, and we believe they will provide support for Honda's growth.
To respond to this strong demand for commuter-type motorcycles, we believe that more and more affordable prices will be important. In recent years, Honda has taken initiatives to procure parts globally. We have standardized the basic architecture for models in the region to enable us to enjoy economies of scale in parts procurement. We have also promoted improvement activities among local parts manufacturers to set price standards globally as we have also worked to realize synergies.
For example, in Brazil, which is an important emerging country, the market share of Honda products is about 80%, but, by far, the most-important factor in Honda's position in that market is our entry-level models. These are Cub-style 100cc bikes that are light, quick and offer an easy ride, which is exactly the kind of performance that a commuter bike should provide. As we have evolved these bikes as Honda motorcycles, we have created supply systems that enable us to offer them at affordable prices.
Also, by making these bikes available at affordable prices, Honda is able to provide products to customers in an even-wider range of markets. In mid-2011, Honda introduced a new 125cc model in Nigeria, the largest bike market in Africa, where about 800,000 motorcycles are sold a year. By using highly competitive parts manufactured in China, Honda is able to offer these bikes to customers in Nigeria at affordable prices. In new markets, competition is tough because motorcycle manufacturers in China and India are already marketing low-priced models, but, by drawing on Honda's global resources, we will take aggressive action in developing the African market, with Nigeria as the base.
Strengthening the Honda Brand with Distinctive Styling
Along with affordable prices based on cost-competitiveness, another important element for success in the motorcycle business is having distinctive "Honda styling." Particularly for large and sport-type bikes targeted at customers who want to ride their bikes for fun, Honda aims not only for performance and specifications but also pursues strong and individualistic styling that makes everyone who sees the bike aware that it is a Honda. Design and styling that make potential customers think "I want that Honda bike. I love it." are key success factors.
Honda's large bikes come in the VFR series and the CB series. The VFR series aims to offer bikes that use the latest technology to make riding an interesting and fun experience. On the other hand, the CB series bikes are in the tradition of styling and value that Honda has created over the years in Japan and the United States. Having two series of bikes, one targeting traditional needs and the other focusing on a new wave, is an advantage for a top motorcycle manufacturer. Our next goal will be to make Honda motorcycles even more unique in terms of design and performance.
We are expecting major growth in the global motorcycle market in the years ahead. As a leading motorcycle manufacturer, Honda will work to offer products at affordable prices, using our technology and quality as a foundation. As we work to offer design and styling that is even more unique to Honda, we will continue to respond to the expectations of our customers throughout the world.
Automobiles
Internal Combustion Engine Evolution and the Spread of Hybrids
The current trend in the world automobile market toward more-compact cars with better fuel economy has been accelerated by the growing awareness of environmental issues and the instability of oil prices.
As a company providing "personal mobility", Honda has moved forward with R&D on a full range of environmental technologies and taken initiatives to reduce the burden on the natural environment. Among the various alternatives, and this is especially true for hybrids, we believe that environmental technology will be more valuable if it can appeal to a wider range of customers. That is why we proceeded with the development of our lightweight, compact IMA hybrid system, and, following this, have succeeded in offering vehicles equipped with this system at affordable prices. This hybrid system is now available on the Insight and CR-Z models, and in October 2011, Honda launched a Fit Hybrid model, and will continue to work to expand the market penetration of these vehicles.
We believe that hybrid technology will become a mainstay product as one means to reduce the burden on the environment. But, we think that people do not just want a hybrid vehicle, but also a vehicle with competitiveness and performance. In other words, these cars must be more than just hybrids. They also must have good fuel economy, offer a pleasant driving experience, and be available at affordable prices. That is why Honda is working to improve fuel economy by improving both the gasoline engine and battery technology. Also, with a target date in 2012, Honda will introduce a new lineup of gasoline engines and transmissions and is working toward the development of medium-sized and larger "plugin" hybrid car models that can be recharged using household power outlets.
In addition to these initiatives, Honda is proceeding with the development of a Battery Electric Vehicle (EV) that will apply technology it has created for a fuel cell electric vehicle (FCEV). Work is also under way on developing a compact diesel engine for the European market. The results that Honda has achieved by focusing our corporate resources on advanced technology will be applied to creating new products in the years ahead.
Strengthening Our Lineup of Small Cars as the World Shifts to Compacts
In response to the worldwide trend toward smaller cars, Honda is working to strengthen our mini-vehicle lineup in Japan and is moving ahead with the development of a new model BRIO compact car for Asia that is scheduled to launch in Thailand and India in 2011.
In the mini-vehicle segment, in Japan total new cars sold in 2010 amounted to about 1.73 million units, while the number of registrated vehicles sold was about 3.23 million units. Thus, in terms of units, mini-vehicles accounted for more than 30% of new car sales. Because of issues related to the rising cost of gasoline, customer demand for smaller cars is expected to rise, and an important issue will be how to increase competitiveness in mini-vehicles in the domestic market.
To respond effectively to this trend, Honda is already upgrading our mini-vehicle engines, transmissions and platforms. Therefore, an all-new mini-vehicle equipped with technology unique to Honda is expected to be launched in the near future.
The BRIO was launched in 2011 in Thailand as an eco-car with good fuel economy as well as exported to other ASEAN member nations. Plans also call for launching the BRIO as an entry-level car in India. To compete successfully in the rapidly expanding market for compact cars in emerging markets, the key factor is "affordability". Honda will draw on the know-how we have accumulated in Asian countries as a motorcycle manufacturer to enhance our competitiveness in automobiles.
Power Products and Other Businesses
Initiatives to Develop and Market New Energy-Generating Products
In power products business, Honda supplies general-purpose engines that power construction, agricultural and other types of machinery and, thereby, supplies useful products that help people get things done every day. In emerging markets, these products are even more indispensable for people's lives than motorcycles, and, as economic growth continues in these countries, their markets are expected to expand. For example, in the African market, demand for electric power generators is expanding, and Honda is drawing on the capabilities of our production bases in China and India to the fullest to expand sales by offering attractive products at affordable prices.
Also, in India, along with previously available electric power generators, Honda has begun to manufacture our first inverter power generators in that country, which can be used with high-precision equipment, such as medical devices, and require advanced technology to produce. In China, Honda has also become the first Japanese company to manufacture small tillers in that country. Through these and other activities, Honda is responding to demand in emerging markets by drawing on our technology and know-how to meet customers' expectations and develop new markets.
In addition, as part of our power products business, Honda is working aggressively to develop and market new energy-creation products, such as solar power panels and small cogeneration units for household use.
For Honda, the next 10 years will be crucial in determining whether we can successfully survive the major changes taking place in business conditions: namely, the "increased awareness on a global scale of issues related to the natural environment" and "structural change in the world economy". Honda must focus especially on further developing our advanced environmental technologies, strengthening our business position in emerging markets and bolstering our competitiveness in the small car business as we aim to make new leaps forward by enhancing the core characteristics that make Honda unique.
Returning Profit to Shareholders
Honda strives to conduct its business from a global perspective and to increase its corporate value. We consider the allocation of profits to shareholders to be one of our most-important management responsibilities. Our basic policy for dividends is to make distributions after taking into account our long-term consolidated earnings performance. Honda also acquires its own shares with optimal timing with the goal of improving the efficiency of its capital structure.
For fiscal 2011, Honda set a year-end cash dividend of ¥15 per share, bringing total cash dividends for the fiscal year to ¥54 per share. This dividend comprised ¥12 per share for the first quarter, ¥12 per share for the second quarter, ¥15 per share for the third quarter and, the previously mentioned year-end dividend of ¥15 per share.
For the fiscal year ending March 31, 2012, we are scheduled to pay quarterly dividends of ¥15 per share, or ¥60 per share for the full year, which will be ¥6 per share higher than in fiscal 2011. We will continue to do our utmost to meet the expectations of our shareholders.
Honda is a company where each and every member of management and the organization works to realize the dream of providing joy to Honda customers by setting challenging objectives, aiming for progress and growth as we look toward a better future at all times and working to open up the frontiers of the future. What we are aiming for today is "to become a company that society wants to exist." In the future, as in the past, Honda will take up the challenges of advanced creativity inherent in the features and qualities that are associated with the Honda brand by continuing to draw on "The Power of Dreams," respond to the expectations of society, bring joy to our customers, inspire them and give them satisfaction.
We look forward to the continued understanding and support of our shareholders and other investors. We are in this together, for the long term.
June 24, 2011
Takanobu Ito
President & Chief Executive Officer
