Annual Report Honda Motor Co., Ltd. Year Ended March 31, 2011

Transcription

1 Annual Report 211 Honda Motor Co., Ltd. Year Ended March 31, 211

2 Corporate Profile Honda Motor Co., Ltd., operates under the basic principles of Respect for the Individual and The Three Joys expressed as The Joy of Buying, The Joy of Selling and The Joy of Creating. Respect for the Individual reflects our desire to respect the unique character and ability of each individual person, trusting each other as equal partners in order to do our best in every situation. Based on this, The Three Joys express our belief and desire that each person working in or coming into contact with our Company, directly or through our products, should share a sense of joy through that experience. In line with these basic principles, since its establishment in 1948, Honda has remained on the leading edge by creating new value and providing products of the highest quality at a reasonable price, for worldwide customer satisfaction. In addition, the Company has conducted its activities with a commitment to protecting the environment and enhancing safety in a mobile society. The Company has grown to become the world s largest motorcycle manufacturer and one of the leading automakers. With a global network of 383* subsidiaries and 91* affiliates accounted for under the equity method, Honda develops, manufactures and markets a wide variety of products to earn the Company an outstanding reputation from customers worldwide. *As of March 31, 211 Caution with Respect to Forward-Looking Statements This annual report contains forward-looking statements as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are based on management s assumptions and beliefs, taking into account information currently available to it. Therefore, please be advised that Honda s actual results could differ materially from those described in these forward-looking statements as a result of numerous factors, including general economic conditions in Honda s principal markets; foreign exchange rates between the Japanese yen and the U.S. dollar, the Euro and other major currencies; and extensive environmental and other governmental regulations, as well as other factors detailed from time to time.

3 Contents 2 The Power of Dreams 2 Summary of Operating Results by Business 4 Financial Highlights 6 To Our Shareholders 14 Review of Operations Motorcycle Business Automobile Business Power Product and Other Businesses Financial Services Business 3 Medium- and Long-Term Management Strategy and Management Target: Preparing for the Next Leap Forward Risk Factors Corporate Governance Board of Directors, Corporate Auditors and Operating Officers Financial Section Investor Information Introducing Honda s Activities and Publications CSR Report Available on the Internet at the following URL: Environmental Report Available at the following URL: Philanthropy Available on the Internet at the following URL: On the cover: Honda Civic (North American model) The all-new Civic went on sale nationwide in the United States in April 211. This new Civic is the ninth-generation model, and features dynamic body styling, a pleasant and refined interior, outstanding driving stability and high fuel economy. The lineup includes seven types: the conventional gasoline-powered Civic Sedan and Coupe, the HF-type high fuel economy model, the gasoline-electric Civic Hybrid equipped with a lithium-ion battery, the Civic Si Sedan and Coupe as well as the Civic Natural Gas model. 1

4 1, Summary of Operating Results by Business ,6 16 1, Motorcycle Business 1, 1,6 Automobile Business 1, ,178 1, Percentage of Net Sales 8 5, by Business , ,2 Net Sales / 12 1, , 4 Operating Income (Loss) ,5 75 Years ended March Net Sales (left scale) 2 4 5, Operating 5 Income (Loss) (right scale) , , , , 7, , Japan North Europe 2 America 2,5 15 1, , 1,69 75 The Power of Dreams Yen 582 (billions) Japan 1 Other 5 Regions 25 Dreams inspire 1 us to create innovative -1 products that enhance -2 mobility and benefit society Thailand 11 Japan To meet the 5 particular needs of customers in different regions around the world, we 2,85 base 2 our sales networks, research and development centers and manufacturing facilities in 15 1,325 Germany Canada 1,174 each region. Furthermore, as a socially responsible corporate citizen, U.K. we strive to address U.S.A. Thailand Japan important environmental and safety issues ,5 2,5 Unit Sales by Region (Thousands) Years ended March Japan 3 15 North America North America 198 Europe Europe % % Asia 1,8 Asia Asia Other Regions 2 15 Other 1 Regions 5 1, 7, , Japan 2,5 9,178 Japan North Europe America Japan Japan North Europe America 1,8 North America Germany U.K. 1, 1, ,458 Asia Other 5 Regions Yen 582 (billions) ,85 4 Japan 1 North America Europe Asia Other Regions 2 1, Japan 3 15 North America 1,458 2,85 Europe 1,174 North Europe America Europe Brazil 1, Asia 15 Other 1 Regions 5 Asia 1,8 Asia 1,325 Asia Canada U.S.A. 1,69 Other Regions 266 Other Regions 537 Other Regions Brazil Germany U.K. Canada

5 , ,458 9,178 Japan North Europe America Asia 1,8 Power 1, Product and Other19 Businesses ,5 5, Japan 45 2, Other Regions 3.3% Japan 2,85 North Europe America Asia 8 2,85 Japan North Europe America Germany 537 Asia Other 2 Regions Asia Japan Thailand Japan U.S.A. North Europe America 1,325 1,174 North Europe America Asia North Europe America Asia Canada 5 U.K U.S.A. 1Thailand 11 Japan Japan North Europe America Brazil Canada U.K. U.S.A. Thailand Japan ,17 Other 1 Regions Germany Germany ,85 29 Locations 2,85 Other Regions 15 Japan Brazil Germany U.K. Other 1 Regions Thailand Japan Germany Canada 21 U.K. U.S.A. Thailand Japan Brazil Canada U.K Japan 3 1,325 1, Other Region North Europe America 7 4 Other 2 Regions 11 1,174 Yen 582(billions) 4 Japan Asia 1, % ,8 3 North Europe America ,174 7 Japan 198 Financial Services Business Asia Other Regions 537 North Europe America Japan Brazil 1,458 8 Yen 582(billions) North Europe America , 1,69 1, ,

6 Financial Highlights Financial Data Years ended March 31 Yen (millions except per share data) U.S. dollars (millions except per share data) Net sales and other operating revenue 1,11,241 8,579,174 8,936,867 $17,479 Operating income 189, , ,775 6,852 Income before income taxes and equity in income of affiliates 161, ,198 63,548 7,583 Equity in income of affiliates 99,34 93, ,756 1,681 Net income attributable to Honda Motor Co., Ltd. 137,5 268,4 534,88 6,423 Cash dividends paid during the period 139,724 61,696 92,17 1,18 Research and development 563, , ,591 5,864 Total assets 11,818,917 11,629,115 11,57, ,157 Total Honda Motor Co., Ltd. shareholders equity 4,7,288 4,328,64 4,449,975 53,517 Capital expenditures (excluding purchase of operating lease assets) Depreciation (excluding property on operating leases) Per share data 633, , ,62 3, ,868 41, ,496 4,227 Net income attributable to Honda Motor Co., Ltd $ 3.56 Dividends paid Total Honda Motor Co., Ltd. shareholders equity 2, , , Note: United States dollar amounts have been translated from yen solely for the convenience of the reader at the rate of 83.15=U.S.$1, the mean of the telegraphic transfer selling exchange rate and the telegraphic transfer buying exchange rate prevailing on the Tokyo foreign exchange market on March 31, 211. No representation is made that yen amounts could have been, or could be, converted into U.S. dollars at that rate or any other rate on this or any other date or at all. Net Sales and Other Operating Revenue Operating Income and Operating Margin Equity in Income of Affiliates Yen Yen (billions) Yen Yen (billions) (%) (%) (%) Yen Yen (billions) (Thousands) Yen Yen (billions) Yen Yen (billions) (%) (%) (%) Yen Yen (billions) (Thousands) 12, 12, 1, 1, , 12, 12, 12, 1, 1, , 12, , 8, , 8, 8, 8, 1 1 8, 8, , 4, , 4, 4, 4, , 4, Operating 7 Income 7 7 Income 8 8 (left 8 (left (left scale) 9 9 scale) Operating Income Margin Income Margin (right (left (left (right (left scale) scale) Operating Margin Margin (right (right scale) scale) Net Income Attributable to Honda Motor Co., Ltd. and Return on Equity (ROE) Total Assets, Total Honda Motor Co., Ltd. Shareholders Equity and Total Honda Motor Co., Ltd. Shareholders Equity per Common Share Capital Expenditures and Depreciation (Excluding Property on Operating Leases) Yen Yen (billions) (%) (%) (%) Yen Yen (billions) (Yen) (Yen) Yen Yen (billions) Yen Yen (billions) 6 6 (%) (%) (%) Yen Yen (billions) 12, 12, (Yen) (Yen) 3, 3, Yen Yen (billions) , 12, 3, 3, , 8, 2, 2, 4 4 8, 8, 2, 2, , 4, 1, 1, , 4, 1, 1, Net Net Net Income Income 7 7 Attributable to 9 to 9 to Total Total Total Assets 7 Assets 7 (left 7 (left 8 (left scale) 8 8 scale) Capital Capital Expenditures Net Honda Net Net Honda Income Motor Income Motor Attributable Co., Co., Co., Ltd. Ltd. Ltd. (left to (left to (left scale) to scale) Total Total Total Assets Honda Assets Honda (left Motor (left (left Motor scale) Co., scale) Co., Co., Ltd. Ltd. Ltd. Shareholders Capital Depreciation Capital Expenditures Honda ROE ROE Honda ROE (right Motor (right scale) Motor Co., scale) Co., Co., Ltd. Ltd. Ltd. (left (left (left scale) scale) Total Equity Total Total Equity Honda (left (left Honda (left scale) Motor scale) Motor Co., Co., Co., Ltd. Ltd. Ltd. Shareholders Depreciation ROE ROE ROE (right (right scale) scale) Equity Total Total Equity Total Honda (left (left Honda (left scale) Motor scale) Motor Co., Co., Co., Ltd. Ltd. Ltd. Shareholders Total Equity Total Total Equity Honda per per Honda Common per Motor Common Motor Co., Share Co., Co., Ltd. Share Ltd. (right Ltd. Shareholders (right scale) scale) Equity Equity per per Common per Common Share Share (right (right scale) scale) 1, 1, 1, 1, Yen Yen (billions) Yen Yen (billions) 2, 2, 2, 2, 1,5 1,5 1,5 1,5 1, 1, 1, 1,

7 Operating Data Years ended March 31 Unit Sales Breakdown (Thousands) Motorcycles Automobiles Power Products Change Change Change Japan % (9.9)% % North America (2.1) 1,297 1, ,818 2, Europe (2.5) 1,66 1, Asia 7,628 9, , ,69 1, Other Regions 1,433 1, Total 9,639 11, % 3,392 3, % 4,744 5, % Net Sales Breakdown Yen (millions) Motorcycle Business Automobile Business Financial Services Business Power Product and Other Businesses Change Change Change Change Japan 7,461 7,244 (.3)% 1,383,855 1,31,734 (5.3)% 24,635 26, % 98,367 96,515 (1.9)% North America 13,956 96,664 (7.) 3,13,432 3,252, ,169 53,96 (8.9) 65,89 67, Europe 124,665 13,89 (16.7) 575, ,696 (23.2) 1,428 9,263 (11.2) 54,366 55, Asia 461,67 577, ,41,258 1,221, ,318 3,728 (13.7) 36,754 49, Other Regions 38, , , , ,82 18, ,35 23, Total 1,14,292 1,288,194Yen 13. (billions) % 6,554,848 6,794, % 66, ,896 (7.3)% 277, ,679 (%) 5.4 % 12, 1, (Thousands) (Thousands) (Thousands) Unit Sales 12, 12, 12, 12, 4, 4, 4, 4, 4, 8, 8, 8, 8, Motorcycles Automobiles Power Products 5 3, 3, 3, 3, 6, 6, 6, 6, (Thousands) 8, 8, 8, 8, (Thousands) (Thousands) , 12, 4, 4, 2, 2, 2, 2, 8, 8, 4, 4, 4, 4, Operating Income (left scale) 7 8 4, 4, 4, 4, Operating Margin (right scale) 3, 3, 1, 1, 1, 1, 6, 6, 2, 2, 2, 2, 8, 8, , 2, 4, 4, 4, 4, , 1, 2, 2, Net Sales 8, , Motorcycle 1, 1, 1, Business 1, 1, Automobile 1, 1, Business 1, 1, 1, Financial 1,Services Business 8, 1, 1, 1, 1, Power Product and 2, Other Businesses4 Yen (billions) Yen 3(billions) Yen 1. (billions) Yen (billions) 2, 2, 2, 2, 1, 1, 1, 1, , , 1, 1, 1, 15 1, 1, 5. 1, 1, Yen Yen (billions) Yen Yen (billions) Yen Yen (billions) ,5 1,5 1,5 1,5 7,5 7,5 7,5 7,5 Yen Yen (billions) , 2, 1, 1, Net Income Attributable to Total Assets (left 3 scale) Capital Expenditures 1, 1, 1, 1, 5, 5, 5, Honda 5,Motor Co., Ltd. (left scale) Total Honda Motor Co., Ltd. Shareholders Depreciation ROE (right scale) Equity (left 4 scale) 4 1,5 1,5 7,5 7, Total Honda Motor Co., Ltd. Shareholders Equity per Common Share (right scale) ,5 2,5 2,5 2, , 1, 5, 5, , , Japan North America Europe Asia Other Regions (%) (Yen) , 3, , 1 2 5

8 To Our Shareholders We would first like to thank you, our shareholders, for your continuing interest in Honda s business activities and for your ongoing support. We also would like to express our deepest sympathies to those who suffered losses and injuries as a result of the Great East Japan Earthquake and tsunami. Our thoughts are with them, and we express our deepest sympathy from the bottom of our hearts. To our shareholders and others in the stricken areas, we wish to express our deepest sympathies and our sincerest hopes that the devastated areas will be able to recover as quickly as possible. 6

9 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, 211 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 11i 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 CG15FAN, NXR15, CG125 and other models were strong, mainly in the Brazilian market. 7

10 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. 8

11 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 1 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, 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. 9

12 For example, in Brazil, which is an important emerging country, the market share of Honda products is about 8%, but, by far, the most-important factor in Honda s position in that market is our entry-level models. These are Cub-style 1cc 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-211, Honda introduced a new 125cc model in Nigeria, the largest bike market in Africa, where about 8, 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. 1

13 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 211, 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 212, 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 211. In the mini-vehicle segment, in Japan total new cars sold in 21 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 3% 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. 11

14 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 211 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 1 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. 12

15 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 211, 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, 212, we are scheduled to pay quarterly dividends of 15 per share, or 6 per share for the full year, which will be 6 per share higher than in fiscal 211. 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, 211 Takanobu Ito President & Chief Executive Officer 13

16 4, 6, 1, Review of Operations 3, 4, 2, 1, 3 7,5 2 5, 1 2, Unit Sales Thousands 12, 8, 4, 6 6, Thousands Thousands % change 8, 2, 45 Japan % 6, 3 North America 1, (2.1) Europe 4, , 15 Asia 7,628 9, , 5 Other Regions , , Total 9,639 11, % Japan North America Europe Asia Other Regions Non-current Current 4,5 4 3, 3 1,5 2 1 Net Sales Thousands 4, 3, 2, 2, 1,5 1, 5 1, 6, 7,5 4, 5, 2, 2,5 Yen (millions) % change 45 7,5 Japan 7,461 7,244 (.3)% North America 5, 13,956 96,664 (7.) Europe 124,665 13,89 (16.7) 15 2,5 Asia 461,67 577, Other Regions , , Total 1,14,292 1,288, % Japan North America Europe Asia Other Regions Non-current Current Thousands 8, 5 Percentage of Net Sales by Business , % 6 6, 1, 3 4,5 3, 1, , 2, 2 1,5 8, , , , 3, 1, , 1,5 7, , 5, CBR25R (Japan) , 2, r Regions Non-current Current , 5 6, 4,5 8, , 6, 4 4, 3

17 Motorcycle Business Honda s unit sales of motorcycles and all-terrain vehicles (ATVs) totaled 11,445 thousand units, an increase of 18.7% compared with the previous fiscal year, due mainly to an increase in unit sales in Asia and Other Regions, including South America. Revenue from external customers increased billion, or 13.%, to 1,288.1 billion from the previous fiscal year, due mainly to increased unit sales and revenue related to licensing agreements. Honda estimates that by applying Japanese yen exchange rates of the previous fiscal year to the current fiscal year, net sales for the year would have increased by approximately billion, or 15.%, compared to the increase as reported of billion, which includes the unfavorable foreign currency translation effects. Operating income increased 79.7 billion, or 135.6%, to billion from the previous fiscal year, due mainly to an increase in income attributable to the increased net sales and income related to licensing agreements. 15

18 Japan Total industry demand for motorcycles in Japan in fiscal 211 was approximately 42 thousand units*, approximately 3% higher than in the previous fiscal year. Although the percentage of younger people in the total population continued to decline and there were changes in consumer preferences, unit sales grew primarily due to the introduction of new models. Total unit sales on a consolidated basis were 19 thousand units, and about the same level as in the previous fiscal year, as sales of the scooters PCX and Giorno expanded. In addition, the all-new electric-powered EV-neo, a commercial-use scooter that emits zero CO2 emissions, was made available on lease. Four Trax Rancher (North America) * Source: JAMA (Japan Automobile Manufacturers Association) Giorno (Japan) North America Total demand for motorcycles and all-terrain vehicles (ATVs) in the United States during calendar 21 declined approximately 17% from the previous year, to about 7 thousand* units. Although there were signs of recovery, mainly in sales of utility ATVs, this did not lead to a full-scale recovery in demand. Honda s consolidated unit sales in North America declined 2.1%, to 185 thousand units. Unit sales of touring models, such as Goldwing, as well as cruiser models including Shadow, were favorable, however, unit sales of sports models such as CBR1R and CRF23M motocross models decreased. As a result, unit sales of motorcycles were down 8.2% from the previous fiscal year, to approximately 9 thousand units. However, unit sales of ATVs rose 4.4%, to approximately 95 thousand units, because of strong demand for utility ATVs, including the Four Trax Rancher and other models. * Source: MIC (Motorcycle Industry Council) 16

19 Goldwing (North America) Europe Total demand for motorcycles in Europe* during calendar 21 declined about 13%, to approximately 92 thousand units. This major drop in demand was due to a number of factors, including a reactionary decline following the end of subsidies for motorcycle purchases in Italy and the impact of an increase in the value-added tax (VAT) in Spain. Honda s consolidated unit sales in Europe increased 1.5% compared with the previous fiscal year, to 22 thousand units. Despite the effects of a decline in the market for 125cc scooters, units sales of PCX motorcycles were favorable and sales of the naked type CBF1, the new VFR12F sports tourer and other models rose. * Based on Honda research, the motorcycle registration market for Europe includes 1 countries: the United Kingdom, Germany, France, Italy, Spain, Switzerland, Portugal, the Netherlands, Belgium and Austria. PCX (Europe) 17

20 CB Twister (India) Scoopy i (Thailand) Asia Demand for motorcycles continued to expand in Asia, despite price increases, including the price of gasoline, tighter credit and other factors in certain countries. In calendar 21, total demand for motorcycles* 1 rose about 1%, to approximately 43.8 million units. Unit sales in India rose about 29%, to approximately 11.3 million units, while sales in Indonesia increased about 26%, to approximately 7.36 million units, and sales in Thailand expanded approximately 12%, to approximately 1.85 million units. Honda s unit sales on a consolidated basis in Asia* 2 for the fiscal year increased 2.3%, to 9,178 thousand units. This increase was due primarily to an expansion in sales of the CB Twister motorcycle and the Activa scooter in India, unit sales of a new Wave 11i Cub-style 11cc motorcycle and Scoopy i scooter in Thailand, as well as other factors. With respect to production activities, Honda Motorcycle & Scooter India Private Limited, Honda s consolidated subsidiary in India, announced it would further expand the production capacity of a second plant that is already under construction, and also build a third plant, to meet the rapidly expanding demand in the Indian market. Combined with expansion in capacity at the existing plant, when the second plant goes into operation in the first half of calendar 212, Honda Motorcycle & Scooter India is scheduled to have annual production capacity of approximately 2.8 million units. Additionally, when the third plant goes into operation in the 18

21 first half of calendar 213, it is scheduled to have annual production capacity of approximately 4. million units. Also, Honda Vietnam Co., Ltd., Honda s consolidated subsidiary in Vietnam, announced it would expand the capacity of its second plant to meet the favorable increase in demand. By the latter half of calendar 211, this expansion in facilities is scheduled to bring total annual capacity to approximately 2. million units. In Indonesia, P.T. Astra Honda Motor, which is an affiliate accounted for under the equity method, made the decision to build a new plant to respond to continued robust growth in demand. When this new facility goes into operation in the latter half of calendar 211, the annual production capacity of Astra Honda Motor is scheduled to increase to approximately 4. million units. Honda resolved at a meeting of the Board of Directors on December 16, 21 to sell to its joint venture partners all the shares held by Honda in Hero Honda Motors Limited, an affiliate of Honda accounted for under the equity method, for the dissolution of the joint venture. Accordingly, Honda executed the share transfer agreement and new license agreements on January 22, 211. In accordance with the terms of the share transfer agreement, Honda sold all the shares it held in the joint venture partners as of March 22, 211. Wave 11i (Thailand) * 1: Based on Honda research, the motorcycle registration market includes eight countries: Thailand, Indonesia, Malaysia, the Philippines, Vietnam, India, Pakistan and China. * 2: This total includes sales of completed products of the Company and its consolidated subsidiaries and unit sales of parts for use in local production to Honda s affiliates accounted for under the equity method. CG15FAN (Brazil) Other Regions In Brazil, the principal market within Other Regions, total demand in calendar 21 increased approximately 12%, to about 1.8 million* units. This was due to improved consumer confidence accompanying increases in the employment rate and personal income as well as increased availability of credit starting from mid-year onward. In Other Regions (including South America, the Middle East, Africa, Oceania and other areas), unit sales rose 17.9% over the previous fiscal year, to 1.69 million units. This was the result of increased sales of mainstay models, including the CG15FAN and NXR15 motorcycles in Brazil. * Source: ABRACICLO (the Brazilian association of motorcycle, moped and bicycle manufacturers) 19

22 12, 8, 4, 6, 2, 3, 4, 1,5 2, 1, 1, 3 7,5 2 5, 1 4, Review of Operations 1, 2, Unit Sales Thousands 4, 3, 2, 2, 1,5 1, 5 Thousands 8, 1, 6, 7,5 4, 5, 2, 2, Thousands 8, 1, 45 Thousands % change Japan (9.9)% 6, 7,5 3 North America 1,297 1, Europe 4, (2.5) 5, Asia 95 1, , 2,5 Other Regions Total , , % Japan North America Europe Asia Other Regions Non-current Current Net Sales Yen (millions) % change 4 45 Japan 1,383,855 1,31,734 (5.3)% , 2 North America 3,13,432 3,252, Europe , ,696 (23.2) 1 Asia 8, 1,41,258 1,221, Other Regions , , , Total 6,554,848 6,794, % Japan North America Europe Asia Other Regions Non-current Current , Percentage of Net Sales by Business 4,5 6, 4,5 4 3, 3 1, , 5 4, 4,5 3, 2, 1,5 1, % 3, 4, 1,5 3, 2, , 1, 7,5 5, 2,5 r Regions Non-current Current , 4,5 8, 5 3, 6, 4 1, , 2, , 4,5

23 Automobile Business Honda s unit sales of automobiles totaled 3,512 thousand units, an increase of 3.5% compared with the previous fiscal year, due mainly to an increase in unit sales in North America and Asia, which was partially offset by decreases in unit sales in Japan and Europe. Revenue from external customers increased billion, or 3.6%, to 6,794. billion from the previous fiscal year, due mainly to increased unit sales, which was partially offset by the unfavorable foreign currency translation effects. Honda estimates that by applying Japanese yen exchange rates of the previous fiscal year to the current fiscal year, net sales for the year would have increased by approximately billion, or 8.3%, compared to the increase as reported of billion, which includes unfavorable foreign currency translation effects. Revenue including intersegment sales increased billion, or 3.8%, to 6,82.3 billion from the previous fiscal year. Operating income increased billion, or 18.7%, to billion from the previous fiscal year, due mainly to an increase in income attributable to the increased net sales and continuing cost reductions, which were partially offset by increased selling, general and administrative expenses and R&D expenses, unfavorable foreign currency effects and the impact of the Great East Japan Earthquake (the Earthquake ), which occurred on March 11, 211. Civic si (North America) 21

24 Fit Hybrid (Japan) Japan Total industry automobile sales in Japan* 1 for fiscal 211 decreased about 6%, to approximately 4.6 million units. In the first half of the fiscal year, automobile sales held firm because of the positive effects of government policies that provided tax breaks and subsidies for purchasing eco-cars and other factors. However, these subsidies came to an end in the latter half of the fiscal year, resulting in a reactionary decline in sales. Honda s unit sales in Japan decreased 9.9% from the previous fiscal year, to 582 thousand units. Although sales of the new model the Freed Spike, the CR-Z, the StepWGN, which earned the top spot in accumulated sales through 21 in the minivan category, and the Fit Hybrid were quite favorable, overall sales experienced a reactionary decline after the termination of subsidies for eco-cars. Among production activities, unit output for the domestic market decreased following the termination of the ecocar subsidies, but exports increased, with particularly strong unit sales of CR-V models in North America. During the fiscal year under review, Honda s domestic unit production of automobiles was approximately 912 thousand units, about the same level as in the previous fiscal year. Honda suspended production following the Earthquake, and, as a result, unit output was about 39 thousand units lower than the original plan. * 1: Source: JAMA (as measured by the number of regular vehicle registrations (661cc or higher) and minivehicles (66cc or lower)) * 2: Certain sales of automobiles that are financed with residual value type auto loans by our domestic finance subsidiaries are accounted for as operating leases in conformity with U.S. generally accepted accounting principles. As a result, they are not included in total sales of our automobile segment or in our measure of unit sales. Freed Spike (Japan) 22

25 CR-Z (Europe) Europe During calendar 21, total demand in Europe* 1 decreased approximately 5% from the previous year, to approximately million units. During the first half of the year, the market was supported by government subsidies in some countries, but in the second half consumer confidence declined significantly due to the impact of stringent credit policies in the principal countries of the region, and marked declines were reported, especially in markets targeting individual retail customers. On the other hand, in Russia* 2, sales increased about 3%, to approximately 1.91 million units. Honda s consolidated unit sales in Europe decreased 2.5%, to 198 thousand units due to the effects of the slump in the retail sales market, increased competition and other factors. In the area of production, unit output at Honda s U.K. plant rose 4.% over the prior fiscal year, to approximately 139 thousand units, in part because of temporarily suspended production in the prior year. * 1: Source: ACEA (Association des Constructeurs Europeens d Automobiles (the European Automobile Manufacturers Association) (New passenger car registrations cover EU27 and EFTA3.)) * 2: Source: AEB (The Association of European Businesses) North America In calendar 21, total industry sales in the United States* increased about 11% over the previous year, to approximately million units. Sales of light trucks were especially strong and rose approximately 18% over the level in 29. Honda s consolidated automobile unit sales in North America rose 12.4%, to 1,458 thousand units. Sales of the CR-V, Pilot, MDX, the all-new Odyssey that was launched in September 21 and light trucks were favorable. In addition, sales of the Accord Crosstour and the launching of new models of the TSX Sports Wagon and TL contributed to growth. In production activities, Honda manufactured approximately 1,292 thousand units in North America, 12.1% higher than in the previous fiscal year. This increase was led by higher production of the popular CR-V and Pilot models and the allnew Odyssey. Acura TL (North America) * Source: Ward s Auto 23

26 Odyssey (North America) Li Nian S1 (China) Asia In Asia, total demand continued to increase due to robust economic growth and the positive effects of new car model launches. Unit sales in China rose about 32% over the previous year to approximately 18.6 million units.* 1 In Asia, excluding China, units sales climbed 27%, to about 7.48 million units.* 2 Honda s unit sales in Asia outside Japan rose 6.1%, to 1,8 thousand units, supported by solid economic expansion in the region. Sales of the CR-V in Thailand, Indonesia, Malaysia and elsewhere in Asia, as well as sales of the City in Thailand, continued to be favorable. Together with sales growth in China, Honda s overall sales in Asia expanded. In the production area, in response to continued expansion in demand in China s automobile market, Guangqi Honda Automobile Co., Ltd., an affiliate accounted for under the equity method, is scheduled to increase its annual production capacity from the current 36 thousand to 48 thousand units by the latter half of calendar 211. In addition, Dongfeng Honda Automobile Co., Ltd., an affiliate accounted for under the equity method, started construction of a second plant in response to continued expansion in demand in China s automobile market. Within the latter half of calendar 212, Dongfeng Honda s total annual production capacity is scheduled to increase to 34 thousand units. * 1: Source: China Association of Automobile Manufacturers * 2: The total is based on Honda research and includes the following 1 countries: Thailand, Indonesia, Malaysia, the Philippines, Vietnam, Singapore, Taiwan, South Korea, India and Pakistan. 24