Moving on to the reasons for the change in operating income from 1.2 billion yen to 10.8 billion yen.
An increase of 5.2 billion yen was due to foreign exchange gains. There was an approximate eight-yen decrease in the yen against the U.S. dollar (from 115 to 107) Shipments from Fuji Heavy Industries Ltd. (FHI) to its Canadian subsidiary generated an exchange gain of 0.6 billion yen due to an approximate fifteen-yen rise in the yen against the Canadian dollar. There was an exchange gain of an additional 0.2 billion yen arising from SIA’s sales to our Canadian subsidiary due to the strong Canadian dollar against the U.S. dollar, making the total exchange gains from the Canadian dollar 0.8 billion yen. There were also gains of approximately 0.2 billion yen resulting from the approximately seven-yen rise in the yen against the euro.
We gained 3.1 billion yen due to an increase in the sales mix. Domestically we suffered a loss of 4.1 billion yen. This includes an approximately 10 billion yen loss in FHI sales due to costs associated with improving specifications to meet safety and environmental requirements which could not be reflected in the sticker price. Internationally we gained 1.9 billion yen due to a continued increase in FHI sales and an improved product mix as a result of production of the B9 Tribeca by SIA. Inventory adjustments, etcetera caused an increase of 5.3 billion yen, primarily because of unrealized inventory gains on top of the strong yen.
An additional gain of 1.6 billion yen was generated from the reduction of overhead costs. Reduction of fixed manufacturing costs led to a savings of 2.7 billion yen. This included an increase of approximately 0.7 billion yen at SIA and a drop of 1.6 billion yen at FHI in the depreciation expenses of suppliers’ dies, along with an approximately 1.8 billion yen decrease in processing costs at FHI.
SG&A expenses increased by 0.3 billion yen. Although approximately 1.5 billion yen was cut in advertising costs and dealer incentives by FHI and dealers, SOA saw an approximately 1.0 billion yen increase in incentives from $1,900 to $2,000 along with a 0.3 billion yen increase in advertising costs, bringing total SG&A expenses up approximately 1.5 billion yen. And other overseas subsidiaries increased their advertising costs and dealer incentives by a 0.3 billion yen.
We also saw a loss of 0.4 billion yen from a reversal in allowance for recalls and a loss of another 0.4 billion yen for other reasons.
We gained 1.1 billion yen from material cost reductions, 0.2 billion yen at FHI and 0.9 billion yen at SIA. This included a 2.5 billion yen increase in material costs due to a hike in precious metal prices as well as deteriorated market conditions.
Factors leading to the profit decrease included an increase in R&D expenses that led to a drop of 1.4 billion yen in profit. We are continuing to pursue efficiency in the development of new models.
Overall we experienced an increase of 9.6 billion yen that brought the operating income up to 10.8 billion yen.