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Here is a detailed analysis of the 11 billion to 20.2 billion yen increase in operating income.
Factors leading to profit increase:
Regarding reduction in cost of materials, we cut 1.5 billion yen from FHI and 1.7 billion from SIA for a total reduction of 3.2 billion yen. Remarkably, SIA’s significant cost reduction contribution was made in the face of increasing cost of steel, plastic and precious metal etc. and FHI successfully achieved its targeted cost reductions ahead of schedule.
We reduced R&D spending by 0.6 billion (from 12.2 to 11.6 billion). This was largely due to streamlined R&D operations for the Impreza FMC, and our new mini-passenger vehicle model to be launched next year, as well as the completion of R&D activities for the B9 Tribeca and the cancellation of new platform development.
Overhead costs decreased by 2.8 billion, along with fixed manufacturing costs down by 1.9 billion yen. This was due to FHI’s fully depreciated the dies for the Legacy model although fixed costs rose due to the launch of new models at SIA and increases in the depreciation cost of the dies for the B9 Tribeca. SG&A expenses decreased by 0.9 billion yen mainly because advertising expense and sales incentives at domestic dealers were reduced to 0.6 billion yen. This was also due to the reduction in sales incentives (from US$1,200 to US$1,100) at SOA during the third quarter as well. There was also an increase of 0.1 billion yen in provision for warranty (loss from reversal in allowance for recalls), with the remainder being found in other areas.
Currency exchange gains totaled 4.6 billion yen. There was an approximately six-yen rise in the yen against the US dollar (from 107.88 to 114.42), resulting in exchange gains amounting to 3.5 billion yen. There was also an approximately ten-yen rise in the yen against the Canadian dollar (from 87.44 to 97.88), resulting in exchange gains of 0.5 billion yen, along with exchange gains of another 0.5 billion yen arising from SIA’s sales to our Canadian subsidiary due to the strong Canadian dollar against the US dollar, making the total exchange gains from the Canadian dollar 1 billion yen. There were also gains of 0.1 billion yen resulting from the approximately two yen rise in the yen against the euro (from 135.82 to 138.19).
Factors leading to profit decrease:
We suffered a loss of 2 billion yen due to a deterioration in sales volume and mix. This amount included a loss of 4.6 billion yen in domestic sales due largely to a significant decline in the sales volume of the Legacy and the R2 as well as the unfavorable product mix for the Legacy. Overseas sales increased by 5 billion yen. This includes a 10 billion yen loss in FHI export due to costs associated with improving specifications to meet safety and environmental requirements which could not be reflected in the sticker price. Inventory adjustments and others caused a decrease of 2.4 billion yen. These factors combined led to an increase of 9.2 billion yen in operating income.