The reasons for the change in operating income from 20.2 billion yen to 17.6 billion yen are as follows:
An increase of 2.7 billion yen was due to foreign exchange gains. There was an approximate three-yen depreciation in the yen against the US dollar for a gain of 1.7 billion yen. Shipments from FHI to Canada subsidiary generated an exchange gain of 0.6 billion yen due to an approximate seven-yen depreciation in the yen against the Canadian dollar. There was an exchange gain of an additional 0.1 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 0.7 billion yen. There were also gains of approximately 0.3 billion yen resulting from the approximate twelve-yen depreciation in the yen against the Euro.
We gained 2.4 billion yen from material cost reductions, 1.8 billion yen at FHI and 0.6 billion yen at SIA. This included an approximate 5.0 billion yen increase in material costs due to a hike in steel prices as well as buoyant market conditions.
An additional gain of 2.9 billion yen was generated from the reduction of overhead costs. These can be broken down into four factors. [1] Reduction of fixed manufacturing costs led to a gain of 0.5 billion yen. [2] An decrease in SG&A expenses led to a gain of 1.4 billion yen. Domestically, SG&A costs were reduced by both FHI and dealers for an approximate gain of 2.0 billion yen, but internationally, saw an approximate loss of 0.5 billion yen. This was due to a rise in advertising costs of SOA, although it’s incentives stayed virtually the same on a year-on-year basis ($1,100 to $1,100). [3] A loss of accrued warranty costs led to a loss of 0.6 billion yen in line with an increase in foreign sales volume. And [4] the other reasons led to a gain of another 1.6 billion yen.
Factors leading to a profit decrease included an increase in R&D expenses (from 11.6 billion yen to 12.3 billion yen) that led to a drop of 0.7 billion yen in profit. This increase in R&D costs is due to the full model changes planned for the Impreza, Legacy and so on from the next fiscal year.
We lost 9.8 billion yen due to deterioration of sales volume and mix. This can be broken down into three factors.[1] Domestically, we suffered a loss of 1.9 billion yen with the reduction in volume of passenger cars shipped. [2] Internationally, a loss of 13.5 billion yen was recorded due to deteriorating sales volume and mix. [3] Inventory adjustments and other factors caused an increase of 5.6 billion yen.
Overall, we experienced a decrease in operating income of 2.5 billion yen.