CEO Message

We would like to express our heartfelt thanks to all of our shareholders for your continued interest and ongoing support for Honda's business activities. We would also like to extend our sincere gratitude to all of our customers, suppliers and those who live in the local communities where Honda sites are situated.Your support has been vital to our growth and development.

During the fiscal year ended March 31, 2014, the U.S. economy continued its gradual recovery as demonstrated by some key economic indicators including an improved employment situation, a gradual increase in consumer spending and the steady performance of the housing investment market. In Europe, we started to see signs of economic recovery despite negative GDP growth, prolonged high unemployment rates and other lingering weaknesses in the economy. In Asia, the Chinese economy continued to expand, whereas the pace of economic expansion decelerated in Thailand and became more gradual in India and Indonesia. Meanwhile, the Japanese economy recovered gradually as evidenced by some positive indexes including the improvement of the employment situation and an increase in consumer spending.

In such an economic environment, Honda's consolidated net sales and operating revenue for the fiscal year ended March 31, 2014 amounted to ¥11,842.4 billion, an increase of 19.9% compared to the previous fiscal year, due mainly to increased revenue in both our automobile and motorcycle businesses and favorable currency effects.

Consolidated net income amounted to ¥574.1 billion, an increase of 56.4% compared to the previous fiscal year, and net income per share increased to ¥318.54.

For our motorcycle business, sales increased in India and some other countries, due mainly to the positive effect of new model introductions.

For our automobile business, sales increased in Japan and North America due to the positive effect of new model introductions and full model changes.

For our power products business, sales increased in North America, whereas sales experienced a year-on-year decline in some regions including Asia.

Future Initiatives

Offering the most appropriate products to our customers while understanding differences in business and regional characteristics

Honda operates in a broad range of business domains including motorcycles, automobiles and power products. Needless to say, we are dealing with different sets of customers and market situations for each business area.

In order for each of our business operations to build and maintain a highly competitive and robust structure in the midst of fierce competition, each operation must have a complete understanding of its own business environment and conduct its business while making decisions with a sense of speed and high motivation.

The same can be said for regional differences in the business environment. The "Lehman Shock" triggered changes in the global economic order, and since then, the mindset of our customers has been changing dramatically. These changes further increased the importance of enhancing the global competitiveness of our business while identifying and sincerely fulfilling the needs of our customers proactively. We believe that true globalization of our business means doing these two things simultaneously.

Working toward our goal to "deliver good products to our customers with speed, affordability and low CO2 emissions," we have been striving to gain a better understanding of differences in the market environment and customer preferences for each business and each region and sharing such knowledge across the entire company. Now, we will advance our corporate structure, which enables us to pursue manufacturing that fuses together development, production and purchasing, and accelerate our initiative to create the most appropriate products for our customers in each field of business and each geographic region.

Our ultimate goal is to make Honda products the "product of choice" for more customers in each business and region around the world and provide the highest satisfaction to our customers. Toward this end, we continue to take on more and more challenges and then deliver the fruit of our efforts to our customers in the form of concrete products and technologies. In doing so, Honda strives to be a company society wants to exist.

Motorcycle Business

Strengthening the competitiveness of our products by simultaneously enhancing product performance and achieving cost reduction

In the motorcycle business, our unit sales is continuously expanding due to strong demand for commuter models in emerging markets. This is especially true in India, the world's largest market for commuter-type motorcycles, where we have been significantly increasing unit sales by introducing highly competitive products in the 100cc segment, the largest segment within the motorcycle market in India.

In the area of motorcycle production, we have already expanded the annual production capacity of the No.3 plant in India, which became operational in May 2013, to 4.6 million units. Moreover, in February of this year, we made a decision to build a No.4 plant to accommodate the further growth of the motorcycle market in India. The No. 4 plant is scheduled to become operational in the second half of the fiscal year ending March 31, 2016 with an annual production capacity of 1.2 million units. Combined with the capacity of existing plants, Honda's overall annual motorcycle production capacity in India will reach 5.8 million units. Furthermore, as a part of our efforts to accommodate vigorous demand for motorcycles in emerging nations, we are currently building a No.4 plant in Indonesia, as well.

In addition to expanding our production capacity, we are striving to increase the competitive strength of our products. Our efforts include enhancement of the product line-up and improvement of the fuel economy of scooter models, for which demand has increased rapidly in recent years. The improvement of fuel economy and overall environmental performance enables our customers to reduce gasoline consumption and CO2 emissions, and we believe that is an added value that Honda can provide to our customers and their local communities. Furthermore, in the area of manufacturing, we are striving to reduce costs by maximizing mass-production scale merit by sharing common components while promoting the unique characteristics in each of our diverse products. We will continue fulfilling the expectations of our customers by further highlighting uniqueness and through the improved performance of our products while realizing more affordable prices.

Highlighting the Honda brand by taking on new challenges in the art of manufacturing

In the "FUN" segment that consists mainly of medium-to-large-sized motorcycles, we have been enhancing our product line-up while positioning several key flagship models. Such models include the Gold Wing ultimate touring machine powered by Honda's proprietary, horizontally opposed, 6-cylinder 1,800cc engine, the CB1100 road sports model that possesses traditional appeal and the VFR1200F sports tourer that fuses together advanced technologies and unique styling. In further response to the diversifying tastes and preferences of our customers, this line-up of FUN models was even further enhanced with the addition of the all-new CTX1300 cruiser in February 2014, and the NM4-01, a new concept model unveiled in April 2014.

The "FUN" models are designed to realize high recreational values in pursuit of the joy of riding and ownership. At the same time, these models represent the identity of Honda motorcycle products. For that reason, we believe it is critical for us to highlight the Honda brand by being creative and taking on new challenges as we pursue the art of manufacturing. Toward this end, in order to heighten the level of our capability as a manufacturer, we consolidated our motorcycle development and procurement divisions at Kumamoto Factory. In addition, we newly appointed a Representative of Motorcycle Development, Purchasing, and Production to establish a structure which enables the speedy and compact operation of our motorcycle business.

Moreover, under this new organizational structure, we will strengthen the development of 250cc to 400cc medium-sized motorcycles so that we can also fulfill increasing demand for larger-sized models in emerging markets. We will strive to further increase the efficiency of our motorcycle business in the "FUN" segment by highlighting Honda's identity with large-sized motorcycles and preparing for the future growth of the market for medium-sized models.

Automobile Business

Global strategy that enables us to create core models with strong competitiveness on a global basis

Against a backdrop of heightened environmental awareness, demand for small-sized cars is expected to continue to grow in automobile markets around the world. In the midst of such a market trend, the Global Compact Series, namely Fit, VEZEL and City, has been the core of Honda's global strategy. The Fit underwent a full model change and went on sale in Japan in September 2013. To prepare for this, we opened the Yorii automobile plant of the Saitama Factory and a second plant in Mexico. Both plants are dedicated to the production of small-sized vehicles in Japan and North America, respectively.

Designing these new plants exclusively for the production of small-sized vehicles, Honda has established a more rational and efficient production system. Moreover, Honda realized a production system that achieves both a highly competitive cost structure and vehicle specifications that fulfill the needs of customers in each region by establishing an efficient global parts sourcing structure in addition to utilizing the existing procurement and production infrastructure in each region. Going forward, we will increase our competitive strengths in the area of small-sized vehicles by renovating every aspect of small car production including development, production and purchasing and introducing such renovated systems and structures to our existing production plants around the world.

Furthermore, by leveraging our experience in the transformation of our global operations, which started with the development of the all-new Fit (Jazz), we will improve production efficiency at existing plants that produce Civic, Accord and other models. At Sayama Plant of the Saitama Factory, we will cultivate a new set of technical expertise and evolve it to production operations in North America and other regions. By doing so, we will further advance Honda's art of manufacturing and enhance its competitive strengths.

Advancing the regional autonomy of manufacturing through the fusion of development, production and purchasing

While advancing the production of global models, we also are promoting a regional production approach which fuses together development, production and purchasing in each region so that we can better fulfill the needs of our customers in each region. As a part of this initiative, we have already introduced several new models including the N Series in Japan, Amaze in India, Honda MOBILIO in Indonesia and CRIDER in China. These models are being well received by our customers and contributing to an increase in our automobile sales.

The N Series mini-vehicles significantly enhanced the presence of Honda mini-vehicles in the Japanese automobile market where the ratio of mini-vehicle sales to overall automobile sales is increasing. The N-BOX Series has been especially well received by a large number of customers due to its excellent features including class-top cabin space and outstanding fuel economy. The N-BOX Series has continued as the industry's best-selling mini-vehicle in Japan for the second consecutive year as of the fiscal year ended March 31, 2014.

We believe that it is an extremely important step for Honda to establish a strong position in Japan, the home market for Honda, in order to realize the continued growth of Honda on a global basis. While focusing mainly on N Series mini-vehicles and compact cars such as Fit and VEZEL, we will continue strengthening our sales capability in Japan, so that Japan operations can maintain self reliance and demonstrate strong leadership.

The Amaze, which we introduced in India, is a model based on the Brio, which was developed under the leadership of our R&D operation in Thailand. The Amaze is equipped with a 1.5-liter i-DTEC diesel engine which was newly-developed exclusively for the Indian market, where demand for diesel models is high. We expect new growth opportunities for Honda with the introduction of this highly competitive diesel powertrain in India.

We introduced Honda MOBILIO targeting the market for MPVs (multi-purpose vehicle) which have been very popular in Indonesia. We conducted a thorough survey and research to understand local needs and realized affordable prices through various efforts including an initiative to increase local content.

The CRIDER is receiving widespread attention in China as a vehicle that was developed exclusively for China in China. We are planning to maintain our aggressive pace of new model introductions in China, including the introduction of more locally-developed models in the future.

We advanced our product development capability beyond what we could possibly do under the traditional development system whose focus was more on major markets in advanced nations. The new approach enables us to deliver products that accommodate the needs of our customers in each region and further increases the growth potential of our automobile business.

Power Product and Other Businesses

Developing new general-purpose engines for the low-price engine market in emerging countries

Honda's power product business, built around general-purpose engines, offers a wide variety of products that range from portable power generators, tillers and lawn mowers to snow throwers, water pumps and outboard engines used for work and in daily life. In order to deliver a wide variety of power products to our customers all around the world, Honda has established a structure that allows us to produce and deliver our products globally while pursuing the optimization of our production efficiency and costs. Under this structure, we are currently producing general-purpose engines mainly in Thailand and China, lawn mowers in the U.S. and France as well as generators in India and China. Striving to sustain future growth, Honda will continue pursuing highly competitive product development and manufacturing.

One example of such an initiative is the new GP Series of general-purpose engines that was developed and launched for sale in emerging markets in the second half of 2013. While cultivating a strong reputation for performance and reliability, we aim to further expand sales in the light-use engine market which accounts for the majority of general-propose engine sales in emerging countries and is the segment where low-priced products are rapidly gaining market share in Asia and other regions. By introducing more GP engine-equipped power products such as generators, tillers and water pumps to this market, we will expand our global product line-up and will have more opportunities to share the passion behind our power products business—the joy of helping people get things done.

Developing new technologies and proposing new values unique to Honda

Under the founding philosophy of "technology for the people," Honda undertakes new challenges in creating new products and further advancing its technologies.

In the energy field, we have developed a proprietary home energy management system (HEMS) which manages and optimizes the generation and consumption of energy in a home. Striving to realize a low-carbon society, Honda began demonstration testing of its HEMS in Japan and the U.S.

In the robotics field, we are actively applying technologies amassed in our research and development of the ASIMO humanoid robot to mass-production products and working toward commercialization of such product applications. One example of such a product is the Walking Assist Device, which is being developed as a device that assists people with reduced walking ability due to injury, illness or other causes and those whose leg strength is declining due to aging or some other reason. In addition to a number of initiatives and programs in Japan, in November 2013, we began a joint clinical research study with the Rehabilitation Institute of Chicago (RIC), which is one of the world's leading hospitals specializing in the area of physical therapy and rehabilitation. Through this joint study, we will test the compatibility and efficacy of the devices in improving the walking ability of patients recovering from cerebral strokes, with the aim of making further progress in the development of this device toward future commercialization.

In another area of robotics, in June 2013, Honda and the National Institute of Advanced Industrial Science and Technology (AIST) jointly developed a High-Access Survey Robot, a remotely controlled survey robot that will conduct on-site surveys in high and narrow spaces at Fukushima No. 1 Nuclear Power Station of Tokyo Electric Power Company. While making progress in the development of ASIMO, a humanoid robot designed to be helpful to people while coexisting in a human environment, Honda will accelerate the development of humanoid robots designed for use in response to disasters, including the prevention and mitigation of damage caused by a disaster.

Though Honda offers a number of products that can help people get things done, there are still many regions in the world where people are not benefitting from such Honda products. In that sense, no market where we conduct business is ever too mature, and Honda will be able to continue helping many customers in the future. Honda's philosophy is all about making useful products, and we will continue our efforts to create and deliver valued products and services to every corner of the world.

Maintaining a global viewpoint, Honda will strive to realize "the joy and freedom of mobility" and "a sustainable society where people can enjoy life" in keeping with our desire to be a company society wants to exist.

Return to Shareholders

Honda is striving to increase its corporate value by conducting business in each country while maintaining a global viewpoint. We consider the return of profits to our shareholders as one of our most important management responsibilities. We determine dividends while giving ample consideration to our consolidated financial results from a long-term perspective. Moreover, Honda may acquire its own shares as needed for the purpose of improving the capital efficiency of the company and implementing necessary capital policy in a flexible manner.

The quarterly dividend for the fiscal fourth quarter will be 22 yen per share, and the total cash dividends to be paid for the fiscal year ended March 31, 2014 will be 82 yen per share, which includes a 20 yen per share dividend paid for the first to third quarters.

For the fiscal year ending March 31, 2015, we plan for 22 yen per share quarterly dividends, which will add up to an annual dividend of 88 yen per share, an increase of 6 yen per share from the previous fiscal year. We will continue to do our utmost to meet the expectations of our shareholders.

Honda is a company where each and every associate maintains a high level of initiative and works toward our dreams to realize the joy of our customers. Honda associates always seek further advancement and growth while envisioning and carving out a better future. With the passion of our associates, Honda is striving to be "a company society wants to exist." Driven by "The Power of Dreams," Honda will continue taking on new challenges in the pursuit of advanced creation only Honda can achieve so that we can continue fulfilling the expectations of society and providing joy, inspiration and satisfaction to our customers.

Honda appreciates the continuous and long-term understanding and support from our shareholders and other investors toward our business operations.

June 13, 2014
Takanobu Ito
President & Chief Executive Officer

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