Fiscal 2006 Results

Unit sales of Honda motorcycles, all-terrain vehicles (ATVs) and personal watercraft (PWC) in fiscal 2006 amounted to 10,271,000 units, down 2.0% from the previous fiscal year. The decline stemmed mainly from a decrease in sales of motorcycle parts for local production at Asian affiliates accounted for under the equity method. These figures do not include sales of Honda-brand motorcycle products that are manufactured and sold by affiliates accounted for under the equity method in India and China, those with respect to which parts for manufacturing were not supplied from Honda or such subsidiaries, which increased dramatically, to approximately 2.6 million units.

Despite the decline in unit sales, net sales of motorcycles climbed 11.7%, to ¥1,225.8 billion, benefiting from the appreciation of the U.S. dollar and other major currencies against the yen and a change in our mix of models. Operating income jumped 64.4%, to ¥113.9 billion (including a ¥15.3 billion gain on the return of the substitutional portion of the Employees' Pension Funds to the Japanese government). The operating margin was 9.3%. The operating income figure does not include earnings from affiliates accounted for under the equity method in Indonesia, India and China. However, their earnings are included in Honda's consolidated net income results.

At the end of December 2005, cumulative production of the Super Cub series reached 50 million units. Launched in 1958, Super Cub motorcycles are now produced in 13 countries and sold in more than 160 countries around the world.

Europe

In Europe, unit sales rose 4.4%, to 353,000 units.

We enjoyed strong sales of the SH125i and the SH150i scooters and the CB600F Hornet, a naked sport bike that underwent a minor model change. Also popular was the Deauville touring bike, which underwent a full model change in February 2006. We released the Forza series of large scooters in April 2005, which have been well received in Japan, and in February 2006 we unveiled the CBF1000 touring sport bike, equipped with an engine based on the one powering the CBR1000RR. Both models have proven popular among European customers. In these ways, we delivered products that met the needs of customers in the intensely competitive market for commuter vehicles and in the growing niche for large scooters.

Asia

In Asia, demand for motorcycles as an essential mode of transportation has continued to grow. Total of unit sales of completed products of Honda and its consolidated subsidiaries, and unit sales of parts for local production at Honda's affiliates accounted for under the equity method, declined 3.5%, to 7,907,000 units.

Honda is working hard to expand local businesses in the region through its active promotion of local procurement of parts used in overseas production. This strategy has resulted in a sharp increase in Honda-brand motorcycle products that are manufactured and sold by affiliates accounted for under the equity method in India and China, those with respect to which parts for manufacturing were not supplied from Honda or such subsidiaries, which increased dramatically to approximately 2.6 million units.

In India, we enjoyed healthy sales of core models made by our affiliate, Hero Honda Motors Limited (HHML). These included two models—the Super Splendor, which went on sale at the end of the previous fiscal year, and the Glamour, which was launched in June 2005—as well as the CD Deluxe. In January 2006, HHML launched its first scooter, the Pleasure. Honda Motorcycle and Scooter India Private Limited (HMSI), a consolidated subsidiary, recorded strong sales of the Unicorn, its first motorcycle, and the Activa scooter. Unit sales of completed products of Honda and its consolidated subsidiaries, and unit sales of parts for local production at Honda's affiliates accounted for under the equity method in India, totaled 1,934,000 units, down 865,000 from the previous fiscal year. However, these figures exclude sales of Honda-brand motorcycle products that are manufactured and sold by affiliates accounted for under the equity method in India, those with respect to which parts for manufacturing were not supplied from Honda or such subsidiaries, which increased by more than 1,200,000 units, to approximately 1,630,000.

In Indonesia, P.T. Astra Honda Motors (AHJ), an affiliate accounted for under the equity method, posted healthy sales of its Supra series, keyed to the Supra X 125, which went on sale in June 2005, and the Supra Fit, which underwent a full model change in August 2005. Also popular was the Supra X 125 PGM-FI, which was added to the lineup in December 2005 and features PGM-FI for superior fuel economy and drivability. In September 2005, production began at a third new plant, boosting our annual capacity by 1 million units, to 3 million. In Indonesia, unit sales of completed products of Honda and its consolidated subsidiaries, and unit sales of parts for local production at Honda's affiliates accounted for under the equity method, grew 18.0%, to 2,672,000 units.

In Thailand, we enjoyed robust sales of the Wave 125, which underwent a minor model change, and the Wave 100, following a full model change in April 2005. In February 2006, we launched the Click scooter with the first automatic transmission developed for the Asian market. In Thailand, unit sales of completed products of Honda and its consolidated subsidiaries grew 1.7%, to 1,514,000 units.

In China, Sundiro Honda, an affiliate accounted for under the equity method, posted solid sales of the Storm, released in April 2005, and the Wiz, unveiled in June 2005. Another affiliate accounted for under the equity method, Wuyang-Honda, recorded strong sales of the SCR100, the GL125 and other core scooter models. Due to market confusion stemming from the adoption of Euro2*3 emission standards, as well as suppression of purchases following the announcement of an upcoming reduction in consumption tax, unit sales of completed products of Honda and its consolidated subsidiaries, and unit sales of parts for local production at Honda's affiliates accounted for under the equity method in China fell 97,000 units from the previous fiscal year, to 336,000 units. However, this figure does not include sales of Honda-brand motorcycle products that are manufactured and sold by affiliates accounted for under the equity method in China, those with respect to which parts for manufacturing were not supplied from Honda or such subsidiaries, which rose more than 200,000 units from the preceding fiscal year, to around 970,000.

*3: Euro2 (motorcycles)
Stringent exhaust emission regulations for motorcycles implemented in Europe from 2003. China began implementing Euro2 regulations for all models from 2005, and Indonesia and Brazil are also implementing these regulations. (Even more stringent Euro3 emission regulations are being implemented in Europe in 2006.)

Other Regions

In other regions—covering Latin America, the Middle & Near East and Africa and Oceania—unit sales grew 10.4%, to 1,028,000 units.

In Brazil, where economic performance was stable, Honda posted solid sales of core models, including the CG150 TITAN and the CG125 FAN. Following a full model, change in September 2005, the Biz 125, created for young people and women, also enjoyed popularity.

In the Middle & Near East and Africa, we enjoyed robust sales of the Chinese-made CGL125 and the Japanese-made XL125.

Outlook for Fiscal 2007

In the fiscal year ending March 2007, we project that unit sales of motorcycles, ATVs and PWC will rise 5.5%, to 10,840,000 units. We also forecast a significant increase in the number of Honda-brand motorcycle products that are manufactured and sold by affiliates accounted for under the equity method in India and China, those with respect to which parts for manufacturing are not supplied from Honda or such subsidiaries. Based on local sales projections, we estimate that sales of such motorcycles will surge to approximately 3,360,000 units.

In Japan, we estimate that unit sales in fiscal 2007 will reach 370,000 units. We look forward to strong sales of the Chinese-made Today scooter, as well as the CB series, including the CBR400 Super Four, now featuring improved handling in low-revolution mode. We also anticipate higher sales of the CBR1000RR, after the overall weight for this model was reduced from the previous generation to achieve quicker acceleration and nimbler handling.

In North America, we have succeeded in developing the world's first production motorcycle airbag system. The new system is being introduced on the new GoldWing scheduled for release in mid-2006.

We will strive to boost sales of ATVs in the region. In addition to the FourTrax Rancher, we will introduce new models to meet the needs of all customers, from beginners to experienced riders. For fiscal 2007, we are targeting regional sales of 650,000 units for motorcycles, ATVs and PWC, up 5.7%.

In Europe, we will continue providing vehicles that satisfy the needs of customers. These include the PS125i and the PS150i, launched at the end of the previous fiscal year, and the CBF1000 naked sport bike. For fiscal 2007, we are targeting European sales of 340,000 units.

In Asia, we project overall unit sales to grow 5.0%, to 8,300,000 units. Sales of Honda-brand motorcycle products that are manufactured and sold by affiliates accounted for under the equity method in India and China, those with respect to which parts for manufacturing are not supplied from Honda or such subsidiaries, are forecast to increase substantially, to approximately 3,360,000 units.

In India, we will target increased sales of models made by our affiliate, HHML—notably the Glamour, the first model in India with PGM-Fl to be added to Honda's lineup, and the core CD Deluxe. We will also work to boost sales of models made by our subsidiary, HMSI. These include the Shine motorcycle, which was launched in April 2006, and offers an ideal balance between fuel efficiency, performance, design and price. To meet projected sales growth, HHML will increase its production capacity by expanding existing facilities. By the end of calendar 2006, we expect our annual production capacity in India to reach 3,900,000 units.

In Indonesia, where motorcycles are an essential mode of transportation, we expect the financial environment to remain difficult for some time. AHJ, our affiliate, will continue offering models that meet customer needs and will focus on boosting sales, especially of the Supra X 125, the Supra Fit and other models in the Supra series.

In Thailand, we will seek to expand sales of the Click scooter, which was launched at the end of the previous fiscal year to respond to demand from young people for automatic transmission models. In June 2006, we will unveil the Air Blade, an innovatively designed scooter with an automatic transmission. In these ways, we will work to deliver attractive products that swiftly address the diversifying needs of customers.

In China, Sundiro Honda, one of our affiliates, will unveil the CBF150 in July 2006, an advanced motorcycle with excellent operating performance aimed at affluent younger riders. Another affiliate, Wuyang-Honda, plans to introduce a new model with PGM-FI that is very friendly to the environment. On the production side, Wuyang-Honda completed its relocation to a new production facility in February 2006. The new facility has been fully revamped as an environmentally friendly Green Factory, with annual production capacity increasing from 600,000 to 1,000,000 units. The facility also features improved production efficiency and has the flexibility for further expansion in the future.

Unit sales in other regions are expected to rise 14.8%, to 1,180,000 units. In Brazil, where the market continues to expand, we will target further increases in sales of core models, such as the CG150 TITAN, the CG125 FAN and the Biz 125. For the growing Argentinean market, in mid-2006, we plan to begin manufacturing the C105 Biz locally, based on Honda's commitment to "build products close to the customer." We will also unveil new models to satisfy the diversifying needs of customers. In the Middle & Near East and Africa, we plan to boost sales of core models, centering on the Chinese-made CGL125.