Business context and reporting period
Honda Motor Co., Ltd. filed this annual report on Form 20-F for the fiscal year ended March 31, 2019. It is an annual report, not a quarterly filing; the “2018 Q4” request metadata does not match the filing’s reporting period. Financial statements are prepared under IFRS and presented in Japanese yen. Honda operates motorcycle, automobile, financial services, and power product and other businesses.
Financial performance and position
Unless stated otherwise, amounts below are yen billions; year-over-year comparisons are fiscal 2019 versus fiscal 2018.
| Metric | FY2019 | FY2018 |
|---|---|---|
| Sales revenue | 15,888.6 | 15,361.1 |
| Operating profit | 726.4 | 833.6 |
| Profit before income taxes | 979.4 | 1,115.0 |
| Profit for the year | 676.3 | 1,128.6 |
| Profit attributable to parent owners | 610.3 | 1,059.3 |
| Basic EPS | ¥345.99 | ¥590.79 |
| Operating margin | 4.6% | 5.4% |
- Revenue increased 3.4%; management estimated growth of 5.1% using prior-year exchange rates. Operating profit fell 12.9%, while parent-attributable profit fell 42.4%. Net profit margin declined to approximately 4.3% from 7.4%.
- Cash and cash equivalents were ¥2,494.1 billion at year-end, up ¥237.6 billion. Operating cash flow was ¥776.0 billion, investing cash flow was negative ¥577.6 billion, and financing cash flow was positive ¥22.9 billion.
- Total assets were ¥20,419.1 billion; total equity was ¥8,565.8 billion. Financing liabilities were ¥7,331.1 billion, up from ¥6,799.0 billion. Honda reported ¥437.9 billion of funding liabilities for non-financial-services businesses and ¥6,995.6 billion for finance subsidiaries, using the filing’s separate business funding measure.
- Finance-services receivables and operating-lease equipment totaled ¥9,854.0 billion, up 8.9%. Liquidity was described by management as sufficient; cash represented approximately 1.9 months of sales revenue. Finance subsidiaries had ¥1,080.5 billion of committed credit lines supporting commercial paper.
- Annual dividends declared during the period were ¥110 per share in the selected financial data; the filing separately reports a ¥28 year-end dividend approved in May 2019 and paid in June.
Material changes and segment results
- Automobile revenue rose 2.0% to ¥11,072.1 billion, but segment operating profit fell 43.9% to ¥209.7 billion. Unit sales increased 1.6% to 3.748 million.
- Motorcycle revenue rose 3.0% to ¥2,100.2 billion and operating profit increased 9.2% to ¥291.6 billion; unit sales rose 2.0% to 13.215 million.
- Financial-services revenue increased 11.4% to ¥2,365.4 billion and operating profit rose 20.3% to ¥235.9 billion, driven mainly by lease-vehicle dispositions and operating-lease revenue.
- Power product and other businesses recorded an operating loss of ¥10.9 billion, versus a ¥3.4 billion loss in FY2018. Higher R&D spending and adverse currency effects were cited.
- Income tax expense was ¥303.1 billion, compared with a tax benefit of ¥13.7 billion in FY2018. The prior-year result benefited substantially from the U.S. Tax Cuts and Jobs Act, which reduced tax expense by ¥346.1 billion in FY2018.
- Cash generated from operations decreased ¥211.6 billion, mainly reflecting higher payments for parts and raw materials. Research and development expense increased 7.3% to ¥806.9 billion.
Outlook, risks and unusual items
- Honda forecast FY2020 capital expenditures of ¥490.0 billion, excluding equipment on operating leases and intangible assets. The filing does not provide a clear numerical earnings or revenue outlook in the supplied text.
- Honda announced changes to its global automobile production network, including plans to consult on discontinuing automobile production at certain European subsidiaries in 2021. FY2019 included ¥68.1 billion of related losses and expenses, including impairment and employee costs.
- Honda continues airbag-inflator recall measures. A U.S. multidistrict class-action settlement of ¥53.7 billion was recognized in FY2018 and received final court approval in July 2018. Honda says potential additional recall-related provisions may arise, but it cannot reasonably estimate their amount or timing.
- Key stated risks include global demand and competitive conditions, foreign-exchange and interest-rate movements, regulation and environmental compliance costs, supplier disruption, financial-services credit and lease-residual-value risk, litigation, product quality, cybersecurity, natural disasters, and Brexit-related disruption.
- Management’s long-term priorities include electrification, safety technology, R&D and production efficiency. Honda targets a 50% reduction in total CO2 emissions by 2050 compared with 2000 levels.
- The filing adopted IFRS 9 and IFRS 15 from April 1, 2018; comparative periods were not restated. Honda expected IFRS 16 adoption in FY2020 to add approximately ¥268 billion of lease liabilities and a similar amount of assets.
- Auditors issued unqualified opinions on the IFRS financial statements and internal control over financial reporting; management also concluded disclosure controls were effective.
Important facts for investors to verify
- Reconcile reported capital-expenditure figures: the filing gives ¥2,657.2 billion in its selected/principal investment disclosures and ¥2,465.3 billion in its property-and-equipment capital expenditure table, with substantial finance-lease equipment included in segment totals.
- Assess whether automobile profitability can recover after the sharp FY2019 segment operating-profit decline and the European production-network changes.
- Monitor the scale, timing and accounting treatment of continuing airbag-inflator recalls and any additional litigation or warranty provisions.
- Review financing-liability composition, maturities, committed facilities and the credit quality and residual values of the growing finance-services portfolio.
- Confirm dividend amounts and timing against the Board resolutions: the filing reports ¥110 per share in selected data and separately describes a ¥28 year-end dividend approved after year-end.