Honda Motor Co., Ltd. — FY2012 Form 20-F Summary
Business context and reporting period. Honda’s annual report covers the fiscal year ended March 31, 2012. Honda manufactures and sells motorcycles, automobiles, and power products, and provides customer and dealer financing. Financial statements are prepared under U.S. GAAP. The filing also presents unaudited quarterly data, including the fourth quarter ended March 31, 2012; this is not a standalone quarterly filing.
Key financial metrics
| Metric | FY2012 | FY2011 |
|---|---|---|
| Net sales and other operating revenue | ¥7,948.1 billion | ¥8,936.9 billion |
| Operating income | ¥231.4 billion | ¥569.8 billion |
| Income before taxes and equity earnings | ¥257.4 billion | ¥630.5 billion |
| Net income attributable to Honda | ¥211.5 billion | ¥534.1 billion |
| Operating cash flow | ¥737.4 billion | ¥1,070.8 billion |
| Cash and cash equivalents at year-end | ¥1,247.1 billion | ¥1,279.0 billion |
Operating margin was approximately 2.9% in FY2012 versus 6.4% in FY2011, based on reported sales and operating income. FY2012 R&D expense was ¥519.8 billion, up 6.6%. Capital expenditures were ¥1,090.4 billion, including ¥683.8 billion for operating-lease assets.
Total assets were ¥11,780.8 billion and total equity ¥4,528.3 billion at March 31, 2012. Reported short-term debt was ¥964.8 billion, current maturities of long-term debt ¥911.4 billion, and long-term debt excluding current portion ¥2,235.0 billion. Honda reported ¥463.9 billion of funding liabilities for non-financial-services operations and ¥4,113.3 billion for financial services. Management said working capital was sufficient and cash represented about 1.9 months of net sales. Finance subsidiaries had ¥777.4 billion of committed credit lines backing commercial paper.
Material changes versus prior period
- Annual revenue fell 11.1%; operating income declined 59.4% and net income attributable to Honda declined 60.4%.
- Automobile revenue decreased 14.5% to ¥5,805.9 billion; unit sales fell 10.7% to 3.137 million, and the segment recorded a ¥77.2 billion operating loss.
- Motorcycle revenue increased 4.7% to ¥1,348.8 billion; unit sales rose 9.7% to 12.559 million, and operating income was ¥142.6 billion.
- Financial-services revenue decreased 8.1% to ¥516.1 billion; operating income declined 8.7% to ¥170.0 billion. Power-product and other revenue declined 5.3% to ¥277.1 billion.
- Operating cash flow decreased ¥333.4 billion. Cash declined ¥31.9 billion over the year; investing cash outflow was ¥673.1 billion and financing cash outflow was ¥44.1 billion.
- Fourth-quarter unaudited revenue was ¥2,405.1 billion, operating income ¥112.0 billion, and net income attributable to Honda ¥71.6 billion. In the prior-year fourth quarter, these were ¥2,213.1 billion, ¥46.2 billion, and ¥44.6 billion, respectively.
Outlook, management commentary, risks, and unusual items
- Management attributed the annual downturn mainly to the Great East Japan Earthquake, Thailand floods, associated production and supply-chain interruptions, unfavorable foreign-exchange translation, adverse automobile model mix, and higher R&D expense. Honda estimated that constant prior-year exchange rates would have reduced the reported sales decline from 11.1% to about 6.2%.
- The Thailand floods generated ¥23.4 billion of costs and expenses; Honda also recognized ¥21.7 billion of insurance recoveries in FY2012. Earthquake-related restoration costs of ¥19.8 billion were recorded in FY2012, following earthquake-related costs in the prior year.
- Honda planned FY2013 capital expenditures of ¥580.0 billion, excluding operating-lease property and intangible assets. A planned new Mexico automobile plant was expected to require about US$800 million and start operations in the first half of 2014.
- Honda planned to change property, plant and equipment depreciation from declining-balance to straight-line beginning FY2013, anticipating approximately ¥40.0 billion lower depreciation expense for that year.
- Management’s stated 2020 vision emphasizes speed, affordability, and lower CO2 emissions; Honda set a target to reduce CO2 emissions from global products 30% by the end of 2020 versus 2000 levels. It also highlighted supply-chain resilience, disaster preparedness, quality, and product innovation.
- Key risks include global demand and competitive pricing, yen appreciation and other currency movements, supplier concentration and supply-chain disruption, environmental and safety regulation, financial-services credit and lease-residual risks, pension assumptions, litigation, and natural disasters. Management said routine litigation was not expected to have a material adverse effect.
- Other notable items: Japan’s tax-law changes increased FY2012 tax expense by ¥16.1 billion; the effective tax rate rose to 52.7%. A subsidiary recorded ¥10.4 billion of special early-retirement costs. The auditor issued an unqualified opinion on the financial statements and internal controls.
Important facts for investors to verify
- Whether automobile production and sales recovered after earthquake- and flood-related disruptions, and whether Honda’s supply-chain resilience measures reduced exposure to future interruptions.
- Whether the ¥40.0 billion expected FY2013 depreciation reduction is realized and how the accounting-estimate change affects reported earnings.
- Whether operating cash generation, liquidity, and finance-subsidiary funding remain adequate as debt maturities and financing needs evolve.
- Whether credit losses, lease residual values, warranty and recall costs, pension obligations, or unresolved tax positions materially depart from management’s estimates.
- Whether the announced Mexico capacity investment, FY2013 capital-expenditure plan, and 2020 emissions target proceed as described; the filing does not provide a full FY2013 earnings forecast.