Business context and reporting period
Toyota Motor Corporation’s Form 20-F is an audited U.S. GAAP annual report for the fiscal year ended March 31, 2016, filed June 24, 2016. It is not a standalone 2015 fourth-quarter report; quarterly results are not clearly provided in the filing text summarized here. Toyota operates automotive, financial services and other businesses, with automotive representing the substantial majority of revenue. Amounts below are in yen unless stated otherwise.
Key financial metrics
| Metric | FY2016 | FY2015 | Change |
|---|---|---|---|
| Total revenue | ¥28.403 trillion | ¥27.235 trillion | +4.3% |
| Operating income | ¥2.854 trillion | ¥2.751 trillion | +3.8% |
| Operating margin | 10.0% | 10.1% | Down 0.1 percentage point |
| Net income attributable to Toyota Motor Corporation | ¥2.313 trillion | ¥2.173 trillion | +6.4% |
| Net margin attributable to Toyota | 8.1% | 8.0% | Up 0.1 percentage point |
| Operating cash flow | ¥4.461 trillion | ¥3.686 trillion | +¥775.1 billion |
| Cash and cash equivalents | ¥2.939 trillion | ¥2.285 trillion | +¥654.9 billion |
| Total assets | ¥47.428 trillion | ¥47.730 trillion | Down ¥302.2 billion |
| Total borrowings | ¥18.293 trillion | ¥18.978 trillion | Down ¥684.7 billion |
Net cash used in investing activities was ¥3.183 trillion and net cash used in financing activities was ¥423.6 billion. Capital expenditures for property, plant and equipment, excluding vehicles and equipment on operating leases, were ¥1.283 trillion; spending on leased vehicles and equipment was ¥2.777 trillion. Toyota reported ¥10.570 trillion of liquid assets, as defined by the company. Current assets were ¥18.210 trillion versus current liabilities of ¥16.124 trillion. Interest-bearing debt was 109.2% of Toyota Motor Corporation shareholders’ equity, compared with 113.0% a year earlier.
Automotive revenue was ¥25.977 trillion and operating income was ¥2.449 trillion. Financial services revenue was ¥1.896 trillion, while operating income declined 6.2% to ¥339.2 billion. Consolidated vehicle sales fell 3.2% to 8.681 million units. The annual common-share dividend was ¥210 per share; Toyota repurchased common shares during the year and approved an additional repurchase of up to ¥500 billion after year-end.
Material changes versus the prior comparable period
- Revenue growth was partly currency-driven: Toyota attributed ¥386.4 billion of the increase to favorable currency translation. Excluding that effect, revenue increased 2.9%.
- Operating income rose modestly despite lower vehicle volumes. Cost-reduction efforts contributed ¥390 billion and currency movements ¥160 billion, offset in part by marketing effects and higher miscellaneous costs.
- Vehicle sales increased in North America but declined in Japan, Europe, Asia and other markets. North American operating income fell 9.5%; financial services operating income also declined, partly due to fair-value losses on interest-rate swaps.
- Other comprehensive income swung to a loss of ¥916.7 billion, from income of ¥986.4 billion in FY2015, reflecting currency translation, securities valuation and pension-related losses.
- Toyota issued 47.1 million First Series Model AA Class Shares, recorded as mezzanine equity because holders have cash put rights. The ¥474.9 billion issuance proceeds were accompanied by share repurchases intended to offset dilution.
Outlook, commentary, risks and unusual items
For FY2017, management expected revenue, operating income, pretax income and net income attributable to Toyota to decrease. The forecast cited unfavorable currency translation and higher miscellaneous costs, partly offset by cost reductions and increased vehicle sales. Assumptions included exchange rates of ¥105 per U.S. dollar and ¥120 per euro. Toyota said it expected to fund FY2017 capital expenditures and research and development from cash on hand and operating cash flow, and forecast approximately ¥1.350 trillion of property, plant and equipment investment, excluding leased vehicles and equipment.
Key risks include intense automotive competition; uncertain demand and emerging-market weakness; yen and other currency movements; supplier concentration and disruption; raw-material costs; financing competition, credit and lease residual-value risk; evolving emissions, fuel-economy and safety rules; recalls and litigation; cybersecurity and technology risks; and natural disasters. Toyota disclosed temporary Japanese production suspensions following the April 2016 Kumamoto earthquake and said the financial effect was uncertain. Separately, it reported that an earlier January 2016 steel-supplier accident temporarily halted some plant operations, which resumed quickly.
Legal matters include unintended-acceleration claims, Takata airbag litigation and government inquiries, as well as a self-reported gap in certain U.S. emissions-defect reporting processes. Toyota could not estimate reasonably possible losses beyond accrued amounts, but stated that it did not expect any additional losses to materially affect its financial position, results or cash flows. The accrued liability for quality assurances was ¥1.404 trillion at year-end, including ¥925.5 billion for recalls and other safety measures.
Other notable matters include an increase in unfunded Japanese pension liabilities to ¥542.9 billion, principally reflecting lower discount rates; the planned end of Australian vehicle and engine production by the end of 2017; and the FY2016 decline in reported earnings from the prior year’s positive securities and currency translation effects.
Important facts for investors to verify
- Separate underlying operating performance from foreign-exchange translation effects and assess the FY2017 outlook against its stated currency assumptions.
- Review automotive volume, pricing, incentives and regional profitability, particularly weakness in Asia and the decline in North American operating income.
- Assess financial-services credit quality, lease residual values, funding needs and interest-rate swap valuation exposure.
- Track recall and quality-assurance provisions, litigation developments, the Takata-related proceedings and the emissions-reporting inquiry.
- Confirm liquidity and debt maturity/refinancing needs, including the large amount of debt due within one year, and monitor pension funding exposure.
- Verify the terms and shareholder effects of Model AA Class Shares, dividends and announced repurchases, including the post-year-end repurchase authorization of up to ¥500 billion.