Business context and reporting period
Honda Motor Co., Ltd. filed this U.S. GAAP Form 20-F for the fiscal year ended March 31, 2013. It is an annual filing, not a standalone 2012 quarterly report; the filing separately provides unaudited fourth-quarter figures for the fiscal year ended March 31, 2013. Amounts below are in yen unless stated otherwise.
Honda operates motorcycle, automobile, financial services, and power product and other businesses. The audited consolidated financial statements received an unqualified audit opinion, and the auditor also reported effective internal control over financial reporting as of March 31, 2013.
Financial performance and position
| Metric | FY2013 | FY2012 | Change |
|---|---|---|---|
| Net sales and other operating revenue | ¥9,877.9 billion | ¥7,948.1 billion | +24.3% |
| Operating income | ¥544.8 billion | ¥231.4 billion | +135.5% |
| Net income attributable to Honda | ¥367.1 billion | ¥211.5 billion | +73.6% |
| Operating margin | 5.5% | 2.9% | +2.6 percentage points |
| Net margin attributable to Honda | 3.7% | 2.7% | +1.0 percentage point |
| Operating cash flow | ¥800.7 billion | ¥761.5 billion | +¥39.2 billion |
| Investing cash flow | (¥1,069.8 billion) | (¥673.1 billion) | Greater outflow |
| Cash and cash equivalents at year-end | ¥1,206.1 billion | ¥1,247.1 billion | Down ¥41.0 billion |
| Total assets | ¥13,635.4 billion | ¥11,787.6 billion | +15.7% |
| Total equity | ¥5,197.7 billion | ¥4,517.9 billion | +15.0% |
At March 31, 2013, total debt was approximately ¥4,894.2 billion, comprising short-term debt, current long-term debt and long-term debt. Long-term debt excluding its current portion was ¥2,710.8 billion. Honda reported current assets of ¥5,323.1 billion and current liabilities of ¥4,096.7 billion, a current ratio of approximately 1.30. Management said working capital was sufficient for current needs; year-end cash was equivalent to about 1.5 months of net sales.
Operating cash flow increased, but investing outflows grew with higher capital spending, finance-receivable acquisitions and purchases of operating-lease assets. Financing provided ¥119.6 billion, primarily reflecting increased debt proceeds, partly offset by higher dividends. FY2013 capital expenditures were ¥1,423.5 billion, including ¥793.1 billion for operating-lease assets.
Honda reported dividends of ¥76 per share for FY2013 when including four ¥19 quarterly distributions; the year-end dividend was approved after year-end. Its stated shareholder-return objective was approximately 30% of consolidated net income attributable to Honda through dividends and share repurchases.
Material changes versus the prior comparable period
- Automobile sales rebounded: consolidated unit sales rose 37.3% to 3.408 million, following supply disruptions from the Great East Japan Earthquake and Thailand floods. Automobile revenue increased 32.8% to ¥7,709.2 billion, while segment operating income improved to ¥286.0 billion from a ¥77.2 billion loss.
- Motorcycle unit sales rose 9.9% to 9.510 million, but revenue fell 0.7% to ¥1,339.5 billion and segment operating income declined 22.7% to ¥110.2 billion, mainly due to unfavorable currency effects.
- Financial services revenue increased 6.3% to ¥548.5 billion, while operating income declined 7.0% to ¥158.1 billion as lease residual-value costs rose. Receivables and operating-lease assets increased 19.4% to ¥5,874.2 billion.
- Power product and other revenue increased 1.3% to ¥280.6 billion; the segment’s operating loss widened to ¥9.5 billion.
- North America and Asia revenue grew substantially, while Europe remained weak. Management attributed the overall revenue and income recovery to higher automobile volumes, model mix, cost reductions and favorable yen translation.
For the fiscal-year fourth quarter specifically, unaudited net sales were ¥2,745.0 billion, operating income ¥136.0 billion and net income attributable to Honda ¥75.8 billion. Compared with the fourth quarter of FY2012, these were increases of approximately 14.1%, 21.4% and 5.8%, respectively.
Outlook, risks and unusual items
- Honda estimated FY2014 capital expenditures of ¥700.0 billion, excluding property on operating leases and intangible assets. It planned for a second automobile plant in Rajasthan, India, to begin operations in 2014. The filing does not provide a clear consolidated earnings or revenue forecast.
- Management’s longer-term priorities include faster product development, production flexibility, stronger supply-chain continuity, product quality, safety and lower emissions. Honda targeted a 30% reduction in CO2 emissions from global products by the end of 2020 versus 2000 levels.
- Effective April 1, 2012, Honda changed depreciation for property, plant and equipment from principally declining-balance to straight-line. This accounting-estimate change reduced FY2013 depreciation expense by approximately ¥56.3 billion and increased net income attributable to Honda by approximately ¥35.7 billion, or ¥19.83 per share.
- FY2013 included a ¥12.8 billion net-of-tax impairment loss on certain equity-method affiliate investments. Derivative-related unrealized losses had a negative ¥36.8 billion impact on income before tax and equity earnings; other expenses also included foreign-currency transaction losses.
- Honda recognized ¥16.3 billion of insurance recoveries related to Thailand flood damage in FY2013. The filing also reports ¥11.1 billion of earthquake restoration costs in FY2013.
- Principal risks include global demand and competitive pricing, yen and other currency movements, interest rates and derivative counterparties, supplier and disaster-related disruptions, regulatory compliance costs, finance-customer credit and lease residual values, pensions, intellectual property and litigation. Honda said pending lawsuits and claims were not expected to have a material adverse effect, while acknowledging uncertainty.
- Contractual obligations totaled ¥4,144.4 billion, including ¥3,655.9 billion of long-term debt, scheduled interest, operating leases, purchase commitments and next-year pension contributions. Unrecognized tax benefits of ¥39.2 billion were excluded because future payment timing was difficult to estimate. Employee housing-loan guarantees were ¥26.5 billion, with no loss provision recorded.
Important facts for investors to verify
- Assess how much of the FY2013 profit recovery came from volume and operating improvements versus the ¥35.7 billion benefit from the depreciation-method change and favorable currency translation.
- Review the financing arm’s funding needs, debt maturities, liquidity facilities and credit and lease-residual performance as receivables and lease assets expand.
- Confirm the FY2013 dividend presentation: the selected-data table reports ¥72 per share declared during the period, while the filing describes four ¥19 quarterly distributions, or ¥76 per share including the post-year-end-approved year-end dividend.
- Track whether planned capacity additions and FY2014 capital spending deliver adequate returns, particularly in Asia and North America, and whether demand in Europe and China improves.
- Monitor warranty accruals, affiliate-investment impairment, tax uncertainties, pension assumptions, regulatory compliance and exposure to supply-chain or natural-disaster disruption.