Toyota Motor Corporation — FY2017 Form 20-F
Reporting period: Year ended March 31, 2017; filed June 23, 2017. This is an annual report, not a standalone 2016 fourth-quarter filing. Financial statements are prepared under U.S. GAAP. Amounts below are in yen unless noted.
Business context and financial performance
Toyota operates automotive, financial services and other businesses. Automotive operations generated about 89% of revenue before intersegment eliminations. Consolidated vehicle sales rose 3.3% to 8.971 million units.
| Metric | FY2017 | FY2016 | Change |
|---|---|---|---|
| Net revenue | ¥27.597tn | ¥28.403tn | -2.8% |
| Operating income | ¥1.994tn | ¥2.854tn | -30.1% |
| Operating margin | 7.2% | 10.0% | -2.8 percentage points |
| Income before tax and equity earnings | ¥2.194tn | ¥2.983tn | -26.5% |
| Net income attributable to Toyota Motor Corporation | ¥1.831tn | ¥2.313tn | -20.8% |
| Net margin attributable to Toyota Motor Corporation | 6.6% | 8.1% | -1.5 percentage points |
| Basic earnings per common share | ¥605.47 | ¥741.36 | Lower |
Management attributed the revenue decline primarily to ¥2.38tn of unfavorable currency translation, partly offset by ¥1.25tn from vehicle sales volume and mix. Operating income was reduced by ¥940bn from exchange-rate effects and ¥530bn from higher miscellaneous costs, including increased product-quality expenses. Cost reductions contributed ¥440bn and marketing efforts ¥210bn.
Automotive segment revenue declined 3.4% to ¥25.082tn and operating income fell 30.9% to ¥1.693tn. Financial services revenue fell 3.8% to ¥1.824tn and operating income fell 34.4% to ¥222bn, primarily on higher credit and residual-value losses, mainly in North America. Other operations revenue increased 12.2% to ¥1.321tn and operating income rose 22.3% to ¥81bn.
Cash flow, balance sheet and liquidity
- Operating cash flow was ¥3.414tn, down from ¥4.461tn, mainly reflecting lower operating income and higher accrued trade receivables.
- Investing cash outflow was ¥2.970tn; financing cash outflow was ¥375bn. Cash and cash equivalents increased ¥56bn to ¥2.995tn.
- At March 31, 2017, total assets were ¥48.750tn, Toyota Motor Corporation shareholders’ equity was ¥17.515tn, and total shareholders’ equity was ¥18.183tn.
- Cash, time deposits and current marketable securities totaled approximately ¥5.899tn. Toyota’s broader definition of liquid assets was ¥10.750tn, including additional securities and monetary trust fund investments.
- Interest-bearing debt was ¥19.156tn, comprising short-term debt including current long-term debt of ¥9.244tn and long-term debt of ¥9.912tn. Debt equaled 109.4% of Toyota Motor Corporation shareholders’ equity. Borrowings increased 4.7%, mainly to fund growth in financial-services lending.
- Net finance receivables were ¥15.209tn, up 4.5%; vehicles and equipment on operating leases, net, were ¥4.684tn. Credit losses were 0.37% in FY2017 versus 0.36% in FY2016.
- Capital expenditures were ¥1.224tn for property, plant and equipment excluding leased vehicles and equipment, and ¥2.318tn for leased assets. FY2018 non-lease capital expenditures were expected to be about ¥1.3tn.
Shareholder returns
The FY2017 common dividend was ¥210 per share, unchanged from FY2016; Toyota states a target consolidated payout ratio of 30%, subject to results, investment plans and cash reserves. The audited statements report repurchases of 116.6 million common shares for approximately ¥700bn during FY2017. On May 10, 2017, the board authorized an additional repurchase of up to 50 million shares for up to ¥250bn.
Outlook, risks and unusual items
For FY2018, Toyota expected revenue, operating income, income before tax and equity earnings, and net income attributable to Toyota Motor Corporation to decrease from FY2017. Management cited adverse currency translation, marketing activity and higher miscellaneous costs, partly offset by cost reductions. The outlook assumed ¥105 per U.S. dollar and ¥115 per euro; Toyota did not provide clear numerical FY2018 earnings or revenue guidance in the supplied filing text.
- Currency exposure: Yen appreciation, particularly against the U.S. dollar, can materially reduce reported results. Toyota uses derivatives and local production to mitigate, but not eliminate, exposure.
- Quality, recalls and litigation: Quality-assurance liabilities reached ¥1.697tn, including ¥1.275tn for recalls and other safety measures. Toyota disclosed ongoing unintended-acceleration claims, Takata airbag litigation and investigations, plus a self-reported emissions-reporting process gap. It could not estimate reasonably possible losses beyond amounts accrued, but believed any such losses would not materially affect its financial position, results or cash flows.
- Financial-services risks: Credit losses, used-vehicle residual values, lease returns and funding costs may affect results. A 1% increase in lease return rates was estimated to increase residual-value losses by ¥4.6bn; a 1% increase in end-of-term market values was estimated to reduce them by ¥11.9bn.
- Other principal risks: Intense automotive competition and volatile demand; supplier concentration and raw-material costs; changing safety, emissions and fuel-economy rules; cybersecurity and technology dependence; interest-rate and funding-market conditions; and natural disasters or operational interruptions.
- Accounting and control: The auditor issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. Management also concluded disclosure controls were effective at a reasonable-assurance level.
Most important facts for investors to verify
- Whether FY2018 results tracked the forecast for declines, particularly under the stated exchange-rate assumptions.
- How much of the FY2017 operating-profit and cash-flow deterioration persists, and whether cost reductions offset currency and quality costs.
- Whether recall provisions and payments adequately cover emerging quality matters, including the Takata and emissions-reporting proceedings.
- Credit quality, residual-value performance and funding costs in financial services, given the growth in receivables and higher FY2017 losses.
- Debt maturities and liquidity needs alongside planned investment, dividends and the post-year-end share-repurchase authorization.