Honda Motor Co., Ltd. — FY2020 Form 20-F
Reporting period: Fiscal year ended March 31, 2020. This is an annual report, not a standalone 2019 fourth-quarter filing; management describes COVID-19 effects in the fiscal fourth quarter. Financial statements are prepared under IFRS and reported in Japanese yen.
Business and financial performance
Honda operates motorcycle, automobile, financial services, and life creation and other businesses. Results weakened as automobile sales and unit volumes fell, foreign-exchange movements weighed on reported revenue, and the pandemic disrupted activity late in the year.
| Metric | FY2020 | Prior comparable period | Change |
|---|---|---|---|
| Sales revenue | ¥14,931.0 billion | ¥15,888.6 billion | Down 6.0% |
| Operating profit | ¥633.6 billion | ¥726.4 billion | Down 12.8% |
| Operating margin | 4.2% | 4.6% | Lower |
| Profit before income taxes | ¥789.9 billion | ¥979.4 billion | Down 19.3% |
| Profit attributable to owners of parent | ¥455.7 billion | ¥610.3 billion | Down 25.3% |
| Basic and diluted EPS | ¥260.13 | ¥345.99 | Lower |
Operating profit declined mainly on lower sales and less favorable model mix and currency effects, partly offset by cost reductions and lower selling, general and administrative expenses. Management estimates that, excluding negative currency effects of about ¥105.8 billion, operating profit would have risen about ¥13.1 billion; this non-IFRS estimate is not a substitute for reported results.
Segments and material changes
- Automobiles: Revenue fell 10.1% to ¥9,959.0 billion; consolidated unit sales declined 11.5% to 3.318 million. Segment operating profit fell 26.9% to ¥153.3 billion.
- Motorcycles: Revenue declined 1.9% to ¥2,059.3 billion and unit sales fell 6.0% to 12.426 million. Segment operating profit declined 2.0% to ¥285.7 billion.
- Financial services: Revenue rose 9.4% to ¥2,586.9 billion, but operating profit fell 6.9% to ¥219.7 billion as credit-loss allowances and related expenses increased.
- Life creation and other: Revenue declined 7.2% to ¥325.6 billion; operating loss widened to ¥25.1 billion. Aircraft and aircraft-engine operations recorded a ¥42.2 billion operating loss.
- Foreign-currency translation was a significant headwind: Honda estimated revenue would have declined 3.8%, rather than 6.0%, at prior-year exchange rates.
Cash flow, balance sheet and liquidity
- Operating cash flow was ¥979.4 billion, investing cash flow was negative ¥619.5 billion, and financing cash flow was negative ¥87.4 billion. Cash and cash equivalents increased ¥178.2 billion to ¥2,672.4 billion.
- Total assets were ¥20,461.5 billion and total equity ¥8,286.0 billion at year-end. Financing liabilities were ¥7,469.7 billion, up from ¥7,331.1 billion a year earlier; these include substantial funding for Honda’s financial-services business.
- Honda said cash equaled approximately 2.1 months of sales revenue and considered liquidity sufficient for operations. Committed credit lines for commercial-paper programs were ¥1,084.9 billion; total unused committed lines were ¥1,148.4 billion.
- Current assets were ¥7,301.0 billion and current liabilities ¥5,790.1 billion. FY2020 capital expenditures were ¥2,620.5 billion, including equipment on operating leases; excluding that equipment, they were ¥375.6 billion.
- Annual dividends declared for FY2020 were ¥112 per share. The final ¥28 dividend was approved in May 2020 and paid in June.
Outlook, risks and unusual items
- COVID-19: Factory suspensions or reduced production, supply-chain delays, dealer closures or reduced services, and lower demand affected operations. Honda also cited higher customer credit risk, falling used-vehicle prices, and financial-market volatility. It said the duration and economic consequences remained uncertain.
- The pandemic increased North American financial-services credit costs: the year-end allowance for credit losses rose to ¥63.5 billion from ¥43.2 billion. Impairment losses on operating leases due to early termination rose to ¥36.0 billion from ¥11.2 billion.
- Management used assumptions that economic activity would restart and markets gradually recover as the pandemic eased, while warning actual results could differ materially. Honda had not determined significant FY2021 capital-expenditure plans because it could not reasonably estimate COVID-19 impacts; no specific earnings guidance is provided in the supplied filing text.
- Honda reported a June 8, 2020 cyberattack that temporarily interrupted operations at several locations, including production bases. As of the report date, no customer or third-party data losses had been confirmed, but the investigation was ongoing.
- Airbag-inflator recalls remained a material warranty matter. The year-end product-warranty provision was ¥380.7 billion; Honda said further recall-related provisions might be required but could not reasonably estimate potential future losses. It also disclosed ongoing claims and lawsuits, while stating routine litigation was not expected to materially affect consolidated results.
- Other identified risks include foreign-exchange and economic volatility, trade and regulatory changes, cyber and supply-chain risks, competition, alliance and joint-venture risks, and product-quality and legal exposures. IFRS 16 adoption added ¥272.2 billion of lease liabilities at April 1, 2019.
Key investor verification points
- Review subsequent filings for the duration and financial effects of COVID-19, including production recovery and any FY2021 guidance or capital-investment plans.
- Track financial-services credit-loss allowances, lease-vehicle residual values, used-car prices, and customer delinquencies as economic conditions evolve.
- Assess the cost, timing, and remaining exposure related to airbag-inflator recalls and associated litigation.
- Reconcile financing liabilities and liquidity resources, distinguishing operating-company funding from financial-services funding and lease obligations.
- Confirm the status and consequences of the June 2020 cyberattack and whether further impacts or remediation costs were identified.