Business context and reporting period
Toyota Motor Corporation’s Form 20-F, filed June 21, 2019, is an annual report for the fiscal year ended March 31, 2019, prepared under U.S. GAAP. “2018 Q4” is not a standalone reporting period in this filing; it covers the full fiscal year. Toyota operates automotive, financial services and other businesses and sold 8.977 million vehicles worldwide.
Financial performance and position
Amounts are Japanese yen (¥); financial figures below are in billions unless stated otherwise.
| Metric | FY2019 | Change vs. FY2018 |
|---|---|---|
| Net revenue | ¥30,225.7 | +2.9% |
| Operating income | ¥2,467.5 | +2.8%; operating margin 8.2%, broadly unchanged |
| Income before tax and equity earnings | ¥2,285.5 | -12.8% |
| Net income attributable to Toyota Motor Corporation | ¥1,882.9 | -24.5%; net margin 6.2% vs. 8.5% |
| Basic earnings per common share | ¥650.55 | ¥842.00 in FY2018 |
| Net cash from operating activities | ¥3,766.6 | Down ¥456.5 |
| Net cash used in investing activities | ¥2,697.2 | Down ¥962.8 in cash used |
| Net cash used in financing activities | ¥540.8 | Up ¥91.7 in cash used |
| Total assets | ¥51,936.9 | ¥50,308.2 at FY2018 year-end |
| Liquid assets, as defined by Toyota | ¥10,365.0 | Down 4.1% |
| Total interest-bearing debt | Approximately ¥20,150 | Up ¥802.6; 104.1% of Toyota Motor Corporation shareholders’ equity |
Cash and cash equivalents were ¥3,574.7 billion; cash, cash equivalents and restricted cash together were ¥3,706.5 billion. Toyota reported ¥19,348.2 billion of parent-company shareholders’ equity. Financial-services receivables rose 6.9% to ¥16,928.9 billion; Toyota reported a 0.27% credit-loss rate, versus 0.30% in FY2018.
Material changes versus the prior comparable period
- Revenue growth was led by vehicle sales and mix, which contributed an estimated ¥860 billion, while exchange-rate movements reduced revenue by about ¥510 billion. Worldwide vehicle sales increased slightly, from 8.964 million to 8.977 million.
- Operating income rose modestly, supported by marketing effects (+¥275 billion) and cost reductions (+¥80 billion), partly offset by higher expenses and adverse currency effects.
- Net income fell despite higher operating income. Results included a ¥341.1 billion unrealized loss on equity securities following adoption of new financial-instrument accounting, lower equity earnings from affiliates, and a higher tax provision. Toyota also recorded a ¥1,309.7 billion cumulative-effect adjustment to retained earnings on adoption; this was an accounting transition adjustment, not current-period operating income.
- Operating cash flow declined, mainly reflecting lower accrued income taxes and higher receivables. Investing cash outflow fell largely because purchases of marketable securities decreased.
- Automotive revenue increased 2.6%, while automotive operating income rose 1.4%. Financial-services revenue increased 6.8% and operating income rose 13.1%, helped by financing growth and lower residual-value losses.
Outlook, risks and other notable matters
For fiscal 2020, management expected revenue to decrease, mainly due to unfavorable exchange-rate movements, but operating income, pretax income and attributable net income to increase. Expected operating-income support included a planned change to straight-line depreciation for the parent and Japanese subsidiaries, forecast to reduce depreciation expense by approximately ¥150 billion, and further cost reductions. The outlook assumed exchange rates of ¥110 per U.S. dollar and ¥125 per euro. Toyota expected to fund fiscal 2020 capital expenditure and research and development with cash on hand and operating cash flow; planned property, plant and equipment investment was approximately ¥1,450 billion.
Management described a highly competitive and volatile auto market, with slowing conditions in China and some resource-dependent markets. Key risks include yen and other currency movements, interest rates and funding costs, regulatory changes and compliance costs, recalls and product liability, supplier concentration and raw-material prices, residual values and credit losses in financial services, cyber and technology disruption, and natural disasters or other operational interruptions. Pending matters include unintended-acceleration claims and litigation outside the United States relating to Takata airbags. Toyota said it could not estimate reasonably possible losses beyond amounts accrued, but did not expect those additional losses, if any, to materially affect its financial position, results or cash flows. It also disclosed discussions with U.S. authorities after identifying a process gap in certain emissions-defect reporting.
The common-share dividend for FY2019 was ¥220 per share. Toyota reported share repurchases, but the filing presents different figures in different disclosures: the dividend discussion cites 36 million shares for ¥249.9 billion, while the issuer-purchase table and financial statements report larger totals under their respective scopes. Toyota announced a further repurchase of up to 50 million shares and ¥300 billion after year-end. PricewaterhouseCoopers Aarata LLC issued an unqualified audit opinion and concluded that internal control over financial reporting was effective as of March 31, 2019.
Important facts for investors to verify
- Reconcile the share-repurchase totals across the narrative, issuer-purchase table and audited financial statements, including timing and scope.
- Assess the recurring earnings impact of the equity-security accounting change and separate it from operating performance and the retained-earnings transition adjustment.
- Review the drivers and sustainability of the forecast ¥150 billion depreciation reduction and the fiscal 2020 earnings outlook, including its exchange-rate assumptions.
- Evaluate liquidity and leverage in light of finance-subsidiary funding needs, debt maturities, unused credit lines and the large finance-receivables portfolio.
- Track recall and litigation accruals, the emissions-reporting inquiry, and changes in credit losses and lease residual values.