Honda Motor Co., Ltd. — FY2018 Form 20-F Summary
Reporting period: Fiscal year ended March 31, 2018. This is an annual report, not a standalone Q4 filing. Financial statements are prepared under IFRS and presented in Japanese yen.
Business context and financial performance
Honda develops, manufactures and sells motorcycles, automobiles and power products, and provides customer and dealer financing. The company reported a gradual economic recovery in Japan, North America and Europe, with growth in China and improving conditions in parts of Asia.
| Metric | FY2018 | FY2017 | Change |
|---|---|---|---|
| Sales revenue | ¥15,361.1bn | ¥13,999.2bn | +9.7% |
| Operating profit | ¥833.6bn | ¥840.7bn | -0.9% |
| Profit before income taxes | ¥1,115.0bn | ¥1,007.0bn | +10.7% |
| Profit attributable to owners | ¥1,059.3bn | ¥616.6bn | +71.8% |
| Operating margin | 5.4% | 6.0% | Down 0.6 percentage points |
| Net margin attributable to owners | 6.9% | 4.4% | Up 2.5 percentage points |
| Basic and diluted EPS | ¥590.79 | ¥342.10 | +72.7% |
Margins are calculated from reported revenue and profit figures. Revenue growth reflected higher sales across all businesses and favorable currency translation. Operating profit was nearly flat as higher SG&A, the U.S. airbag-litigation settlement and the absence of the prior-year pension-plan amendment gain offset higher volume, improved model mix and cost reductions.
Cash flow, debt and liquidity
- Operating cash flow was ¥987.7bn, up from ¥885.1bn; investing cash outflow was ¥615.1bn, compared with ¥650.6bn.
- Financing cash outflow was ¥174.3bn; cash and cash equivalents increased ¥150.5bn to ¥2,256.5bn.
- Total assets were ¥19,349.2bn; total equity was ¥8,234.1bn. Financing liabilities were ¥6,799.0bn, little changed year over year.
- Current assets of ¥6,925.3bn exceeded current liabilities of ¥5,624.1bn; the derived current ratio was about 1.23. Honda said cash was equivalent to approximately 1.8 months of revenue and liquidity was sufficient for operations.
- Financing-liability funding for the non-financial-services businesses was ¥472.0bn; finance subsidiaries’ funding liabilities were ¥6,460.5bn. The latter support customer and dealer financing, so total financing liabilities should not be read as industrial net debt without considering finance receivables and lease assets.
- Finance-services receivables and operating-lease equipment totaled ¥9,046.1bn, broadly unchanged from the prior year. The credit-loss allowance rose to ¥34.8bn from ¥31.5bn; net charge-offs and early-termination lease impairment losses also increased.
Business and other material changes
- Motorcycles: Revenue rose 18.8% to ¥2,038.7bn and operating profit increased 56.4% to ¥267.0bn. Consolidated unit sales rose 15.3% to 12.954m, driven mainly by India and Vietnam.
- Automobiles: Revenue rose 7.6% to ¥10,852.2bn, but operating profit fell 25.4% to ¥373.8bn. Consolidated unit sales were up 0.2% to 3.689m; North American sales declined while Japan and Asia improved.
- Financial services: Revenue increased 13.1% to ¥2,123.2bn and operating profit increased 9.9% to ¥196.1bn. Management attributed revenue growth mainly to lease-vehicle dispositions and operating-lease revenue.
- Power products and other: Revenue increased 9.1% to ¥347.1bn. Operating loss narrowed to ¥3.4bn from ¥9.7bn; aircraft and aircraft engines remained loss-making.
- Share of profit from equity-method investments increased to ¥247.6bn from ¥164.8bn, contributing to higher pretax profit. Foreign-currency effects increased reported revenue by an estimated ¥398.8bn versus constant prior-year rates; estimated favorable operating-profit currency effects were ¥21.9bn.
- FY2018 R&D expenditure was ¥730.7bn. Capital expenditures were ¥2,233.0bn, including ¥1,799.2bn for finance-business operating-lease equipment; excluding operating-lease equipment, expenditure was ¥433.9bn.
Outlook, risks and unusual items
- The filing does not provide a clear consolidated financial forecast for FY2019. It estimates FY2019 capital expenditures of ¥480.0bn, excluding finance-business equipment on operating leases and intangible assets.
- Honda’s 2030 Vision emphasizes quality, R&D, production and sales efficiency, safety technologies, and electrification. The company aims to reduce total CO₂ emissions 50% by 2050 compared with 2000 levels and to make electric vehicles—including hybrids, fuel-cell and battery-electric vehicles—two-thirds of automobile sales volume.
- A ¥346.1bn U.S. tax benefit from the Tax Cuts and Jobs Act, primarily from remeasurement of deferred tax balances, drove the FY2018 income-tax credit of ¥13.7bn and effective tax rate of -1.2%. The sharp increase in net profit therefore was not matched by operating-profit growth.
- Honda recognized ¥53.7bn of SG&A expense for a settlement of U.S. multidistrict airbag-inflator litigation, subject to final court approval. Additional losses from other airbag-related lawsuits and recalls could not be reasonably estimated; the filing says further provisions may be needed.
- Other risks include currency and interest-rate movements, market and pricing volatility, competition, supplier disruption, regulation, product quality and recalls, cyber and information-system risks, natural disasters, and credit and lease-residual-value exposure. Honda reported rising North American finance receivable losses, partly associated with longer-term retail loans.
- Management reported effective disclosure controls and internal control over financial reporting as of March 31, 2018; the auditor issued unqualified opinions on the financial statements and internal controls.
Most important facts for investors to verify
- How much of the FY2018 net-income increase is attributable to the nonrecurring U.S. tax-law benefit, and what are normalized earnings and tax rates?
- Whether the airbag settlement received final court approval, how recall completion and remaining claims are progressing, and whether additional provisions were recorded subsequently.
- Trends in automobile operating margins, particularly in North America, and whether cost reductions and product mix can offset SG&A, R&D and warranty costs.
- North American finance portfolio performance: delinquencies, net charge-offs, longer-term loan exposure, used-vehicle prices and lease residual values.
- Liquidity and refinancing needs at the finance subsidiaries, including committed credit availability and the maturity profile of financing liabilities.
- The status and subsequent execution of the announced post-year-end share repurchase of up to 18m shares and ¥70bn, and the dividend actually paid. The filing reports ¥100 per share for FY2018 including the ¥27 year-end dividend approved after year-end.