Toyota Motor Corporation — Form 20-F Summary
Business context and reporting period
This is Toyota Motor Corporation’s annual report, filed June 24, 2013, for the fiscal year ended March 31, 2013—not a standalone 2012 fourth-quarter filing. Toyota reports under U.S. GAAP. Unless stated otherwise, amounts below are in yen; reported U.S. dollar equivalents use ¥94.05 per $1. Toyota operates primarily in automotive manufacturing and sales, with financial services and other businesses.
Financial and operating results
| Metric | FY2013 | FY2012 | Change |
|---|---|---|---|
| Net revenues | ¥22.064 trillion | ¥18.584 trillion | +18.7% |
| Operating income | ¥1.321 trillion | ¥355.6 billion | +271.4% |
| Operating margin | 6.0% | 1.9% | +4.1 percentage points |
| Income before taxes and equity earnings | ¥1.404 trillion | ¥432.9 billion | +224.3% |
| Net income attributable to Toyota Motor Corporation | ¥962.2 billion | ¥283.6 billion | +239.3% |
| Net margin attributable to Toyota Motor Corporation | 4.4% | 1.5% | +2.9 percentage points |
| Basic earnings per share | ¥303.82 | ¥90.21 | — |
| Worldwide consolidated vehicle sales | 8.871 million | 7.352 million | +20.7% |
- Revenue and profit drivers: Management attributed revenue growth mainly to higher vehicle volumes and sales mix (¥3.032 trillion) and favorable currency translation (¥281.8 billion). Operating-income improvement reflected marketing efforts (+¥650 billion), cost reductions (+¥450 billion) and exchange rates (+¥150 billion), partly offset by miscellaneous costs and other items (−¥300 billion).
- Segments: Automotive revenue was ¥20.419 trillion and operating income ¥944.7 billion, versus ¥16.995 trillion and ¥21.7 billion, respectively, in FY2012. Financial services revenue was ¥1.171 trillion and operating income ¥315.8 billion; financial-services operating income rose 3.1%. Other operations revenue was ¥1.066 trillion and operating income ¥53.6 billion.
- Cash flow: Operating cash flow was ¥2.451 trillion, up from ¥1.452 trillion. Investing cash flow was −¥3.027 trillion, including increased finance receivables, securities investment and property purchases. Financing cash flow was +¥477.2 billion. Cash and cash equivalents increased ¥39.1 billion to ¥1.718 trillion after exchange-rate effects.
- Investment: Capital expenditures on property, plant and equipment excluding leased vehicles and equipment were ¥854.6 billion, up 18.1%. Spending on vehicles and equipment on operating leases was ¥1.120 trillion, up 38.5%. Research and development expense was ¥807.5 billion, versus ¥779.8 billion.
- Liquidity and debt: Toyota reported liquid assets of ¥6.805 trillion under its stated definition, including cash, time deposits, marketable debt securities and monetary trust funds. Total assets were ¥35.483 trillion; current assets were ¥13.785 trillion and current liabilities ¥12.913 trillion. Short-term borrowings were ¥4.090 trillion, current long-term debt ¥2.704 trillion and noncurrent long-term debt ¥7.338 trillion. Toyota said total borrowings increased 17.7% to approximately ¥14.132 trillion, and interest-bearing debt was 116.3% of parent-company shareholders’ equity, versus 113.8% a year earlier. It reported unused short- and long-term credit lines of ¥2.063 trillion and ¥7.252 trillion, respectively.
- Equity and shareholder returns: Toyota Motor Corporation shareholders’ equity was ¥12.148 trillion, up from ¥10.550 trillion. FY2013 dividends were ¥90 per share (¥30 interim and ¥60 year-end); Toyota stated an aim of stable dividends and a consolidated payout ratio of 30%, subject to results, investment plans and cash reserves. No share repurchases were made in FY2013 other than purchases of less-than-one-unit holdings.
Material changes versus the prior comparable period
- After a weaker FY2012 affected by the Great East Japan Earthquake, Thailand floods and yen strength, vehicle sales recovered across regions. North American sales rose 31.9%, Asian sales 26.9%, and sales in the “Other” regions 27.8%; European sales were nearly flat at +0.1%.
- Japan’s operating result improved from a ¥207.0 billion loss to ¥576.3 billion income. Operating income also increased in North America, Europe, Asia and Other.
- The yen weakened against the U.S. dollar in FY2013 relative to FY2012, benefiting reported results; management cautioned that currency movements can materially affect performance. The FY2013 improvement was also supported by increased sales and cost-reduction efforts.
- Despite higher earnings, quality-assurance liabilities rose to ¥1.003 trillion from ¥839.8 billion; liabilities for recalls and other safety measures increased to ¥566.4 billion from ¥468.7 billion.
Outlook, commentary, risks and unusual items
- FY2014 outlook: Management expected revenue, operating income, pretax income and net income attributable to Toyota Motor Corporation to increase versus FY2013. The forecast was directional, not a quantified earnings guidance. Assumed average exchange rates were ¥90 per U.S. dollar and ¥120 per euro.
- Strategy: Management emphasized the Toyota New Global Architecture, competitive product development, cost reduction, quality improvement, flexible decision-making, growth in emerging markets, and environmental and safety technologies. Planned FY2014 property, plant and equipment investment, excluding leased vehicles and equipment, was approximately ¥910 billion. Toyota expected to fund capital expenditures and R&D from cash on hand and operating cash flow.
- Recall litigation and investigations: Toyota recorded a $1.1 billion pre-tax charge for estimated costs of the U.S. economic-loss settlement and other potential recall-related resolutions. The filing also identifies ¥90 billion of settlement-related costs in its operating-cost discussion. The settlement did not cover personal-injury claims. U.S. Attorney and SEC investigations remained ongoing; Toyota said it could not estimate potential losses for certain unresolved matters, which could adversely affect financial position, results or cash flows.
- Other risks: Key exposures include intense and volatile auto-market competition; economic weakness, especially in Europe; currency and interest-rate movements; supplier and raw-material risks; vehicle safety, emissions and fuel-economy regulation; litigation; natural disasters and infrastructure disruptions; and financial-services credit, funding and vehicle residual-value risks. U.S. financial-services net charge-offs as a percentage of average gross earning assets rose to 0.27% from 0.21%.
- Contingencies and other disclosures: Maximum potential dealer customer-payment guarantees were ¥1.849 trillion, against ¥6.6 billion of recorded liabilities. Toyota disclosed small Iran-related transactions by affiliates—approximately ¥4 million of gross revenue, with substantially lower net profit—and said it believed the transactions did not subject it or affiliates to U.S. sanctions. The independent auditor reported that the consolidated financial statements were fairly presented in all material respects and that internal control over financial reporting was effective as of March 31, 2013.
Important facts for investors to verify
- Reconcile the FY2013 recall charge disclosures, including the stated $1.1 billion pre-tax charge and ¥90 billion settlement-related cost, and track final settlement terms and remaining personal-injury, government and securities matters.
- Assess the sustainability of the sharp operating-income rebound, including the contributions from vehicle volumes, pricing and mix, cost reductions, and yen depreciation; compare results with management’s FY2014 currency assumptions.
- Review debt maturities, financing-subsidiary funding needs and liquidity on a basis that distinguishes automotive cash from finance-receivable funding. Monitor the growth in borrowings and finance receivables.
- Monitor credit losses, lease residual values and used-car prices, as well as changes in recall, warranty and quality-assurance provisions.
- Check whether the forecasted FY2014 improvement and planned ¥910 billion of non-lease capital expenditure were achieved, and whether dividends remained consistent with stated capital-allocation priorities.