Mazda on track to becoming debt free in fiscal 2016
TOKYO -- Mazda plans to become effectively debt-free during the year ending March 2017, by tapping increased cash inflows from its core business to repay liabilities.
This will mark the first time for the Japanese automaker to become free of debt since it began announcing groupwide earnings in fiscal 1999. Improving earnings power, combined with smaller investments, will likely buoy its financial standing.
Mazda has seen a recovery in earnings, helped by brisk sales of the CX-5 sport utility vehicle and of the Axela compact. Hence, operating cash flow, a measure of the financial strength of its core business, will likely come to 200 billion yen ($1.92 billion) or so starting in fiscal 2014, up from 136.3 billion yen last fiscal year.
Meanwhile, as a new Mexican plant and other large investment projects wind down, the deficit in cash flow from investment activities is seen shrinking after hitting a peak this fiscal year. Investment from fiscal 2015 on will likely be small enough to be within the range of annual depreciation expenses of about 70 billion yen to 80 billion yen.
As a result, free cash flow will likely come to nearly 100 billion yen in the black this fiscal year, up from 16.3 billion yen in the prior year, and is seen topping 100 billion yen from next fiscal year on. Mazda plans to use that money to slash debt.
Net interest-bearing debt stood at 260 billion yen as of March 31, so by cutting liabilities by 100 billion yen a year the company seeks to become debt-free during fiscal 2016.
By doing so, and holding on to more cash, Mazda aims to raise its capital ratio above 40%, from just below 30% at the end of March.
The company is projected to generate a record 160 billion yen net profit this fiscal year, up 18%, helped by brisk sales of newly rolled out vehicles.
As its financial standing improves, the next challenge will be upgrading shareholder rewards. Mazda resumed dividend payments in fiscal 2013 but its dividend payout ratio will stand at a mere 4% even this fiscal year.