TOKYO -- Mazda Motor is expected to see group operating profit fall about 20% on the year in fiscal 2018 as the automaker steps up spending on its U.S. sales network and new environmental and safety technologies.
Operating profit is likely to reach around 110 billion yen ($1 billion) for the year ending March 2019, marking the first profit decline in two years. The yen's appreciation against the dollar will also erode the profitability of exports.
Sales are expected to remain strong. The Japanese automaker's global auto sales are forecast to hit 1.65 million units for the current year, a few percent higher than the estimate for fiscal 2017, as sport utility vehicles gain in popularity.
But sales growth will not cover rising costs. Mazda plans to open a new plant with an annual output of 300,000 cars in the U.S. state of Alabama in 2021 in collaboration with Toyota Motor, with which it formed a capital tie-up in August last year. With greater production capacity comes the need for a better sales network in the U.S., which Mazda is building through assistance to dealers.
The costs of developing next-generation technology and capital investment are also growing. The company is developing new models that incorporate its proprietary Skyactiv technology, which improves safety and fuel efficiency. Research and development costs for self-driving cars and electric vehicles are also taking a toll.
The yen's appreciation is another challenge. Mazda is particularly vulnerable to foreign exchange fluctuations since it produces 60% of its cars in Japan while exporting a large portion of them. The automaker is expected to assume an exchange rate of 107 yen to the dollar for the current fiscal year, 4 yen stronger than the estimate for fiscal 2017, a factor that is likely to slash about 20 billion yen from operating profit.
Fiscal 2017 results appear to have outperformed the existing estimates calling for a 9% sales increase to 3.5 trillion yen and a 19% operating profit increase to 150 billion yen. The company's earnings are due out Friday.