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Record profit aside, Toyota chief cautiously lays out future path

President Toyoda was not sanguine about the future.

NAGOYA -- In unveiling a record profit estimate for fiscal 2015, Toyota Motor President Akio Toyoda resisted the impulse to trumpet the company's stellar performance. Instead, he stressed the need to look ahead to maintain growth in a fiercely competitive market.

     "This year will be a major turning point," Toyoda said. "We will either mark a solid step toward sustainable growth, or retreat backward despite past efforts."

     Japan's top automaker announced Friday that it expects a 2% increase in operating profit to 2.8 trillion yen ($23.1 billion) for the year ending March 2016, a third straight year of record operating profit. The weak yen and the strong North American market will make up for sluggish domestic sales.

Earning and spending big

Toyota plans to use the big payouts from last fiscal year to invest for the future and reward shareholders.

     "We will make investments to achieve growth that is accompanied by quality," Toyoda said.

     Research and development spending will reach a record 1.05 trillion yen, up 5% on the year. The company also plans to spend 1.2 trillion yen in capital investment, the most in seven years. A new Prius developed under the Toyota New Global Architecture modular platform is slated to debut in the latter half of this year, and the company will spend aggressively on related equipment, such as metal molds, as well.

     Even with massive investment, brisk sales of high-margin sport utility vehicles and the Lexus luxury brand in North America will help Toyota deliver a record profit. Sales there are expected to increase 4% to 2.83 million units.

     In the Middle East and Russia, sales are falling. And the Japanese market, slow to recover from a consumption tax hike, is expected to offer lackluster sales. But overall sales are projected at 10.15 million units globally, flat on the year.

     At 115 yen to the dollar, the yen's assumed rate is set weaker than in fiscal 2014. But the softness of the Russian ruble and other emerging-market currencies will erode profit to the tune of 45 billion yen. And material costs are expected to rise. The company plans to absorb these with cost savings of some 265 billion yen.

     Lifting a freeze on new plant construction that was put in place in 2013, Toyota will resume building facilities. It plans to spend 170 billion yen to build Chinese and Mexican plants for launch in 2018 and 2019.

Solid fiscal 2014

In the year ended March 31, operating profit jumped about 20% to 2.75 trillion yen, on sales of 27.23 trillion yen, up 6%.

     As the U.S. economy picks up, sales of the Corolla compact and the Rav4 SUV increased there. Plants are operating above 90% of capacity as the company focuses on maximizing utilization rates.

     The profitability of exports improved significantly as the yen weakened about 10 yen against the greenback from fiscal 2013. The operating profit margin topped 10% for the first time, and net profit jumped 19% to 2.17 trillion yen -- making Toyota the first Japanese company to exceed 2 trillion yen in net profit.

     The automaker will pay a 200 yen annual dividend, up 35 yen on the year. Including stock buybacks, shareholder rewards will reach nearly 1 trillion yen.

     In addition, Toyota is not pushing suppliers to cut prices, which could help spur a positive economic cycle.

Proceeding with caution

Top Toyota officials played down the rosy forecast for fiscal 2015 in discussing future steps Friday.

     "We are ready to move from 'remaining in a plateau by choice' to taking action," said Toyoda. "We need to keep challenging ourselves."

     Under the TNGA modular platform announced in 2012, Toyota is working to adopt common designs for core components like engines. "About half of all vehicles in the world will be developed through TNGA around 2020," Toyoda said.

     Undertaken at an unprecedented scale and involving parts makers, the initiative is aimed at raising development efficiency and reducing costs. But it is not free of risk. Germany's Volkswagen, which led in such efforts, has faced difficulty launching mass production.

     In building the Chinese and Mexican facilities, Toyota expects to spend 40% less in upfront investments, compared with 2008 levels. But a top official warned that "we don't know if they will proceed according to plan." Amid uncertainty over emerging markets, Toyota's ability to respond to changes in demand will be put to the test.

     "Competition in the global auto market will only intensify," the president said. "We need to direct our inward-looking energy toward the fight with real competitors."

     Toyota decided last year to consolidate diesel-engine and other parts operations within the group, to free up resources for next-generation technology development. Such large-scale reorganizations have yet to yield results.

     Toyoda also stressed the need to revamp its corporate mentality. "Nurturing people who can think on their own and decide and act quickly will determine the next phase of growth," Toyoda said. In April, the company announced an organizational change that will shift some of the authority from vice presidents to officers who oversee operations more closely. Such persistant reform efforts could eventually bear fruit.

(Nikkei)

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