Global Insight Perspective | |
Significance | Toyota has recorded a 36.2% year-on-year rise in net profit for the first half of the 2006/07 financial year to ¥777.22 billion. The company has also acquired a 5.9% stake in Isuzu after agreeing an alliance on engine technology with the truck-maker. |
Implications | Toyota's position as the dominant force in the global motor industry is further consolidated by these latest figures. Robust sales, a weaker Japanese currency and softening raw material prices have all contributed to the latest figures. |
Outlook | The outlook for Toyota remains extremely buoyant, with strong growth in Europe and the United States continuing to underpin record profits. Toyota forecasts that full-year 2006/07 operating profit will reach ¥2.2 trillion and that sales will reach 8.47 million units globally. |
Toyota Breaks More Records in H1 FY 2006/07
Toyota once more posted record profits in the first half of the 2006/07 financial year (FY) as a result of strong global sales and the weakening of the Japanese yen in relation to the U.S. dollar and the euro. Toyota's net profit for the first half of the 2006/07 FY came to ¥777.22 billion (US$6.57 billion), which equates to a 36.2% year-on-year (y/y) increase from the figure of ¥570.52 billion recorded in the same period of FY 2005/06. According to the company's published results, Toyota's operating profit grew by 35.1% to ¥1.09 trillion, while revenue increased by 15.3% to ¥11.47 trillion. During the same six-month period, the company's global group sales, including small-car manufacturer Daihatsu and truck-maker Hino, rose to 4.15 million units, up from 3.83 million units the year before. Speaking at the press conference to announce the company's latest impressive set of financials, Toyota Managing Director Takeshi Suzuki said, "Global sales continued to be brisk, led by sales in North America and Europe, which more than offset sluggish sales in Japan and weak sales in Asia."
Toyota's H1 Financial Results | |||
¥ bil. | H1 2005/06 | H1 2006/07 | % Change |
Revenues | 9,953.1 | 11,471.8 | 15.3 |
Operating Profit | 809.4 | 1,093.4 | 35.1 |
Net Profit | 570.5 | 777.2 | 36.2 |
R&D | 373.1 | 393.7 | 5.4 |
Cash Flow from Operating Activities | 1,339.5 | 1,571,0 | 17.2 |
Large Regional Variations in Sales Growth
Despite yet more record profit figures for Toyota, sales in the domestic market were disappointing. Japanese sales fell by 13,000 units y/y in the first half to 1.073 million units, despite strong sales of the Ractis, Belta and Rush models. Toyota's market share excluding minivehicles grew by 1.9% compared with the first half of last fiscal year, to 44.7%. In North America, sales increased by 219,000 units in the six-month period to 1.46 million units as a result of the popularity of models such as the RAV4 and Yaris and the new FJ Cruiser. In Europe, sales rose by 91,000 units to 589,000 vehicles as a result of compact models such as the Aygo and Yaris. However, in Asia sales fell by 66,000 units to 382,000.
Toyota Signs Alliance Pact with Isuzu
On the same day as it published its first-half results, Toyota also announced that it had signed a key strategic deal with Japanese truck-maker Isuzu. The two companies have signed a memorandum of understanding (MoU) to collaborate on research and development (R&D) on a new small diesel engine programme. The alliance, if it progresses, will also involve a joint R&D programme on emissions-control technologies and a number of other environmental and alternative fuel technologies. As a result of the deal, Toyota has agreed to purchase a total of 100,000,000 shares in Isuzu from Mitsubishi and the ITOCHU corporation. This will give Toyota a total stake of 5.9% in Isuzu.
Outlook and Implications
Toyota's latest financial results confirm the company's position as the pre-eminent force in the global motor industry. The company may have yet to officially overtake General Motors (GM) as the world's largest vehicle manufacturer by volume, but the reality is that in terms of profitability, size and global reach Toyota has no peers. This is borne out by the fact that the company's current market cap of US$215 billion makes Toyota worth almost as much as Honda, DaimlerChrysler (DCX), Nissan and BMW combined. The company is continuing to forge ahead with new investments and project that it hopes will consolidate this position. The new collaboration with Isuzu will bolster Toyota's R&D capability in the field of clean diesel engines, as well as giving it a significant stake in a company that has excellent potential synergies with Toyota in terms of its model range. The company has also outlined plans to further fuel growth in the United States through the Scion brand and by enhancing its truck line-up. The company's enhanced efforts in the area of diesel technology will also help its growth in Europe.
Toyota's own forecast puts the company's consolidated annual vehicle sales by the end of the current financial year at 8.47 million units, which is an upward revision from its original estimate. Its consolidated revenues and earnings forecasts for the FY have also been revised upwards, with projected consolidated net revenues of ¥23.2 trillion, operating income of ¥2.20 trillion and net income of ¥1.55 trillion for the full financial year. The company will continue to benefit from expanding its global sales reach, new model introductions such as the recently launched Corolla replacement, the Auris, and further cost reductions. These factors look set to ensure that Toyota maintains its dominant financial position in the global automotive market.