Overview of financial results for the fiscal year ended March 31, 2018
Honda Group unit sales* of the motorcycle business in the fiscal year ended March 31, 2018 were 19,554 thousand units, an increase of 1,893 thousand units from the previous fiscal year, as a result of brisk sales in major countries, including India, where a new line started commercial production in August 2017, Vietnam, and Thailand. Honda Group unit sales of the automobile business were 5,199 thousand units, an increase of 171 thousand units from the previous fiscal year, owing to growth in Asia, notably in China, Thailand, and India, where sales were buoyant.
Sales revenue amounted to 15,361.1 billion yen, an increase of 9.7% year on year, because of increases in consolidated unit sales* of the motorcycle, automobile, and power product businesses and an increase in sales revenue of the financial services business, as well as favorable foreign currency translation effects. Without foreign currency translation effects, sales revenue would have increased 963.1 billion yen from the previous fiscal year.
Operating profit edged down 0.9% year on year to 833.5 billion yen. However, excluding foreign currency effects, the impact of the pension plan amendments in the previous fiscal year, the settlement of multidistrict class action litigation, and other factors, operating profit would have increased 94.1 billion yen from the previous fiscal year in real terms owing to an improved model mix resulting from increased unit sales of light trucks in North America, substantial cost reduction by absorbing the impact of the increase in raw material prices, and other improvements, although there were increases in SG&A expenses and R&D expenses. Despite a challenging business environment, we managed to achieve higher profit in real terms, indicating the progress in improvement of the fundamentals of our businesses.
Share of profit of investments accounted for using the equity method amounted to 247.6 billion yen, an increase of 82.8 billion yen from the previous fiscal year, as a result of factoring in the strong sales in China.
Profit for the year attributable to owners of the parent amounted to 1,059.3 billion yen. Even excluding the impact of corporate tax cuts in the U.S. amounting to 346.1 billion yen, the amount of profit for the year attributable to owners of the parent was the highest ever.
*Honda Group unit sales is the total unit sales of completed products of Honda, its consolidated subsidiaries and its affiliates and joint ventures accounted for using the equity method. Consolidated unit sales is the total unit sales of completed products corresponding to consolidated sales revenue to external customers, which consists of unit sales of completed products of Honda and its consolidated subsidiaries.
Forecasts for the fiscal year ending March 31, 2019
For the fiscal year ending March 31, 2019, we expect sales revenue of 15,450.0 billion yen, an increase of 0.6% year on year, and operating profit of 710.0 billion yen, a decrease of 14.8% year on year.* We are assuming an average JPY/USD exchange rate for the fiscal year ending March 31, 2019 of 107 yen to the US dollar, whereas the rate was 111 yen to the US dollar for the fiscal year ended March 31, 2018.*
Operating profit is expected to be 123.5 billion yen lower than the previous fiscal year. However, excluding foreign currency effects, the impact of the flooding in Mexico, the settlement of multidistrict class action litigation, which occurred in the fiscal year ended March 31, 2018, and other negative factors, which are expected to total 216.0 billion yen, operating profit is expected to increase owing to increases in unit sales in the motorcycle and automobile businesses and the contribution of cost reduction efforts after absorbing the impact of the increase in raw material prices, and other improvements.
Capital investment and R&D expenses
For the fiscal year ended March 31, 2018, capital investment amounted to 433.8 billion yen, a decrease of 19.8% year on year. Principal items were investments related to new model introductions and the enhancement, streamlining and upgrading of production, sales and R&D facilities. For the fiscal year ending March 31, 2019, we are planning for capital investment of 480.0 billion yen*, an increase of 10.6% year on year. In China, where we need more production capacity, we are currently building a third Dongfeng Honda plant with a target to begin production in the first half of 2019**. With respect to investment related to electrification, which is expected to grow in importance going forward, while we will continue to consider possible alliances in the area of motors for electric vehicles and for the joint development and mass production of fuel cell systems, we will seek to hold down an increase in capital investment by utilizing our corporate resources more efficiently.
With respect to R&D, at Honda, for the purpose of enabling our engineers to carry out free and open-minded R&D activities and create unique and competitive products with advanced technologies, key research and development operations maintain their independence as subsidiaries. For the fiscal year ended March 31, 2018, our R&D expenses amounted to 730.7 billion yen, an increase of 10.7% year on year. For the current fiscal year ending March 31, 2019, we are planning for R&D expenses of 790.0 billion yen, an increase of 8.1% year on year*. Working toward the future introduction of new technologies, including electrification technologies and advanced safety technologies, we are expecting R&D expenses to rise. However, we are going to hold down an increase in R&D expenses by further increasing the efficiency of our development activities in existing business areas and through proactively utilizing open innovation as a means to enable R&D to select and concentrate their resources in key areas.
* As of July 31, 2018
** This is a capital investment being made by an affiliated company accounted for by the equity method, and therefore it is not included in the amount of total capital investment mentioned earlier.
Honda strives to carry out its operations worldwide from a global perspective and to increase its corporate value. With respect to the redistribution of profits to its shareholders, which we consider to be one of the most important management issues, the distribution of dividends is determined after taking into account, among others, its retained earnings for future growth and consolidated earnings performance based on a long-term perspective.
For the purpose of further enhancing the capitalization strategy, we changed our dividend policy in the fiscal year ended March 31, 2018, which used to be a total shareholder return ratio of approximately 30%, aggregating dividends and share buybacks. Going forward, dividends will be paid with a target of approximately 30% for the ratio of the dividend amount to profit for the year attributable to owners of the parent (payout ratio). Honda will also acquire its own shares at a timing it deems optimal with the goal of improving the efficiency of its capital structure and implementing a flexible capital policy. Honda will allocate retained earnings toward financing R&D activities that are essential for its future growth, capital expenditures and investment programs that will expand its operations, and maintaining sound financial conditions.
Total cash dividends for the year ended March 31, 2018 were 100 yen per share, an increase of 8 yen per share from the annual dividends paid for the year ended March 31, 2017. Honda announced a share buyback plan in November 2017 and acquired 24 million shares at a total cost of 87.0 billion yen by December 2017. For the fiscal year ending March 31, 2019, we are forecasting total dividends of 108 yen per share*, another increase of 8 yen per share following the increase in the previous year. Honda announced another share buyback plan in April 2018 for a maximum of 1.8 million shares and completed the acquisition at a total cost of 62.1 billion yen by July 2018.
*As of July 31, 2018
To further enhance corporate governance, Honda transitioned to a company with an Audit and Supervisory Committee during the fiscal year ended March 31, 2018. In the fiscal year ended March 31, 2019, Honda introduced a new stock-based remuneration system for Directors, etc., which is linked with the Company’s financial performance over the medium to long term, in order to further enhance the motivation of Directors, etc. for contributing to the sustainable growth of corporate value over the medium to long term, and to promote sharing of interests between the Directors, etc. and shareholders.
We will continue striving to increase corporate value to fulfill the expectations of our shareholders.
Please check the Annual Report for past messages from the CFO.