Toyota Half Year Results: China Problem? What China Problem?

Toyota’s CFO Satoshi Ozawa presented the financial results of the first half of fiscal 2013 to a packed conference room in the basement of Toyota’s Tokyo HQ. Analysts were astounded to hear that the company beat their expectations with a 6 month operating profit of 693.7 billion yen ($8.64 billion), an EBIT of 794.5 billion yen ($9.9 billion), and a net profit of 548.2 billion yen ($6.83 billion) after Japanese taxes are paid. What baffled them much more was Toyota’s business outlook: Toyota says it might make even more money than previously predicted.

After Honda cut its profit forecast for the fiscal year to March by more than a billion dollars due to a drastic drop in China sales, observers expected other Japanese majors to follow suit. Toyota did the opposite. (Nissan will announce its numbers tomorrow.)

Toyota forecasts a full year operating income of 1.05 trillion yen (13 billion), an EBIT of 1.18 trillion yen ($14.7 billion), and a net profit of 780 billion yen ($9.7 billion), up sundry billions from the previous estimate. That on revenue that is 700 billion yen ($8.72 billion) less than forecasted. How do they do this? The old-fashioned, way, with stringent savings and increased sales. A proud Ozawa explained that “some expenses budgeted for the period were never spent.” In the German and U.S. companies I had known, not spending your budget was considered a mortal sin, right up there with coveting the CEO’s wife. In Japan, you are mentioned in dispatches to the media.

Toyota’s global sales forecast for the fiscal also appeared to be unaffected by the Chinese fallout. It was down revised slightly to 8.75 million vehicles from 8.8 million.

Expect this number to trip up journalists around the globe. They will predict that with 8.75 million units, Toyota will for sure be eclipsed by GM, if not by Volkswagen. No, it will not.

“Joint venture sales are outside the scope of the consolidated results,” explained Ozawa to the inquiring reporter. Translation: Production, sales, and even financial results of the Chinese joint ventures remained unmentioned. Asked what the true total global group production number for the calendar year might be, including JVs, Ozawa said: “I think it will be slightly less than 10 million.” This happens to be the same as our working number since last week, when we took the China effect into account.

Ozawa said many times that as far as China goes, the “future outlook is quite uncertain,” and “coming up with a forecast is quite difficult.” Any financial impact of the Chinese row will remain a Chinese matter, at least for a while: The Joint Ventures are treated according to the equity method. To be seen by the end of the year, as an asset line item.