Isuzu 2006 Annual Report Download - page 23

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Isuzu Motors Limited Annual Report 2006
Results of Operations
Significant accounting policies
The consolidated financial statements of the Isuzu group are pre-
pared in accordance with the generally accepted accounting principles
of Japan. In the preparation of these statements, the amounts recorded
for items including bad debt allowance, inventory, investments, income
taxes, retirement benefits, and provisions for product warranties are
estimates that reflect the judgment of management. Because of the
uncertain nature of estimates, in some cases actual results may vary
from initial estimates, and this may have a negative impact on earnings
results.
Sales
In fiscal 2006 (ended March 31, 2006), Isuzu’s consolidated-basis
sales rose 5.9% from the previous year to ¥1,581,857 million.
In the domestic commercial vehicle market, sustained replacement
demand for vehicles compliant with the new NOx and particulate mat-
ter (PM) emissions regulations contributed to modest growth in overall
demand—a 5.9% increase in standard truck demand to 105,504 units
and 2.6% growth in demand for 2–3 ton trucks to 117,093 units. In
this environment, Isuzu gained market share through the introduction
of products with superior fuel efficiency and economy and group-wide
sales initiatives to capture 28.8% share of the standard truck market
(up 1.4 percentage points from the previous year) and 39.7% of share
of the 2–3 ton truck market, an increase of 1.3 percentage points from
the previous year. As a result, domestic sales grew 9.5% to ¥684,993
million.
Sales in Asia grew 18.2% from the previous fiscal year to ¥442,181
million from the impact of consolidating Thai manufacturing opera-
tions and brisk sales of pickup trucks in the ASEAN region, especially in
Thailand. In the Thai market, where pickup trucks account for around
60% of the total, Isuzu pickup trucks held 37% market share, sustain-
ing steady sales growth despite intensifying competition.
North American sales fell 14.4% to ¥183,143 million as we withdrew
from local SUV production and shifted emphasis to profit.
Operating income
Operating income for fiscal 2006 was a record ¥90,661 million, up
4.0% from a year earlier. Rationalization, including raw material ex-
pense reduction, contributed ¥21,500 million, improved sales mix pri-
marily as a result of domestic vehicle sales growth contributed ¥14,500
million, and consolidation of manufacturing operations in Thailand
added ¥5,200 million, offset against ¥19,200 million negative impact
from increased raw material expenses and other economic fluctuations,
¥8,700 million increase in R&D expenses, and ¥9,800 million due to
other factors.
Looking at each of our key business areas, operating income at the
parent company declined ¥7,060 million from the previous year to
¥53,506 million because of increased R&D expenses associated with
full model changes in the domestic light-duty and medium-duty truck
range, despite absorbing the impact of higher crude oil prices by ratio-
nalization efforts.
Consolidated sales subsidiaries in Japan posted an operating in-
come of ¥4,400 million, down ¥1,600 million from the previous year.
Although sales increased as a result of higher sales volume, increased
competition (especially in the first half of the fiscal year) weighed on
profits.
In North America, operating income grew ¥5,500 million to ¥5,100
million due to progress with profit-focused sales activities in the SUV
business and steady earnings growth in the CV business.
In ASEAN, operating income grew ¥5,800 million to ¥21,000 mil-
lion due to the consolidation of Thai manufacturing operations and sus-
tained brisk pickup truck sales in Thailand.
(The figures shown for each of our key business areas above reflect
the simple addition of the profits and losses of the parent company and
consolidated subsidiaries, grouped according to the characteristics of
each unit).
As a result, our operating margin contracted 0.1 percentage point
from 5.8% in fiscal 2005 to 5.7% in fiscal 2006.
Non-operating gains/losses
In fiscal 2006, we posted a non-operating profit of ¥3,181 million,
deteriorating ¥1,159 million from the previous year.
Equity-method profit declined ¥5,138 million to ¥10,673 million be-
cause of lower shipments at engine manufacturing operations in Poland
(an equity-method company) due to model changes, and the decrease
in the number of equity-method companies in Thailand following the
consolidation of Thai manufacturing operations.
Progress with reduction of interest-bearing debt resulted in a ¥1,515
million improvement in net interest (interest received minus interest
paid) to ¥9,013 million.
Extraordinary gains/losses
In fiscal 2005, we posted an extraordinary loss of ¥22,788 million
associated with the consolidation and reorganization of our domestic
sales network and disposal of fixed assets accompanying the reloca-
tion the Kawasaki plant. In fiscal 2006, the extraordinary loss improved
¥8,569 million to ¥14,218 million, mainly associated with disposal of
fixed assets and additional losses incurred in the dismantling of the for-
mer Kawasaki plant, service warranty expenses on RV products, and
fixed asset impairment losses.
Taxes
In fiscal 2005, Isuzu’s net tax expense, including corporate income
taxes, municipal taxes, and business taxes and after adjustments was a
¥6,245 million expense because of increased corporate tax payments
at the parent and ASEAN subsidiaries. In fiscal 2006, the net tax ex-
pense was ¥15,446 million, because of an increase in corporate in-
come tax adjustments and higher corporate tax payments by overseas
subsidiaries.
Minority interests
Minority interests consist primarily of profits returned to the minor-
ity shareholders of our locally incorporated subsidiaries in ASEAN and
North America. The figure increased from ¥2,484 million in fiscal 2005
to ¥5,222 million in fiscal 2006.
Net profit
In fiscal 2006, our net profit was ¥58,956 million, a decrease of
¥1,080 million from the previous year. Earnings per share came to
¥48.75 and fully diluted earnings per share to ¥31.67.
Management’s Discussion and Analysis of Financial Condition and Results of Operation