Mitsubishi 2006 Annual Report Download - page 51

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MITSUBISHI MOTORS CORPORATION ANNUAL REPORT 2006
The first fiscal year of the Mitsubishi Motors Revitalization Plan ended on March 31, 2006. Despite difficult conditions in
North America, Australia and other regions, MMC is starting to see positive signs overall, such as increased sales in Japan,
Europe, the Middle East and other regions. The company is committed to making a sustained company-wide effort in the
second and third year of the plan to achieve the overriding goals of the Mitsubishi Motors Revitalization Plan: restore
profitability in fiscal year 2006 and reach sustainable profitability in fiscal year 2007 and beyond. In this context, the
finance group has two major roles to play.
First, it is the group’s job to steer the company along the most direct road toward complete recovery. This involves
carefully monitoring quantitative financial data on MMC’s performance to analyze progress with various initiatives, and to
assure that results are being achieved in all aspects of the plan. By ascertaining quickly the financial status of MMC’s entire
operations and keeping a close eye on current and future earnings prospects, the finance group aims to prevent the
company from straying off the path to restoring profitability that is set out in the revitalization plan. MMC’s business
environment is changing at a more rapid, dynamic pace than originally anticipated in terms of economic conditions in
various countries, as well as factors such as crude oil and raw materials prices, foreign exchange markets and interest rates.
In this business environment, based on a precise analysis and understanding of the course charted so far, the group must
quickly steer MMC around various obstacles as measures to reach goals are accelerated.
Second, the finance group is focused on the vital task of securing the funds required for the revitalization process. These
funds are principally the capital needed to develop the new models that promise to be the main driver of restored profitabil-
ity. The revitalization plan calls for ¥490.0 billion in additional funding. MMC has already raised ¥348.0 billion, roughly
70% of the total, mainly through third-party share allocations, long-term borrowings, and bond issues. Looking ahead, while
monitoring cash flow trends on a consolidated basis, the group will continue to raise the funds required through closer
communication with various market participants and partner financial institutions.
Progress on Fund Procurement Plan Announced on January 28, 2005
Three-Year Fund Procurement Plan Funds Procured in First Year of Plan
쏹 Equity capital increases (excluding debt-equity swaps) 220.0 쏹 Equity capital increases 250.0
쏹 Asset divestitures or equity capital increases 30.0 쏹 Borrowings, bond issues, and other sources 98.0
쏹 Borrowings and other sources 240.0
Total: 490.0 Total 348.0
The three years covered by the Mitsubishi Motors Revitalization Plan is a vital period for MMC to recover strength by
carefully taking initiatives to improve and reinforce earnings in preparation for the next stage of growth. With an unwavering
resolve, the company aims to achieve steady growth in shareholder value and meet the expectations of all stakeholders.
Operational Review
In fiscal year 2005, Japan approached the end of its deflationary period. Having largely eliminated the fallout from the
collapse of the bubble economy, specifically excess employment, production capacity, and debt, Japan is finally seeing an
upturn in corporate earnings, gradual yet sustained growth in consumer spending, and other positive signs. In fiscal year
2005, the Japanese economy also benefited from stronger exports underpinned by economic growth in the U.S., Asia
outside Japan, and other overseas regions.
Under this prevailing business environment, overall vehicle demand in Japan rose 0.7% over fiscal year 2004 to
5,861,000 units. Of this figure, demand for registered vehicles was 3,913,000 units, down 0.7%, while that for minicars
rose 3.6% to an all-time high of 1,948,000 units.
Results of Operations
In fiscal year 2005, consolidated net sales were ¥2,120.1 billion, a 0.1% decline from the previous fiscal year. This
decrease in sales mainly reflected lower OEM supply volumes in North America and Europe, partially offset by a boost to net
sales in Japan from higher sales volumes due to two new model launches.
MMC posted operating income of ¥6.8 billion, an improvement of ¥135.3 billion from the previous year’s operating loss. Key
factors of this improvement were as follows: a contribution of ¥23.1 billion from changes in unit volumes and model profitability
mix; a reduction of ¥15.8 billion in selling expenses, mainly advertising costs in North America and Europe; and an exchange rate
gain of ¥10.0 billion reflecting a weaker yen. Other key components included reductions of ¥38.6 billion in warranty-related
expenses in Japan and ¥14.7 billion in lower depreciation as a result of impairment charges booked in the U.S. and Australia in
the previous fiscal year. Lastly, the absence of the previous fiscal year’s loss of ¥10.4 billion on the sale of sales finance
receivables booked by the U.S. financial services company was a key factor as were other business restructuring efforts.
(¥ billion)
Role of the Finance Group Headquarters
Financial Results and Discussion
Role of the Finance Group Headquarters