Isuzu 2008 Annual Report Download - page 27

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Financial Section n Isuzu Motors Limited Annual Report 2008
Management’s Discussion and Analysis of Financial Condition and Results of Operation
The following provides an analysis of the financial condition and
results of operation in fiscal 2008. The following information contains
forward-looking statements that reflect the judgment of management
as of June 27, 2008.
(1) Significant accounting policies and estimates
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 es-
timates that reflect the judgment of management. Due to the uncertain
nature of estimates, in some cases actual results may vary from initial
estimates, and this may have a negative impact on business results.
(2) Results of operations
A. Overview of fiscal 2008
Fiscal 2008 was the final year in the Mid-term Business Plan adopt-
ed in 2004 (which extended through the fiscal year ended March 31,
2008), and the Group worked to develop new products and strength-
en its business structure in order to establish a solid basis for sustain-
able future growth. Additionally, the Group changed the end date of
the fiscal year for eight subsidiaries located in the ASEAN region from
December 31 to March 31, in order to better facilitate the appropriate
disclosure of consolidated financial data.
Results of operation in fiscal 2008 reflect the effects of increased
costs due to higher depreciation associated with changes in the tax
code and increases in equipment costs associated with new vehicles as
well as raw material costs, changes in the end date of the fiscal year for
eight subsidiaries located in the ASEAN region, increased export sales,
and efforts to rationalize material and other costs. Sales of ¥1,924,833
million (up 15.7% from the previous year), operating income of
¥109,573 million (up 2.4% from the previous year), working income
of ¥122,322 million (up 6.6% from the previous year), and net income
of ¥76,021 (down 17.7% from the previous year) reflect record sales,
operating income, and working income.
B. Sales
In fiscal 2008, Isuzu’s consolidated-basis sales rose 15.7% from the
previous year to ¥1,924,833 million.
In the domestic commercial vehicle market, Isuzu was able to contin-
ue to maintain high market share through the introduction of products
with superior fuel efficiency and economy as well as group-wide sales
initiatives, capturing 31.4% of the medium-duty and heavy-duty trucks
market (up 2.1% from the previous year) and 38.6% of the light-duty
(2-3 ton) truck market (down 0.4% from the previous year). However,
demand for medium-duty and heavy-duty trucks declined significantly
to 85,116 (down 19.3% from the previous year), as did demand for
light-duty trucks at 89,831 (down 25.7% from the previous year). A fall
in replacement demand for vehicles compliant with new NOx (nitrogen
oxide) and PM (particulate matter) emissions regulations contributed to
increasingly competitive market conditions. As a result, domestic sales
fell 5.7% to ¥654,720 million.
Sales in Asia ballooned 41.1% from the previous year to ¥643,907
million on brisk sales of pickup trucks in the ASEAN region and a
change in the end date of the fiscal year for eight subsidiaries located in
the ASEAN region. In the Thai market, where pickup trucks account for
around 60% of total market sales, Isuzu Group pickup trucks captured
a 36% market share, sustaining steady sales growth in the face of in-
tensifying competition.
North American sales fell 19.0% to ¥141,998 million as the sub-
prime mortgage crisis weighed on the U.S. economy.
Sales to other regions soared 43.9% to ¥484,206 million due pri-
marily to an aggressive drive to open up new markets and the addition
of new consolidated subsidiaries in Europe and South Africa.
C. Operating income
Operating income in fiscal 2008 hit a record ¥109,573 million, up
2.4% from a year earlier.
A change in the end date of the fiscal year for certain subsidiar-
ies contributed ¥7,600 million; rationalization including material costs
added ¥17,200 million; and improvements in profitability contributed
¥11,000 million. Offsetting these were ¥8,200 million in economic fluc-
tuations such as increased raw material prices, ¥11,300 million in sales
fluctuations and structural changes in the breakdown of sales, and
¥13,700 million associated with launching redesigned models.
Looking at each of Isuzu’s key business areas, operating income
at the parent company fell ¥13,301 million from the previous year to
¥48,190 million on increased costs due to higher depreciation associ-
ated with changes in the tax code and increases in equipment costs
associated with new vehicles as well as raw material costs.
Sales subsidiaries in Japan posted an operating income of ¥3,800
million, down ¥500 million from the previous year. Faced with lower
income due to continuing intense competition, consolidated sales sub-
sidiaries in Japan are steadily building an ability to secure profit through
service and other businesses that are less exposed to the fluctuations of
new vehicle sales.
In North America, operating income fell ¥1,600 million compared
to the previous year to ¥3,200 million as the sub-prime mortgage crisis
weighed on the U.S. economy.
In the ASEAN region, operating income was ¥38,700 million, up
¥16,600 million from the previous year due to increasing overseas
sales of pickup trucks produced locally in Thailand and the effect of
exchange conversions caused by part costs offsetting a slowdown in
demand accompanying political uncertainty in the area. Results for the
Group’s eight subsidiaries in the ASEAN region reflect 15 months of
financial results from January 1, 2007, to March 31, 2008.
(The figures shown for each of Isuzu’s 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, Isuzu’s operating margin fell 6.4% to 5.7% in the current
consolidated fiscal year.
D. Non-operating gains/losses
In fiscal 2008, Isuzu posted a non-operating profit of ¥12,748 mil-
lion, an increase of ¥5,032 million from the previous year.
Growth in equity-method investment profit of ¥3,162 million to
¥15,502 million was primarily due to tax benefits applied to European
engine manufacturing affiliates, to which equity-method accounting is
applied.
Progress in reducing interest-bearing debt and reviewing borrowing
interest rates resulted in a net interest (interest and dividends received
minus interest paid) loss of ¥2,226 million, an improvement of ¥2,185
million compared to the previous year.