Isuzu 2011 Annual Report Download - page 20

Financial Section
18
(3) Financial conditions
1. Cash flow
Isuzu generated cash and cash equivalents (“net cash”) of
¥202.3 billion in fiscal 2011, up ¥46.1 billion from the previous
year. Net cash of ¥135.2 billion provided by operating activities off-
set net cash of ¥27.0 billion used in investing activities, principally
capital expenditure, and net cash of ¥57.7 billion used in financing
activities, principally repayment of interest-bearing debt.
Free cash flow, calculated by subtracting cash flow provided by
investing activities from cash flow provided by operating activities,
resulted in a net cash inflow of ¥108.1 billion (up 102.6% from the
previous year).
Cash flow from operating activities
Net cash provided by operating activities increased 50.7% to
¥135.2 billion.
The change reflects net cash inflows of ¥16.7 billion from
collection of accounts receivable combined with ¥76.7 billion from
an increase in income before income taxes and majority interests
and ¥36.3 billion in depreciation and amortization.
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Cash flow from investing activities
Net cash used in investing activities decreased 25.6% to ¥27.0
billion.
The change was due primarily to reduced expenditures due to
acquisition of fixed assets.
Cash flow from financing activities
Net cash used in financing activities increased 241.7% to ¥57.7
billion.
The change was due primarily to the Group’s repayment of
interest-bearing debt.
2. Assets
As of March 31, 2011, combined consolidated assets totaled
¥1,112.4 billion, an increase of ¥2.0 billion from the previous year.
An increase of ¥44.0 billion in cash and time deposits due to
improvements in the funding environment at Group companies
was offset by decreases of ¥12.9 billion in property, plant and
equipment due to restrained capital expenditures, ¥19.1 billion in
notes and accounts receivable, and ¥12.6 billion in products.
3. Liabilities
Total liabilities at March 31, 2011, decreased ¥30.4 billion from
the previous year to ¥725.4 billion.
Interest-bearing liabilities fell ¥41.3 billion compared to the
previous year due to steady repayment of loans.
4. Net assets
Net assets increased ¥32.5 billion in fiscal 2011 to ¥387.0 billion.
The primary causes of this increase were net income of ¥51.5
billion and an increase of ¥2.0 billion in minority interests due to
an increase in net assets held by subsidiaries, offset by decreases
of ¥8.4 billion in retained earnings due to dividend payments
and ¥12.3 billion in the foreign currency translation adjustments
account.
As a result, Isuzu’s equity ratio improved 2.7 percentage points
from a year earlier to 29.5%.
Risks
There are certain risks that could have a significant impact on
our earnings results, financial condition, and other information
contained in the annual securities report, or share prices, and
these risks are outlined below. (The following information includes
forward-looking statements that reflect the judgment of manage-
ment as of June 29, 2011.)
1. Economic situation/supply and demand trends in
Isuzu’s major markets
Vehicles account for an important portion of the Isuzu Group’s
worldwide operating revenue, and demand for these vehicles is
affected by the economic situation in the various countries and
regions where Isuzu sells vehicles. Therefore, economic recession
and an ensuing decline in demand in the Group’s major markets
—Japan, North America, and other Asian countries—could have
a negative impact on the Group’s performance and financial posi-
tion. Price competition also entails the risk of price fluctuation for
Isuzu products.
2. Interest rate fluctuations
The Isuzu Group is working to tighten its cash flow manage-
ment and shrink interest-bearing debt. During the fiscal year under
review, efforts to reduce the outstanding balance of interest-
bearing debt using profits and other funds despite a focus on
assuring cash in hand to deal with the opaque financial environ-
ment, helped drive down the interest-bearing debt balance at the
end of fiscal 2011 to ¥273.6 billion, a decrease of ¥41.3 billion from
the previous year. Concerning the cost of financing, the Group
remains vulnerable to the risk of higher interest payments having a
negative impact on its performance and financial position should
market rates rise sharply.
3. Foreign exchange fluctuations
The business of the Isuzu Group includes the manufacture
and sale of products in several regions around the world. Local
currency amounts for sales, expenses, assets, and other items are
therefore converted into Japanese yen in the preparation of Isuzu’s
consolidated financial statements. Depending on the exchange rate
in effect at the time of conversion, the yen amount for these items
may change even if the underlying currency value has not changed.
Moreover, because foreign exchange fluctuations influence the
prices paid by the Group for raw materials denominated in foreign
currencies as well as the pricing of the products the Group sells,
they may have a negative impact on the Group’s performance and
financial position. Generally, a strengthening of the yen relative to
other currencies has a negative impact on the Group’s business,
and a weakening of the yen has a positive impact.
4. Dependence on General Motors Corporation and
other major customers
The Isuzu Group supplies vehicle components to General Motors
Corporation (Detroit, MI) and its affiliates as well as to other
vehicle manufacturers. Sales to these customers are affected by
fluctuations in production and sales at these customer companies
and other factors over which the Isuzu Group has no control, and
therefore they could have a negative impact on the Group’s
performance and financial position.