Mitsubishi 2004 Annual Report Download - page 37

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targets for fiscal 2006 are: consolidated net sales of ¥2.49 trillion ($23.6 billion), operating profit of ¥120 billion ($1,135 million),
ordinary income of ¥100 billion ($946 million), net profit of ¥70 billion ($623 million), and a 4.8% operating profit margin.
* Ordinary income is defined in generally accepted accounting principles in Japan as operating and non-operating income or loss, before extra-
ordinary gains or losses.
(7) Consolidated Financial Targets
MMC expects that total interest bearing debts will be reduced by 40%, and that the debt equity ratio will be below 2.5 in fiscal
2006.
Strengthening of the capital base to achieve our plan
To shore up MMC’s financial standing, a capital enhancement of ¥450 billion ($4,257 million) will be carried out with ¥270
billion ($2,554 million) coming from Mitsubishi Group companies, ¥10 billion ($94 million) from MMC’s strategic partner
China Motor Co., Ltd. (CMC), and ¥170 billion ($1,608 million) from the market. Preferred shares totaling ¥140 billion
($1,324 million) will be issued to Mitsubishi Heavy Industries Ltd., Mitsubishi Corporation, The Bank of Tokyo-Mitsubishi
Ltd., and other Mitsubishi Group companies, while The Bank of Tokyo-Mitsubishi and Mitsubishi Trust & Banking Corpora-
tion will capitalize ¥130 billion ($1,230 million) of debt.
Funds procured from the market will come from plans to issue ¥70 to ¥100 billion ($662–946 million) in common stock to
Phoenix Capital and ¥100 billion ($946 million) in preferred shares to J.P. Morgan Securities.
MMC will use ¥130 billion ($1,230 million) of the funds to reduce debts and ¥320 billion ($3,027 million) will go towards
revitalizing the Company’s operations.
At the meeting of the Board of Directors on May 21, 2004, MMC resolved to issue preferred shares to Mitsubishi Group
companies and CMC with payment due in late June. The common stock, which is expected to be priced at ¥100 per share, will
be issued below market to Phoenix Capital after being approved at MMC’s annual shareholders’ meeting. The preferred shares
for J.P. Morgan Securities will be issued at the same time as the common stock is issued to Phoenix Capital and payment is
expected to be due around mid to late July.
Three types of preferred shares will be issued, all of which can be converted to common stock in the future. However, the
preferred shares issued to Mitsubishi Group companies and CMC are designed to be held for a relatively long period.
As explained above, MMC recognizes the challenge of this plan as this is MMC’s last chance for survival as an automaker.
Everyone in the Mitsubishi Motors Group is determined to rally together and bring the Company back to health through a self-
supported revival.
MMC outlined additional measures to its business revitalization plan in June 2004 that focus on three areas: all-out cost cut-
ting, restoring customer trust, and across-the-board compliance. The new measures are in response to a potential marked slump
in domestic sales that surfaced following the recent recall problems at MMC and Mitsubishi Fuso Truck and Bus Corporation.
(a) All-out cost cutting measures
MMC forecasts that a decline in domestic sales could lead to an additional operating loss of ¥30 billion ($283 million) in both
fiscal 2004 and 2005. To cover this loss, MMC will take additional steps to cut costs by a further ¥34.4 billion ($325 million)
in fiscal 2004 and ¥38.2 billion ($361 million) in fiscal 2005, giving extra savings of ¥72.6 billion ($686 million).
MMC will also seek savings in labor costs. For the coming two years, MMC plans to forgo the payment of retirement
allowances to directors, cut executive remuneration packages, reduce managers’ pay, and reduce the pay of rank-and-file
employees.
In addition, MMC plans to cancel employees’ 2004 year-end bonuses, accelerate headcount reductions, review employment
policies, and revise down the pension rate.
In Japan, MMC will freeze all new IT-related projects other than those that address regulations, reduce advertising expenses,
and drastically cut expenses at its head office, and research and development departments. Overseas, MMC will halve costs
related to outsourcing, travel, and computer system expenses, while further cost reductions will come from limiting advertising
to major models.
MMC will cut costs for spare parts and supplies and will accelerate savings set out for indirect materials. MMC also expects
to see further savings through headcount reductions made possible by consolidating sub-assembly-line work, and improving