Mitsubishi 2007 Annual Report Download - page 46

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MITSUBISHI MOTORS CORPORATION Annual Report 2007
Operational Review
In fiscal year 2006, the Japanese economy was expected to continue to expand, surpassing the late 1960s
Izanagi Boom , which had been Japan’s longest period of post-war economic expansion. However, the pace of
growth was generally weak. The global economy was strong, but there were increased concerns about over-
heating in the Chinese economy and the direction of the U.S. economy, where the housing market is in a
correction phase. In these market conditions, the MMC Group faced weak aggregate demand in Japan and the
ASEAN region, as well as other challenges, including sharp increases in the prices of raw materials such as
aluminum, precious metals, and copper. However, the weaker yen worked in favor of the company’s results.
Under the prevailing business environment, domestic sales of minicars increased 4.2% over fiscal year
2005 to 2.03 million units, surpassing the two million mark for the first time, and rising for the fourth straight
year. However, domestic sales of registered vehicles declined 8.3% to 3.587 million units, decreasing for the
fourth straight year.
Results of Operations
In fiscal year 2006, consolidated net sales were ¥2,202.9 billion, a 3.9% increase from the previous fiscal
year. This increase in sales reflected a weaker yen and better model mix, despite lower retail sales and a drop
in OEM supply volumes following the termination of
smart forfour production.
MMC posted operating income of ¥40.2 billion, an increase of ¥33.4 billion from the previous year. Key
factors of this increase were as follows: a contribution of ¥2.0 billion from improving sales volumes and the
model mix, ¥20.4 billion due to favorable exchange rate movements, and ¥33.2 billion due to stronger
profitability in the U.S. sales finance business and benefits from cost reductions. The major negative factors
were a ¥2.7 billion increase in selling expenses in the U.S. and elsewhere and a ¥19.5 billion adverse impact
from sharply higher raw materials prices.
For non-operating income (loss), MMC reported a loss of ¥21.7 billion, an improvement of ¥2.9 billion
from the previous fiscal year.
In other gain (loss), the main positive factors were a liquidation gain of ¥13.9 billion on the termination of
a real estate trust and a ¥5.0 billion gain on sales of investments in securities. The main negative factors were
a ¥7.5 billion impairment loss related to the consolidation of captive sales companies over large areas in
Japan and ¥3.1 billion in restructuring expenses. Partly due to large impairment losses and restructuring
losses recorded in the previous fiscal year, other gains (losses) improved significantly year on year.
As a result, net income improved ¥100.9 billion from the previous fiscal year to a profit of ¥8.7 billion in
fiscal year 2006.
Segment Analysis
<Business Segment Information>
MMC and its consolidated subsidiaries divide operations into two business segments: Automobiles and Finan-
cial Services.
■ Automobiles
In fiscal year 2006, sales in the automobile business rose 3.5% year on year to ¥2,154.7 billion. MMC
recorded operating income of ¥17.7 billion, a ¥23.8 billion improvement over the previous fiscal year. Fiscal
year 2006 saw strong sales in Africa, the Middle East, and Latin America, as well as Europe, which was driven
by Russia, the Ukraine and other growth markets. However, demand on the whole was weak in Japan, Asia and
the ASEAN region. Consequently, retail sales declined 114,000 units, or 8.5%, to 1,230,000 units.
■ Financial Services
In domestic automotive finance operations, under a basic agreement related to the reorganization and spin-
off of the former Mitsubishi Auto Credit-Lease Corporation (MCL) in March 2006, MMC and Diamond Lease
Co., Ltd. established MMC Diamond Finance Corporation as a joint venture. In February 2007, MMC Diamond
Finance Corporation began Mitsubishi Motors-related finance operations, including automotive credit and
rental car operations. In conjunction with this restructuring, in March 2007, the auto leasing business was
turned over to Mitsubishi Auto Leasing Corporation, a joint venture between Mitsubishi Corporation and
Diamond Lease Co., Ltd.
Financial Results and Discussion