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Toyota's shock profit forecast

2008-05-08 18:21
Tokyo - Toyota warned on Thursday it expects the first drop in annual profits in nine years because of a weak US economy, a stronger yen and soaring raw material costs.

The gloomy forecast came as Toyota reported a decline in fourth-quarter profits that took the shine off another record year for Japan's largest automaker.

Toyota, on course to overtake Detroit giant General Motors as the world's top selling automaker, posted a 4.5%rise in annual net profit to 1.72 trillion yen ($16.4bn).

It said operating profit increased by 1.4% as revenue climbed by 9.8% to an all-time high 26.29 trillion yen on brisk demand in fast-growing emerging economies.

In the fiscal fourth quarter alone, however, net profit slumped 28%, reflecting an increasingly tough business environment.

"The business environment is extremely difficult," Toyota president Katsuaki Watanabe told a press conference.

The higher yen and raw material prices "will be major issues for us to tackle," he said. "We will cut waste and review our ways of doing business."

Toyota forecast a 27.2% plunge in net profit to 1.25 trillion yen in the current financial year to next March.

It sees a 29.5% drop in annual operating earnings and a 4.9%fall in revenue to 25.0 trillion yen.

"It's going to be the first year-on-year decline in nine years which really suggests that even for Toyota the current situation is very, very tough," said Credit Suisse auto analyst Koji Endo.

"The US market is slowing down and even Toyota seems to be facing a very tough time selling their light trucks. Raw material costs - especially steel, precious metals and plastics - are going up and that's probably going to be very significant this year," said Endo.

Toyota said it had sold a record 8.91m vehicles last year, up 4.6% from the previous year, despite a drop of 3.7% in Japan, where a shrinking population is weighing on the market.

Japanese automakers have enjoyed brisk profits in overseas markets, helped by firm demand for fuel-efficient cars and a weak yen.

But a credit crunch, the surging cost of steel and other raw materials, and a falling dollar are now weighing on their earnings prospects.

Toyota and its rivals are now targeting emerging economies to maintain their growth.

"While the economy of the United States and other industrialised nations is slowing down, we have seen a rapid expansion in markets in resource-rich nations and emerging economies," said Watanabe.

Sales in Asia rose 21.1% to 956 000 vehicles on strong demand in China, while operating income in the region more than doubled.

Sales in North America gained just 0.5% to 2.96m vehicles, led by the new Camry and Prius cars. Other markets, including the Middle East, South Africa and Australia, saw an increase of 17.9%.


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