Mitsubishi (Part 2): Europe and U.S. business contribute to profit

Cleanup of preferred shares and resumption of dividends after 16 years

2014/08/22

Summary



 This second report on Mitsubishi Motors Corporation focuses on its steadily expanding business as stated in its consolidated financial results for the fiscal year ended in March 2014 (FY 2013) and for April-June 2014. Also reported below are its sales and earnings by region, capital-restructuring plan executed in early 2014, and the resumption of dividends that had been suspended for 16 years.

 Mitsubishi is experiencing steady recovery of its business. The company's consolidated operating income in FY 2013 increased by 83.2% year-on-year (y/y). The net sales increased 25.5% while the operating income increased 93.1% y/y in April-June 2014. Mitsubishi has set the goal of an operating income of JPY 135 billion in FY 2016 in its New Mid-Term Business Plan. The company is confident that it will achieve the goal in FY 2014, two years ahead of time.

 The New Mid-Term Business Plan announced in November 2013 calls for growth strategy based on emerging markets, especially in the ASEAN region. However, Mitsubishi's sales volume and earnings in Asia have come to a temporary standstill because of the sluggish sales in Thailand that is the largest market among the fast growing markets in Asia.


 In contrast, business is recovering in terms of sales and earnings in North America and Europe. Mitsubishi was experiencing deficits in North America but expects that it will return to break-even point in FY 2014. The company's business in Europe turned to a surplus in FY 2013. It registered an operating income of JPY 12.6 billion in April-June 2014 and Europe became the largest source of profit among all global regions. Mitsubishi intends to strengthen the recovering business in Europe into a second source of profit after ASEAN. The recovery of earnings in Europe and the United States is contributing to the company's strong consolidated performance.

 Early in 2014, Mitsubishi procured JPY 254 billion through public stock offerings and allocation of new shares to third parties. Over 60% of preferred shares owned by four Mitsubishi group companies were cancelled and the remaining preferred shares were converted into common shares. Thus, Mitsubishi achieved a cleanup of all the preferred shares and resumed dividend payments that it had suspended for 16 years (The paid dividend was JPY 25 per share).


Related report: Mitsubishi (Part 1): Future revenue growth driven by new pickups and SUVs (posted in August 2014)




Significant increase in consolidated sales and profit in FY 2013 and 2014 Q1

 Mitsubishi registered net sales of JPY 2.09 trillion in FY 2013, up 15.3% y/y along with operating income of JPY 123.4 billion, up 83.2% y/y. The company continued to experience steady growth through April-June 2014 with net sales increasing by 25.5% and operating income increasing by 93.1% to JPY 31 billion. These led Mitsubishi to all-time first-quarter results in all income headings including the highest earnings growth and operating income growth ratios among the eight Japanese automakers.

 Mitsubishi forecasts 10% increase in net sales to JPY 2,300 billion for the full fiscal year 2014. Its operating income is also expected to increase 9.4% y/y to JPY 135 billion thanks to changes in volume and mode mix for JPY 31 billion and raw material price and cost reduction of JPY 18 billion (foreign exchange has a negative impact in the amount of JPY 13 billion).

 Encouraged by fine results, Mitsubishi is increasing its capital expenditure from JPY 67 billion in average for FY 2011 through FY 2013 to an average of JPY 100 billion for FY 2014 through FY 2016. The R&D expenses will also be increased from JPY 63 billion to JPY 80 billion. The brisk investment plans are in line with the growth strategies contained in the New Mid-Term Business Plan.

Mitsubishi Motors' Consolidated Results

(in millions of JPY)
FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014
Forecast
Apr.-Jun.
FY 2013
Apr.-Jun.
FY 2014
Net Sales 1,445,616 1,828,497 1,807,293 1,815,113 2,093,409 2,300,000 409,425 513,788
Operating Income 13,920 40,274 63,674 67,382 123,434 135,000 16,032 30,955
Ordinary Income 12,980 38,949 60,904 93,903 129,472 138,000 22,309 32,643
Net Income 4,758 15,621 23,928 37,978 104,664 110,000 16,438 28,159
Capital Expenditures 47,100 52,500 71,000 51,400 72,200 90,000 18,200 8,800
Depreciation 69,000 62,700 53,400 50,300 52,700 58,000 13,200 12,400
R&D Expenses 44,400 49,400 55,000 59,900 67,500 72,000 16,700 16,400
Foreign
Exchange
(USD) 92 yen 85 yen 79 yen 82 yen 100 yen 100 yen 98 yen 102 yen
(EUR) 130 yen 113 yen 111 yen 105 yen 134 yen 139 yen 127 yen 140 yen

Source: Mitsubishi's Consolidated Financial Results for FY2013 and Apr.-Jun. 2014

 

New Mid-term Business Plan (FY2014-FY2016)

FY 2016 Target FY 2013 Results The plans for FY2013
Retail sales volume (Mitsubishi-brand vehicles)
(in thousands of unit)
1,430 1,047 1,111
Wholesale volume including OEM and
jointly-developed vehicles
(in thousands of unit)
1,610 1,257 1,306
Net Sales (in billions of JPY)  2,600  2,093.4 2,130
Operating Income (margin) (in billions of JPY) 135  (5.2%) 123.4  (5.9%) 100 (4.7%)
Foreign Exchange (USD/EUR) 95 yen/125 yen 100 yen/134 yen 97 Yen/126 yen

Source: Mitsubishi's press releases Nov. 6, 2013
(Note) The plans for FY 2013 in the right-hand column are those as of November 2013 when the Mid-Term-Business Plan was announced (the sum of actual results in the first half and outlook for the second half of FY 2013).

 

 



Sluggish retail sales growth in Asia offset by growth in Europe and North America

 Mitsubishi's retail volume (unit sales of Mitsubishi-brand vehicles) increased from 987,000 units in FY 2012 to 1.04 million units in FY 2013. Retail volumes increased in all regions other than Asia. Due to the political unrest, sales in Thailand decreased from 142,000 units to 85,000 units. Sales in all Asian markets decreased from 357,000 units to 344,000 units. Forecast for Mitsubishi's global retail volume in the FY 2014 is set at 1.18 million units reflecting increase in all regions.

 

Significant recovery of earnings in Europe and signs of recovery in sales in the U.S.

 Mitsubishi's New Mid-Term Business Plan announced in November 2013 calls for "growth strategies based on emerging markets" especially in the ASEAN region. However, Mitsubishi's retail unit sales, net sales and operating income by the region in the FY 2013 and April-June 2014 show a temporary standstill in Asia. This results from the sluggish sales in Thailand, the largest market in that region.

 In contrast, sales and earnings are recovering in North America and Europe. The launch of the all-new Outlander and the Mirage in North America in FY 2013 contributed to upswing in sales. The unit sales in the region increased 37.0% to 19,832 units in April-June 2014. The operating deficit shrank to JPY 3.8 billion in FY 2013. The company predicts that it will reach a break-even point in FY 2014.

 Mitsubishi's European business turned to a surplus in FY 2013 along with an operating income of JPY 12.6 billion in April-June 2014. As a result, Europe became Mitsubishi's largest source of revenue and profit among all regions. The company accredits the Outlander PHEV for the strong sales in Europe.

 Mitsubishi intends to strengthen the recovering business in Europe into a second source of profit after ASEAN. According to Automotive News dated December 16, 2013, Mitsubishi anticipates ups and downs in emerging markets and thinks it important to maintain certain equilibrium between emerging markets and mature markets while keeping production in Japan and the United States.

Retail volume by major country and region (Mitsubishi-brand vehicles)

(1,000 units)
FY 2010 FY 2011 FY 2012 FY 2013 FY 2014
Forecast
FY 2016
Target
Apr.-Jun.
FY 2013
Apr.-Jun.
FY 2014
Japan 164 152 134 143 147 150 28 27
North America the U.S. 62 75 57 66 71 - 14 20
total 94 106 85 97 109 150 23 28
Europe Russia 55 73 80 82 76 110 18 17
total 218 218 181 202 225 270 47 52
Asia China 65 63 42 72 122 200 15 23
Taiwan 36 36 29 29 28 - 8 7
ASEAN 162 200 286 243 280 390 58 54
total 264 299 357 344 431 - 81 84
Others 247 226 230 261 270 - 70 67
Worldwide 987 1,001 987 1,047 1,182 1,430 249 258
Source: Mitsubishi's Additional Information Material
(Notes) 1. The regional totals include retail volumes in other countries in the region.
2. "Others" include Australia and New Zealand, Latin America, Middle East and Africa.
3. The targets for FY 2016 are those in the Mid-Term Business Plan FY 2014-2016 announced in November 2013.

 

Net sales and operating income by region (by location of external customers)

(in billions of JPY)
FY 2010 FY 2011 FY 2012 FY 2013 FY 2014
Forecast
Apr.-Jun.
FY 2013
Apr.-Jun.
FY 2014
Net Sales Japan 363.3 357.1 329.5 474.1 500.0 84.2 108.5
North America 189.8 195.2 157.7 229.4 220.0 44.3 47.8
Europe 490.0 474.8 400.7 484.3 550.0 84.9 147.5
Asia 785.4 780.2 927.2 415.7 540.0 84.6 95.3
Others 489.9 490.0 111.4 114.7
Consolidated 1,828.5 1,807.3 1,815.1 2,093.4 2,300.0 409.4 513.8
Operating Income Japan 5.1 6.8 (27.6) 0.9 3.0 (5.8) (2.1)
North America (27.9) (26.2) (20.0) (3.8) 0.0 (2.3) (2.2)
Europe (26.4) (15.6) (7.0) 37.2 48.0 4.7 12.6
Asia 89.5 98.7 122.0 59.8 57.0 12.7 11.0
Others 29.3 27.0 6.7 11.7
Consolidated 40.3 63.7 67.4 123.4 135.0 16.0 31.0

Source: Mitsubishi's Additional Information material
(Note) The table shows net sales to external customers and operating income based on their location. Therefore, the figures do not match the segment information by location (net sales and operating income based on the location of the company and its consolidated subsidiaries).

 

 



Cleanup of preferred share and resumption of dividends after 16 years

 Preferred shares were issued in 2004 to 2005 for the revitalization of Mitsubishi Mtors. As of the fall of 2013, there were preferred shares in the value of JPY 380 billion outstanding with four Mitsubishi group companies. They were presenting a potential impediment to the resumption of dividend payments. In November 2013, Mitsubishi Motors announced the capital restructuring plan to put an end to the problem. Accordingly, over 60% of the preferred shares were cancelled and the remaining preferred shares were converted into common shares. Thus, Mitsubishi Motors achieved a cleanup of all the preferred shares and resumed dividend payments that it had suspended for 16 years. It was made certain that the 'three main shareholders' namely the Bank of Tokyo-Mitsubishi UFJ (BTMU), Mitsubishi Heavy Industries (MHI) and Mitsubishi Corporation (MC) hold voting rights of 34 to 35% (combined ratio of the three companies) after Mitsubishi Motors' Capital restructuring.

 This marked the completion of financial support by Mitsubishi Group that started in 2004. The group will continue to support Mitsubishi Motors as the major shareholders in various aspects of business operations.

Capital restructuring: Preferred share cleanup and resumption of dividend payments that had been suspended for 16 years

Public stock offerings and allocation of new shares to third parties  In January 2014, Mitsubishi procured JPY 254 billion through public stock offerings and allocation of new shares to third parties. The company spent JPY 181.7 billion to buy back the preferred shares as described below. The remaining JPY 72.3 billion will be allocated to equipment investment planned for FY 2014.
Cancellation of preferred shares  Mitsubishi bought back over 60%  out of JPY 380.8 billion preferred shares. The shares were bought back from the "three main shareholders" and Mitsubishi UFJ Trust and Banking Corporation (MUTB), and were cancelled (acquired by Mitsubishi Motors as the company's own shares and removed from the number of shares issued). The four shareholders agreed to sell their shares at discount of 25% in average from the original issue price. This led to a cancellation equivalent in value to JPY 240 billion.
Aggregate voting rights of three shareholders after capital restructuring  In March 2014, Mitsubishi completed a cleanup of preferred shares when the three main shareholders converted the remainder of their preferred shares into common shares. The three shareholders were left with 34 to 35% of  voting rights combined based on their investment ratio since 2004. Adjustments were made so that MHI held more than 20% of Mitsubishi Motors' common shares. Mitsubishi Motors will remain MHI's equity method affiliate. Mitsubishi Motors is a former automobile division that span out from MHI in 1970.
Resumption of dividend payments  Mitsubishi had been suspending its dividend payments for 16 years. The company resumed dividend payments when the fiscal year ended in March 2014 at an annual rate of JPY 25 per share (JPY 15 year-end dividend and JPY 10 special dividend). Mitsubishi hopes to keep an ordinary dividend of JPY 15 per share for three years from the fiscal year ending in March 2015 (FY 2014).

Sources: Mitsubishi Motors press releases dated Nov. 6, 2013/Dec. 26, 2013/Jan. 7, 2014/Jan. 22, 2014/Jan. 30, 2014/Feb. 28, 2014/Mar. 5, 2014
(Note) Preferred shares are a type of shares that have priority over ordinary shares in the payment of dividends. To resume dividend payments to preferred shareholders (having rights to receiving 5% dividends), the company needed approximately JPY 19 billion prior to paying dividends to common shareholders. In reality, no dividends had been paid to date since the issuance of preferred shares.

 

Technical support agreement concluded with MHI

 In December 2013, Mitsubishi Motors and MHI concluded an agreement regarding services related to technical development and quality assurance. MHI will provide technical support for Mitsubishi Motors in the areas of development and quality.

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