TOYOTATIMES

Current Term Forecast Shows President Akio Toyoda's Resolve -- Kagawa Holds Remote Interview Following Financial Results

FROM THE EDITOR 2020.05.23

INDEX

Toyota announced its year-end financial results for the term ended March 2020 on May 12, 2020. Due to the ongoing COVID-19 pandemic, the company opted for an online streaming financial results press briefing. Of course, Toyota Times Editor-in-Chief was on(line) to watch the event.

Toyota announced that despite having received some impact from COVID-19, the results for the year ending March 2020, the results were similar to the prior year, with strong positive profits to report. However, what was surprising was that while other companies were not providing guidance for the current running term, Toyota not only provided some guidance, but the guidance indicated that the company is anticipating a profit.

Immediately following the press briefing, Toyota Times Editor-in-Chief was able to secure an interview with President Toyoda. Kagawa hoped to get a deeper look at why Toyota provided its earnings forecast, the reasons Akio is staunchly defending production in Japan, and other thoughts the president might have on the background of his comments for this year’s briefing. Things that became clear from the interview were Toyota’s mission to “mass produce happiness” as well as the determination to join efforts with those around the globe and society to survive this “together”.

<This video consists of the following contents.>
①【00:37Financial Results Press Conference -Session 1-
②【02:02Kagawas comment
③【02:58Financial Results Press Conference -Session 2- Remarks from President Akio Toyoda
④【12:43 Financial Results Press Conference Q&A
⑤【17:49Kagawas Comment
⑥【18:57Online interview with President Akio Toyoda

Kagawa

Is it on? Yes, it is on.

Next, the third camera.

And now the fourth – wait, did we have four cameras before?
Well, it’s on, too.

Glad I’ve already learned how to do this.

As always, I’m Toyota Times Editor-in-Chief,Teruyuki Kagawa.
And, again today, I’m in here all by myself. And look – the windows are open!

This will be my third time to do a video interview. Today is Toyota’s end of year financial results announcement, and I will be conducting a remote interview once the announcement is finished.

It’s kind of lonely in here, joining the press conference from my PC all by myself.

The briefing is starting!

Most surprising was that Toyota issued a forecast

Kenta Kon, Chief Financial Officer & Operating Officer, Toyota Motor Corporation
Now, I would like to discuss Toyota’s financial results for the fiscal year which ended in March 2020.
Compared to the previous fiscal year, consolidated new vehicle sales were 8,958,000.
Net revenue was 29 trillion 929.9 billion yen.

Kagawa

Well, that was a smaller decrease than I thought it would be.

Kon
Operating income was 2 trillion 442.8 billion yen.
Next, I would like to explain our return to shareholders.
We have decided to make the year-end dividend on shares of common stock 120 yen per share.
Now, I would like to move on to discuss the outlook for the full fiscal year ending March 2021.

Kagawa

Really?
You are ready to announce a forecast for the running term?
He did just say he’d announce it now? I think I heard him right.

Kon
At this moment...due to the proliferation of COVID-19...although it is difficult to foresee the future, with April being the floor, we have assumed that sales will gradually recover to 2019 level by year-end to next year.

Next, let me explain the full-year consolidated financial performance.
Operating income of 500 billion yen.

Kagawa

In the black. This is still a positive income.
So they are forecasting a profit in this running term.
That’s incredible. During the global financial crisis, Toyota was in the red.
I can’t believe they offered a forecast. I don’t think any other company has announced a forecast yet.

Kon
We are an OEM here in this industry...We thought that there is a necessity for us to show a forecast as some kind of a criteria as we move forward...

Kagawa

Now we are done with the first of the two sessions for today’s financial results announcement.

First, for the results for the fiscal year ended March 2020, while there was some impact from COVID-19, it was not so big compared to the prior year.

I think what surprised me the most from this session was that they announced the forecast for the current fiscal year ending March 2021. Not only did they put out some kind of forecast, but they explained how they saw the year progressing – they have my compliments. Another thing that surprised me was that they were also forecasting a profit! Hearing this made me energized. Despite COVID-19, they are still expecting a profit. I think normally you would expect to hear about a loss.

Either way, what is important here is not so much the number, but that it is substantial. By showing this type of number, Toyota is showing what type of direction it is going in. Furthermore, what type of issues is the company currently facing, and what the vision is.

Coming next, in the second session for today’s financial results announcement is President Toyoda. I’m anxious to listen to what he has to say about the issues and vision, and then I will ask him more in my interview with him.

Let my presidency be the last that we spend time dwelling on the past

Kagawa

Now the second session is starting.

Akio Toyoda, President, Toyota Motor Corporation
Hello everyone.
Today, based on our financial results and forecast, I would like to share with you my thoughts on how Toyota intends to confront the COVID-19 crisis.

Kagawa

Today, he’s wearing frameless glasses.

Akio
Please have a look at the changes in our earnings structure from just before the global financial crisis, to the present.
In the three years just before the global financial crisis, while operating income increased, our earnings structure was not good by any means due to a large increase in fixed costs. I think that was a period during which the speed of expanding the size of the company was faster than that of developing our people, which partly led to our recall crisis later.

In the year immediately after the start of the global financial crisis,vehicle sales...for a year-on-year decrease of approx.. 15 percent, resulting in our falling 461 billion yen into the red.

The four years just after I became president was a time when our entire company faced an overwhelming need to respond and unite to overcome numerous crises, such as the global financial crisis, the massive recall crisis, the Great East Japan Earthquake, flooding in Thailand, and the so-called "Six Hardships" in Japan, including an ultrahigh yen.

Over these four years, we were able to bring the number of vehicles sold back up to the levels we had before the global financial crisis. At the same time, by drastically reducing R&D expenses and capital expenditures, we were able to shrink our fixed costs, and...we achieved an operating income of 1.3208 trillion yen.

However, because we stopped everything to stop the bleeding, including investing in the future, we ended up still needing some time to strengthen our company composition in a true sense.

In the most recent seven years, our fixed costs increased due to investment for accelerating the making of ever-better cars and due to investments in response to CASE. However, it was a period in which we strengthened our composition while absorbing the costs of these investments through such means as cost reduction.

Kagawa

This is remarkable.

Akio
In the first three of those years, [I could] keenly feel the difficulty of carrying out reforms in normal times.

At last year’s financial results announcement, I was asked if Toyota faces any challenges, and I replied: “The fact that there is a sense within the company that Toyota is doing fine.”

With a once-in-a-century period of profound transformation coming on top of that, over the past few years, we came to feverishly engage in both “a fight to bring back what makes us Toyota” and “completely redesigning Toyota for the future.”

We took various measures to fundamentally revise our executive and organizational structure, including...[the] discontinuance of [items such as] our “Seven Samurai” (the president and six executive vice presidents) structure, and the post[s for] executive vice presidents, etc. When it came to communicating with our employees, we made genuine efforts to achieve true mutual understanding.

Kagawa

Interesting

Akio
Each time such a reform has been carried out, I have heard people both inside and outside the company say: "You don't have to go that far." I have even been told that I was over-instilling others with a sense of crisis.

Even so, I have continued on because I want to be able to pass the baton to the next generation in a way that I consider ideal. That is my ardent wish.

I think that "bringing back what it is that makes us Toyota" is equal to spending time on the past. I want my generation to be the last to spend time on the past. I want the next generation to be able to spend time on the future. That's exactly why I hope to plant seeds for the future. This is what I consider to be the ideal way to pass the baton to the next generation.

Summarizing our initiatives over the past several years, I think I can say that we have freed ourselves from a hitherto theory and are constructing a theory for a new Toyota in a new era.

And now I would like to touch on our forecast for the year to March 2021.

In the current COVID-19 crisis, although we forecast a decrease in vehicle sales of 1.95 million units, for a year-on-year decrease of more than 20 percent, which would be greater than the decrease during the global financial crisis, we forecast a profit, with an operating income of 500 billion yen.

Although this is our forecast at this time, if we are somehow able to achieve this level of our earnings, I believe that it would be the result of our having been able to strengthen our corporate composition.

Kagawa

During the global financial crisis, Toyota was in the red. During the global financial crisis, it was not just red, it was 460 billion yen in the red. 460 billion yen, that’s close to 500 billion yen in the red. Despite that, this time, Toyota is forecasting 500 billion yen in the black for the current term. That’s the difference of 1 trillion yen! Toyota really made efforts to strengthen its corporate culture over the past ten years, and that strength will really become evident in this current term.

Akio
From now, I would like to talk about something that Toyota has insisted on and committed to for many years. I am referring to defending to the very last our system for domestic production of 3 million vehicles a year. This is not something that is meant to only have to do with Japan. Toyota plants in Japan have served as mother plants that support Toyota's global production. It can be said that Toyota's domestic production system is the foundation for a global Toyota. Based on our conviction that we need monozukuri (manufacturing) and a place to hone competitiveness that can drive global production in Japan, we have, indeed, held fast at all costs to protect our domestic production, no matter how severe the economic environment has been, including the ultrahigh yen. [In reality,] what we have been defending to the very last has not been "3 million vehicles." What we have been continuing to protect have been people who have acquired the techniques and skills that enable them to make what is necessary when the world needs it. We are proud that we have been continuing to protect in Japan places in which such human resources can work and be cultivated. There is not the slightest bit of distortion or wavering in this belief.

That said, however, there is something that I ask everyone to understand. To continue to protect a certain thing and to keep doing what we are doing is by no means easy. I sense that there seems to be much talk about a “V-shaped” turnaround.

Sacrificing employment... Sacrificing domestic monozukuri... By deciding to "Stop" various things, an individual company can turn its results around. Far from being criticized, it bothers me that such action often seems to be praised.

"That's not right." This is how I feel. Regardless of how big or how small they might be, there are many companies in Japan that have clenched their jaws and protected their human resources who had techniques and skills, no matter how tough times were, or, more importantly, because times were tough. I believe that now is exactly the time that we need a society that can support such companies. I humbly request that you support companies that have supported Japan and Japan's economy through monozukuri.

Kagawa

Yes.

Akio
In concluding, I would like to talk about what I currently consider to be the dearest of all things. Because our session here today is to explain our financial results, I have talked about how the corporate composition of Toyota has grown stronger as we overcame numerous crises.

But, over these 11 years, not once have I ever thought that I want to make Toyota into a strong company.

I believe that I have helmed Toyota with a wholehearted desire to make it a company that can be depended on by people throughout the world and a company that is necessary. I think that what is important is thinking about why we should become strong and about how we go about becoming strong. For us to be useful in the world, I believe that we must become stronger together with our partners throughout the world.

During Golden Week, I received a letter from a certain person. In it, was written the following:
"While taking a walk around a pond, I saw birds, turtles, fish, and the like scurrying about...

Kagawa

And insects too...

Akio
All living creatures, other than human beings, are going about life as before.

Kagawa

Of course!

Akio
Only human beings are running about in confusion.

Kagawa

Yes, that’s correct.

Akio
Perhaps this is a good opportunity to change our perception of the world being a theater in which human beings play the leading role.

Kagawa

This is wonderful.

Akio
I feel exactly the same.

Kagawa

The leading role belongs to insects!

Akio
We want to create a relationship in which people can say thank you to each other and can thank the Earth. Companies and people need to think seriously about how to live, and then change what they are doing. This crisis made me think about something. Companies and people, as well as the earth, need to think seriously about how to live, and then change what they are doing. We want to create a relationship in which people can say thank you to each other. It could be that we have all been given a great chance. And that chance might be the last one. Toyota is a global monozukuri company born in Japan and raised in the world. I believe that our mission is to provide goods and services that make people throughout the world happy, or, in other words, to "mass produce" happiness.

There is no crisis that humankind cannot overcome. For us to overcome the COVID-19 crisis together, Toyota is ready to do whatever it can to make itself of use. We humbly request your continued support. Thank you very much for your attention today.

Kagawa

Yes, that was easy to understand.

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