And then there was also a much worse result in the auto commerce segment. In fact, net profit in this segment was marginal despite the increase in units sold. What happened?
1- Gross margins were squeezed
2- Sales increased above the general market (the company had been losing some market share), which means there was an increase in market share in addition to the general market sales increase - July to November (yes it continued in the 4Q) Toyota light vehicles (Lexus not included but also increased, I believe) market share was 5.60, 4.95, 5.5, 5.28 and 5.56% respectively versus 4.8, 3.4, 3.94, 4.65 and 4.82 last year)
So the company is increasing sales and market share to get no profit. That sounds scary and the fact that net debt has increased to finance the working capital increase makes it scarier. But is it really that bad or is it the correct option by the company? (here I must say I am not absolutely sure of the answer, but read on). I believe we should go to the industrial vehicles divisions now, and maybe that sheds some light on this question.
So the industrial vehicles sales also had slightly worse net and operational results than I had predicted... in addition sales were 3989k in the quarter, almost as much as in the whole first semester (4476k). So here we seem to have the same problem, sales increase (a lot, I should add here) but profits are almost non existent. But then, industrial services had better than expected results. In fact, together with industrial machines renting (whose results were also better than I expected), industrial services are bringing in most of the company's profit (and it was the same last year). So it seems that at least in the industrial machines division what we want is sales to increase as long as there are no associated losses, and profits will come through the services segment. Are these profits enough? Commerce+services assets are 4,6M equity is 2,8M and net profits in the first 9 months were 1,16M. I believe that is more than enough and as such I will be very happy if commerce sales continue to increase with no immediate profit increase (importantly, from the data I gathered it seems this sales increase happened in a stable forklift market, which would mean a market share increase).
So back to the auto commerce segment. it is possible that their plan is similar here. I do not expect results here to be similar to those in the industrial segment since competition is much higher (and most of it does not declare most sales and as such pays neither consumption taxes nor profit taxes). As such, here they will mostly get that business in the first years after the car sale, since after that the car warranty expires and most car owners go to the cheaper market. Costumers will migrate to the cheaper market quicker in recessionary times. How do historical results play in this thesis: 2011 to date net loss was 2897k, 2009+2010 net profit was 8713k. So it seems this segment has potential and as such maybe management deserves the benefit of doubt here for increasing sales to get no immediate profit, but i have no way of being sure...
And then we have the auto production segment, in line with expectations but still burning money... the good news is that they seem to lose less when they increase volume and that volume seems to be increasing (they produced 354 units in the whole 3Q and produced 213 just in October). I do not like these losses but the trith is that they are included in the baseline thesis for Toyota. Have a look at the historical data:
(pre tax results/depretiations/capex/ caetano components EBIT)
2008 -4.133.630/3.630.014/4.130.798/ 48.050
2012 -4.320.757/1.836.275/432.411/ -419.753
About these data: before 2007 data is not comparable. Up to 2013 caetano components results were likely included in this segment so I present that data whenever available, but since they had to be closed down the actual production division results were likely to be a bit better than they seem. But the negative (big negative) results were constant, and as such they are already included in the baseline scenario. Recent results actually make it seem that the crisis and needed cost cutting were actually a way to reduce those losses (we are likely to get a record low in losses in 2014)
As I mentioned and explained above, net debt increased. Current net debt is at 35,75M, which they explain with inventory. They also mention that debt is now cheaper (which is normal, I think, but it also might mean they are playing that sales increasing game to explore the lower cost of leverage, which is not bad). This also means that debt is mainly tied to the 62.6M in inventory, thus reducing risk since sales are much higher than inventory (implying high rotation).
In conclusion, results seem bad at first sight but it is reasonably possible (and maybe probable) that this is the correct long term strategy. However, read the disclaimer
Disclaimer: I own a sizable position in Toyota Caetano. To be honest, I must mention that today I placed an order to sell a small part of that position (10k shares) at 1,07€ (my last buying price) since I found another very cheap investment and would welcome the diversification. Those shares were not sold yet, and that is also why I will not talk about my new idea yet (despite being much more liquid than this one), since I have not built the position. I am not recomending you to buy or sell any of the securities mentioned. I might and will buy or sell shares in Toyota Caetano without prior disclosure. Read all previous disclosures and always do your own research.