Saturday, 2 May 2015

Toyota Caetano 2014 part 1- highlights

This is the first post of a series about Toyota Caetano. This first one just highlights what I found most relevant on the annual report with only a few comments. On the following ones I will try to dig a little deeper (in fact I am dividing this because it would be too much information on a single post). It should be something like this but it is still under construction (comments and suggestions will be taken into account):
Toyota Caetano 2014 part 1- highlights
Toyota Caetano 2014 part 2- inventory, working capital, debt, dividends, another valuation method and perspectives
Toyota Caetano 2014 part 3- segmental and quarterly results
Toyota Caetano 2014 part 4- new model for Ovar, perpectives and revisiting my first post on Toyota Caetano to see if things are going as expected at the time

“We should highlight that the year is also marked by the end of Dyna for the export market (September).”
“The Transformation and PDI (Pre-Delivery Inspection) activity prepared 3,271 vehicles, which corresponds to a 40% increase”  ---- in line with auto sales increase
Total employees reduced once again from 181 to 170

Agreement with TMC to assemble LC70 units intended for export:

“In the second semester of 2015 we will witness the beginning of the LC70 production process, and we are already estimating a volume of assembly for that activity that will be able to absorb all the manufacturing costs and, subsequently, reach the economic balance in this Unit.” – in Portuguese they mention economic balance for that period (2nd semester).

Auto commerce unit:
“In 2014, we should highlight the performance of the Toyota and Lexus hybrid models, which showed a 149% increase when compared to 2013, corresponding to a 56.1% (+14.8 p.p.) share in the hybrid vehicle market. In 2014, hybrid vehicles were already 16.6% of the sales of Toyota and Lexus light passenger vehicles.” – this is important because in 2015 there are incentives for plug-in hybrid vehicles, especially relevant for enterprise clients (where I would classify the incentives as huge (reduction in vehicle taxes, all 23% of consumption taxes can be deducted, totaling together over 7300 €/vehicle benefit and additionally a bigger percentage of depreciation can be used for taxes), which could further increase sales.
Toyota's commercial models: “We should highlight the performance of the Hilux and Dyna models, which increased their market share once again and ended the year as sales leaders in the corresponding segments. In the case of the Dyna model, manufactured locally at the Ovar assembly unit, it retained its leadership for the 8th consecutive year in the Chassis-Cab segment” – as long as the Dyna model production for domestic consumption stays in Ovar this leadership is important.

Industrial machines:
Increase in sales of 36.9% with a market share increase from 23.4% to 28.6% (the second in the ranking had 17.4% market share): added profits but also future service revenue increased.

“The company ended the fiscal year of 2014 with a fleet of 836 units, distributed as follows:
Light Commercial / Passenger Vehicles: 592 units (70.81%)
Cleaning/Sweeping Machines: 244 units (29.19%)
Throughout the year, the fleet had an average number of 1013 units, approximately 5.9% less than during the same period of the previous fiscal year.”
So they are still reducing their fleet.

“Following a strategy for increased inroads in the automotive market, and taking into account the sector's growth period, the increased turnover was achieved through some sacrifice in the profit margin via more aggressive promotional campaigns” – at first sight I do not like this. The only reasons I see as positive in increasing sales are:
-       achieving paid objectives and/or
-       increasing future earnings in the service sector (this is important and may justify the margin sacrifice since they say “Toyota's Official Assistance network is the main client of the After-Sales Division. This client represented 91% of 2014's overall turnover, which corresponds to around 30 million euros.”)

“In order to efficiently respond to market needs, the Group boosted its investment in inventories, since, as a distributor of the Toyota brand name, its policy includes concentrating inventories at the parent company. The latter, via customer-oriented logistics (COL), provides real-time availability of the list of vehicles for sale, to every dealership, hereby releasing them from the added strain of putting together their own inventory.” – we could see and guess that, but it is better to see it written

“For 2015, the Group expects to maintain the growth rate of its operations, confirmed both by the ACAP estimates, which forecasts an increase of around 11% in vehicle sales, and by the improvement in family and business confidence index, which will inevitably lead to better results.” – From what I see around me I would expect the same, and thus far it has been going as expected (Toyota+Lexus 1T auto sales increased to 2319 units from 1577 last year – a 47% increase).

Relevant facts after the end of the Fiscal Year
Since the end of 2014 to the present date, and in terms of relevant facts, we should state that it is the belief of the Board of Directors of Toyota Caetano Portugal that the incident that occurred on March 3rd, 2015, caused by a fire, which completely destroyed one of our properties located in the so-called Carregado Industrial Complex, will not have any significant economic or financial impacts on this Company, due to the appropriate coverage of the existing insurance policies for this type of assets and incidents.” – what do we know about this?
Industrial Facilities Carregado: carrying value (2014) 6.002.898€; appraisal value 23.828.000€
From what I know, usually insurance companies rebuild everything instead of paying (to avoid owners setting fire to their properties when they cannot sell them, which used to happen over here). That is probably what we should expect. It was the most valuable property in the investment properties portfolio so it is important to hear the management expectation of an absence of losses.

Investment properties:
Income of 2.765.899 Euros vs 3.246.319 Euros in 2013. Asset value on the books 17.3M. Asset value appraisals (see previous point): 53.9M. Not much new to add since prior year.

Cimovel: 3.052.897 Euros (2013: 3.274.639 Euros). So it lost 6.8% in value this year. This is more important in the pension unit. Assets most likely stayed similar but appraisals lowered so it might be of lesser relevance, but his also means that on the pension assets we should subtract to calculate the gains on the remaining portfolio. So…

Return on plan assets was 1.309.229 €. They “lost” 573k in their Cimovel stake. So the return of the remaining portfolio was actually better.

Additionally they did the same cleansing that as happened through the corporate world last year. After estimated taxes they subtracted 3.9M from the firm equity due to actuarial tables and discount rate actualization (if I understood it right). Well, the liability is the same as it was last year but now the data is more conservative.

Disclaimer: read previous disclaimers on Toyota Caetano. I have added a little bit more at prices much lower than current price. This is not and investment advice (it never is). I am and will be wrong so do your own research.

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