Toyota Motor Corporation & Toyota Credit Canada Inc.: Confirms at AAA & R-1 (high)

Kam Hon; Walter Schroeder, CFA/416-593-5577 ext.2243/ khon@dbrs.com

 

The above ratings of Toyota Credit Canada Inc. (“TCCI”), based on its ultimate parent, Toyota Motor Corporation (“Toyota” or the “Company”), are confirmed, all with Stable trends.  The confirmations reflect Toyota’s continuing improvement in operating performance, which is well above its industry peers, and a very strong balance sheet.

 

Toyota’s operating performance continues to impress despite challenging market conditions in North America and Europe in 2003.  Toyota’s focus on efficiency, cost reduction, product quality, and technological innovation has led to consistent market share gain in its major markets and increased profitability.  However, the growing trend in profitability is expected to be under pressure in the near term.  Despite recent expansions in overseas markets, about two-thirds of the Company’s production base is still in Japan.  This exposes Toyota to the relative value of the Japanese yen.  The yen’s strong appreciation against the U.S. dollar will impact profit in its North American operations.  In addition, higher expenses related to new product launches will also weigh on profits.  Nevertheless, conditions in most markets except western Europe, are showing improvement, and the upturn in Japan, Toyota’s biggest market, is particularly encouraging.  Stronger unit sales and ongoing cost reduction should support Toyota’s profit at an above average level despite the stronger yen.  The balance sheet (with financial services on an equity basis) is very strong and remains virtually debt free (cash on hand exceeds debt).  Even though Toyota has been very active in share repurchases over the past few years, averaging over ¥300 billion a year, the Company’s strong internal cash flow should have no problems funding the share repurchases at the current pace.  The balance sheet is expected to remain debt-free.  This gives the Company substantial financial flexibility.

 

 

Dominion Bond Rating Service Limited (DBRS) has published a full report that provides additional analytical detail.  To see this report, please click on http://www.dbrs.com/web/sentry?COMP=2900&DocId=134140.  If you do not have access to this document, please contact us at info@dbrs.com.