Three quarters into its current fiscal year, the powersports and engine business of Kawasaki Heavy Industries looks like a copybook example of corporate incompetence. BDN financial editor Roger Willis reports.
A 2.2% turnover decline to £2.146bn doesn’t sound that serious, until set alongside operating profit for the period, which has plunged by 40.4% to £169.8m. Kawasaki blames this sorry state of affairs on a £108.8m loss owing to “change in product mix and other factors” and then a further loss of £64.2m attributed to “change in selling, general and administrative expenses”. Operating margin, incidentally, dived from 13% to 7.9%. The sordid details are enthralling.
Revenue generated by motorcycle shipments to developed markets worldwide was 2.6% down to £721.2m. But wholesale volume supplied to those destinations was 16.6% lower at 131,000 units. Europe topped the pile, 10.5% up to 42,000. Domestic sales to dealers in Japan was the only other source of growth, thanks to a 15% rise to 23,000. US sales dropped by 34.6% to 53,000. Canada was 37.5% in arrears at 5000. Australia fell by 25% to 6000.
Revenue from motorcycles destined for emerging countries was considerably worse, sinking by 14.2% to £391.1m. And total wholesale volume plummeted by 32.4% to 161,000 units. The Philippines suffered most volumetrically, 34.8% down to 103,000. Indonesia fell by 36.4% to 21,000. China retreated by 20% to 16,000. Numbers in Brazil, Thailand and elsewhere were so low as to be not worth counting.
In addition, turnover from general-purpose petrol engines had tanked too, falling by 14.3% to £342.8m.
What should have been a saving grace aimed primarily at the US market followed — but wasn’t. Revenue from four-wheeled utility and recreational ORVs, ATVs and personal watercraft grew by 15.2% to £689.4m.
However, a relevant qualification to the results statement surfaced. This referred to: “A received notice from the US Consumer Product Safety Commission to impose fines in connection with a recall of certain models of off-road four-wheeler.” We also learnt that “recall-related expenses” had already impinged upon Q3 profitability and the Q4 profit forecast would be revised down. Older readers may remember an expensive early-90s Kawasaki iced-up motorcycle carburettors recall, involving mountains of replacement parts. Maybe this one features refrigerated EFI on four wheels? No actual details were made available.
So full-year forecast amendments were a thorough mess. Although the reduction in annualised turnover was negligible, a mere 0.2% to £3.131bn, profits became harder to find. An original deeply pessimistic estimate made at the end of Q1, predicting a 30.1% operating profit decline to £265.3m, with operating margin down from 12.1% to 8.5%, had been adjusted in November when the ORV recall issues became egregious. The current forecast now has operating profit 34.3% lower to £249.4m, with operating margin sinking to 8%. A final countdown at the end of March may be more severe.
Yen-Sterling currency translation at forex rates applicable on 9 February