Despite a drop in sales, Honda was able to post a PHP 288.6 billion profit
To say that that 2020 was a dismal year for automakers is an understatement. With countries imposing lockdowns and quarantine measures left and right, the public was advised to stay indoors and only go out to get essential goods. Since people were not allowed to go on leisure travels or buy non-essential products, automakers suffered heavy losses during this period. Why buy a car if you can't go anywhere, right?
Still, there were some companies who actually experienced a profit last year. One of those is Honda, and they recently released their financial results for the fiscal year of 2020 as proof.
According to Honda, they were able to post a JPY 660.2 billion (about PHP 288.6 billion) operating profit, a 4.2% increase year-on-year. This comes as a surprise since Honda, like most automakers, experienced a slump in sales due to the pandemic. In total, Honda was only able to post a JPY 13.170 trillion in sales, an 11.8% decrease year-on-year (last year's results were at JPY 14.931 trillion).
How was Honda able to have a profitable year despite the drop in sales revenue in 2020? Well, the company claims that they were able to do it through cost reduction efforts, and control of selling, general and administrative expenses (SG&A). So while they may have not sold as many models as planned, their cost-cutting strategy allowed them from recording bigger losses.
Another reason why Honda was able to keep costs down was the lack of motor shows and other motoring-related events last year (apart from the Bangkok Motor Show). With no travel and leisure expenses to pay, the company was able to keep its coffers relatively filled.
There was also the matter of reduction of global factories to further keep costs down. Just last year, Honda shut down its factory in Santa Rosa, Laguna in an effort to optimize its operations in both Asia and Oceania. As a result of the shutdown, however, both the City and BR-V are no longer assembled locally. In addition, the closure cost the Philippine parts industry about PHP 240 million in lost revenue.
Last but not least, Honda was able to increase sales once restrictions were eased. Honda's motorcycle business alone was able to record an operating profit of JPY 72.2 billion (JPY 8.7 billion year-on-year increase). Honda attributed the increase due to the recovery of sales mainly in Asia, and an increase in profit related to changes in sales volumes, and model mix, and cost reduction efforts.
As for Honda's automobile business, it achieved JPY 37.6 billion in operating profit which is a JPY 113.3 billion increase. Like Honda's motorcycle business, the company said that the increase was due to higher sales figures in Asia, and control of SG&A related to changes in sales volume and model mix.
For FY 2021, Honda aims to record an operating profit of JPY 660 billion, similar to what they achieved in FY2020. The company plans to achieve this by increasing unit sales and making progress in its existing businesses. These include optimization of production capacity, as well as increasing development efficiency.
As the world slowly recovers from the pandemic, Honda might achieve its target goals faster and easier thanks to loosened restrictions. With new models (as well as EVs) on the way, the automaker has plenty to offer for the global market. Here's to hoping Honda achieves a better fiscal year for 2021.