Toyota warns of profit drop as exchange rate ‘tail wind’ falters

Toyota has said annual net income will probably decline for the first time in five years, as currency swings that had spurred record profits now pose stiff headwinds.

Net income may drop 35 per cent to 1.5 trillion yen ($13.8 billion) for the fiscal year ending in March, Japan’s largest company said in a statement on Wednesday.

The forecast trailed the 2.19 trillion yen average of 23 analysts' estimates compiled by Bloomberg.

President Akio Toyoda has presided over three straight years of record annual profit, as a weakening yen boosted earnings from Japan-exported Corolla compacts and Lexus RX SUVs sold overseas.

As the currency has strengthened more than 10 per cent versus the dollar this year and US demand growth has stalled, the automaker is now racing to recover from production disruptions to keep ahead of Volkswagen by worldwide sales.

“We have benefited from an exchange rate tailwind that has helped raise our earnings above the level of our true capabilities,” Mr Toyoda said in a statement.

“Although this has enabled us to take on new challenges, that set of circumstances is likely to change for the worse this year.”

The automaker expects foreign exchange rate changes to reduce operating profit by about 935 billion yen in the year started April 1st.

Toyota plans to buy back as much as 500 billion yen, or about 3.2 per cent, of its shares and pay a dividend of 210 yen per share.

Toyota has revived domestic assembly lines to make up for lost production of about 80,000 vehicles after Japan’s most devastating earthquakes since March 2011.

- Bloomberg