At Cautious Toyota, Low Risk Rules Even as Profit Booms

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Toyota Motors refuses to be tempted away from its low-risk growth strategy, even as the world's bestselling carmaker met its mid-term profit goals in the year ended March, aided by the weaker yen.

Toyota posted on Wednesday an annual operating profit of 1.32 trillion yen ($13.32 billion), with an operating margin of 5.98 percent, beating a market that had expected 1.26 trillion yen profit, according to Thomson Reuters StarMine's SmartEstimates. SmartEstimates place emphasis on timely forecasts by top-rated analysts.

That means the company has achieved the target President Akio Toyoda set two years ago: to make 1 trillion yen in annual operating profit, and do so with a 5 percent margin. Its Japanese manufacturing arm also made a profit for the first time in five years.

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For Toyoda, mindful of lessons learned from huge losses run up in 2008 after a period of boom and rapid expansion, high profits are no reason to launch into a building program - even as some rivals do exactly that.

"I became painfully aware that the most important thing is to keep growing at a sustainable pace. Expanding vehicle volume does not equate with growth, because fixed costs also increase," the 57-year-old grandson of the founder of Toyota's automotive business said in March. "I want this year to think about what competitiveness really means for Toyota."

Since Toyoda took helm in 2009, when profit margins were thin, the automaker has focused on cutting costs and improving profitability.

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Evidence of Toyoda's caution is his fresh policy to build no new factories for the next three years, a sharp contrast with Honda Motors which is rapidly adding to its production power around the world.

Record Sales Expected

Many analysts say Toyota will remain competitive.

"Toyota will have enough capacity. It could see some opportunity losses such as in volume and market share, but its priority is profitability," said Koji Endo, an auto analyst at Advanced Research.

Despite building no new plants Toyota, which currently has an annual production capacity of around 9 million vehicles, will still be able to make more cars.

It will stick with pre-existing plans to build new factories such as in Thailand and Indonesia and will also add capacity at plants already running, for example at its Kentucky plant in the United States.

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Toyota expects another year of record group sales in 2013, reaching 9.91 million vehicles. It could become the first carmaker in history to sell more than 10 million vehicles a year.

For the financial year to end-March 2014, analysts estimate 2 trillion yen in operating profit, nearing its record from five years ago, helped by the yen that has weakened by around 15 percent against the dollar since January. Toyota exports about 60 percent of its Japan-made vehicles.

After recovering from a damaging safety recall in 2010 and a huge earthquake in 2011 in Japan that disrupted supply chains, Toyota booked record group-wide sales of 9.7 million vehicles in 2012, beating General Motors and Volkswagen.

On Wednesday, Fuji Heavy Industries, which makes Subaru cars, booked record annual operating profit of 120 billion yen for the year ended in March, more than double last year's figure. The company also announced a plan to spend $400 million on expanding capacity in the United States, its biggest market.