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Mazda reported a 43% drop in operating profit in the most recent fiscal year, mainly due to falling global sales, increased marketing expenses, foreign exchange losses and rising investment costs for retail network reform in the United States.

Mazda said in its earnings report Thursday that operating profit for the fiscal year ended March 31 fell to 83.01 billion yen ($748.9 million). Net income also fell 43% to 63.48 billion yen ($573 million). Revenue rose 3 per cent to 3.56 trillion yen ($32.12 billion) as global retail sales fell 4 per cent to 1.56 million units and market share in North America and China fell.

Operating margin fell to 2.3% from 4.2% a year earlier.

In announcing the results, Akira Marumoto, chief executive, outlined a new medium-term business plan aimed at raising operating margins to a sustainable level of 5 per cent by the fiscal year ending March 31, 2025. The company also lowered its long-term sales target to adapt to a tougher reality.

Mazda now aims to sell 1.8 million vehicles worldwide in the fiscal year ending March 31, 2025. The company had hoped to sell 2 million cars in the fiscal year ending March 31, 2024.

Marumoto said he wanted to reduce the pressure to use incentives to meet sales targets. He also said he wanted room for manoeuvre to achieve his goals in the event of unexpected market conditions. Last year's financial performance was affected by many factors. The decline in sales was partly due to supply disruptions from Japan. Last year, Mazda suspended production after torrential rains caused flooding in western Japan, where Mazda is based. Mazda said it lost production of 44000 vehicles and 23000 disassembly kits for overseas assembly last year due to rain.

Stimulate consumption

In the most recent fiscal year, incentives further undermined profitability. Mazda is trying to rein in stimulus spending to boost its brand image. In the first three months of 2019, Mazda cut incentives by 23%, according to Autodata. But in the calendar year of 2018, it surged by 11 per cent.

At the same time, the appreciation of the yen against the dollar and other currencies has also had an impact. The fall in the exchange rate reduced full-year profits by 38.1 billion yen ($343.8 million).

Mazda also said it spent more on retail networks and quality costs in the US. Marumoto, who took office in June 2018, said his priority is to stimulate economic growth in the United States, which is GM's largest market. To that end, he hopes to focus on strengthening Mazda's dealer network in the United States and taking full advantage of its growing partnership with Toyota.

Mazda is trying to upgrade its dealer network before building a new plant in Alabama with Toyota. Expected to open in 2021, the $1.6 billion plant will add 150000 Mazda's capacity-all of which will work on a new crossover for Mazda in the United States, which expects sales to soar in the United States. and plants eventually enable global automakers to sell 2 million vehicles.

Mazda expects operating profit to rebound 33 per cent and net profit to rise 26 per cent in the current fiscal year ending March 31, 2020. GM expects global sales to grow 4% to 1.62 million vehicles.

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