Operating income at Toyota Motor Corporation (TMC) fell 6.6% to JPY809.4 billion, while net income was down 2.3% to JPY570.5 billion for the six months ended September 30, 2005, the company said in a statement on Friday (4 November).

This was the first interim profit decline in four years for the world's most profitable car maker, according to Kyodo News.

Pre-tax income was JPY855.9 billion and revenues rose 10.3% to JPY9.95 trillion.

Positive contributions to operating income included what TMC called "marketing efforts" worth JPY70.0 billion, JPY60.0 billion of cost reductions and positive exchange rate effects worth JPY20.0 billion.

Negative factors included "business expansion expenses" [new factories] of JPY197.7 billion, and a decrease in the gains from the transfer of part of the employee pension fund to the Japanese government totalling JPY9.1 billion.

TMC increased its first-half cash dividend per share by 10% to JPY35.

Koichiro Suzuki, senior investment manager at Sompo Japan Asset Management, told Reuters that investors - who had high hopes for Toyota's earnings - may sell the stock after its earnings came in under expectations.

"The 10% increase in revenues was in line with the consensus, but the fact that profits fell shows that costs were higher than expected. This is the same sort of pattern as Nissan ... The result certainly falls a little short of expectations," he reportedly added.

In the statement, TMC executive vice president Mitsuo Kinoshita said: "We attained a high level of profit while expanding production capacity and developing advanced technology and future products in response to strong demand worldwide."

Vehicle sales for the six months reached a record high of 3.833 million units, a fiscal year-on-year increase of 266,000.

In Japan, despite the launch of the Lexus luxury brand, sales fell 20,000 to 1.086 million units due to a lack of new mass market models.

However, in North America, strong demand for the Avalon, Prius, new Tacoma pick-up trucks and the Scion range helped boost 119,000 vehicles to 1.245 million.

Toyota said the newly launched Aygo, built in a Czech Republic joint-venture factory with PSA Peugeot Citroën, and the UK-made Corolla model line helped boost sales 22,000 to 498,000 in Europe.

Asian market sales rose 62,000 units to 448,000 due mainly, Toyota said, to the successful launch of the IMV (Innovative International Multi-purpose Vehicle) model line.

Sales in other regions including Africa and Central and South America increased 83,000 to 556,000.

TMC has estimated that vehicle sales for the full fiscal year ending March 31, 2006 will be up 60,000 on its August 2005 forecast to 8.03 million.

The company has also revised its exchange rate assumption from 105 to the US dollar to 110 and is now projecting net income of JPY670 billion for the year, up JPY170 billion on the figure announced last May.

Added Kinoshita: "Assuming that the US dollar is at 110 per dollar, we aim to exceed last year's revenues and profits. We will also strive to offset the increase in business expansion costs through marketing and cost reduction efforts."

Toyota has also raised its full-year operating profit forecast to 750 billion from 620 billion.

Full-year group operating profit is expected to rise around 4% to 1.74 trillion, according to 21 brokers surveyed by Reuters Estimates.

Toyota has also raised its capital spending plan for the year to March 2006 by 12% to 1.4 trillion.

"There is a rather high concentration of capital spending this year," Toyota's senior managing director, Takeshi Suzuki, told Reuters.

"But we don't see a trend of a continued rise beyond the 1.4 trillion (allocated for 2005/06) in the following years."

A Japanese analyst told the news agency that Toyota's profit margin in North America should improve in future thanks to the introduction of high-profit models.

Reuters said he noted that it would launch remodelled Corolla and Camry cars, cutting costs further on the vehicles.

Graeme Roberts

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