Financial Performance of Japanese Companies Continues to Recover

Osaka – Saturday, May 15, 2010

Nikkei, Japanese newspaper specialized in business/economy, reported on May 13, 2010, that financial performance of Japanese listed companies has been continuously recovering in total. This information also went on air in most major TV news on Friday 14. Consolidated profit for fiscal year ending March 2010 was +25% vs. previous year, which was increase in profit after 2 fiscal year, largely attributing to cost reduction. The largest contributors were consumer electronics and automobile, which improved by 3.7 billion yen in total vs. previous year.

Outlook for fiscal year ending March 2011 is of further improvement; +38% for profit vs. fiscal year ending March 2010. This is largely because revenue is expected to increase after 3 fiscal years with demand increase of emerging countries, marking phase change from recovery driven by restructure to recovery driven by demand increase. However, there are risks such as high yen and price increase in resources.

1. How did Nikkei come to the conclusion?

Nikkei collected and analyzed financial data of 767 listed companies (excluding financial and new companies) that had been announced by May 12, covering 50% in number and 80% of profit, of total companies.

2. How much the financial performance of Japanese companies recover?

In total, sales for fiscal year ending March 2010 decreased by 12% vs. previous year but turned to black with drastic cost reduction by each company after the worldwide economy crisis broke out in the autumn of 2008. Quick economy recovery of emerging countries such as China and India also contributed to their financial performance recovery. As a result, profit was better by 13% than estimation as of February 2010, meaning that financial performance of Japanese companies are ongoing with speed above expectation.

Looking by industry, 19 out of 32 recovered. The total amount of profit recovered was 2 trillion yen for consumer electronics and 1.7 trillion yen for automobile. These two industries covered up deterioration of steel, maritime trade and trading companies, and in total recovery of almost 2.4 billion yen. As for some specific companies, refer the table below.

Improvement in Financial Performance of Some Major Companies
(Source: Nikkei, translated by the author)
Company Name / Amount (billion yen)
Hitachi / 353.4
Panasonic / 353.3
Toshiba / 304.2
Toyota / 851.8
Nissan / 380.4
Honda / 174.4

3. What contributed to the recovery?

The biggest contributor was restructuring including fixed and variable cost reduction. Honda reduced sales cost by over 420 billion yen, resulting in double in profit even though the revenue decreased by 14%. A vice president of Honda commented that the biggest reason for revenue recovery is the fact that they made much effort in cost reduction. Cost reduction of Toyota totaled 1 trillion yen (negative effects of the worldwide recalls were within their expectation) and 880 billion yen for Panasonic.

4. What is the outlook for fiscal year ending March 2011?

Sales for fiscal year ending March 2011 is estimated to go back to growth by 7% from the previous year, which is expected to contribute to further profit increase. Also, financial performance recovery is estimated to expand to 25 industries from 19. With recovery in purchase order from Asia, machinery and precision instrument also are estimated to return to black.

5. What are the 3 possible risks?

The first possible risk is high yen. This is a negative factor for export-oriented companies (most Japanese manufacturers are export-oriented); increase in cost of resources leads to cot up in wide a range of industries. For example in the case of Nippon Steel, if purchase cost of iron and steel stays at high level of April-June, it would result in 450 billion loss unless it can be reflected in pricing.

The second possible risk is negative effect from the fact that demand stimulation measures of each country aimed at driving sales of digital consumer electronics and automobiles is to come to end. For example, in Japan, incentives are given to consumers who purchase green products and services specified by the governments (e.g. automobile, consumer electronics, reforming house) which has been contributing to stimulating consumer spending but this incentive is to end soon.

The third possible risk is negative effect of weak economy of Greece on worldwide economy recovery.

6. What is the requirement for further recovery despite the possible risks?

Further improvement is possible if performance recovery effect is expanded to household and equipment investment sectors. This is because the profit outlook for 2010 is 60% of the peak, which was in 2008, meaning that there are some room for further recovery.