Japanese Companies Performance to Rapidly Recover Latter Half of 2011

Osaka - Sunday, June 26, 2011




Nikkei, Japan’s leading newspaper specialized in business and economy, reported today that performance of Japanese listed companies for the latter half of fiscal year 2011 ending March 2012 is to rapidly recover. This is expected to result in as small as 6% decrease vs. previous year for consolidated profit for the total fiscal year ending March 2012.



This is primarily to be driven by demand from recovery from the Japan disaster, which is why revenue increase by24% is anticipated in the latter half of 2011. It is possible that automobile production recovery quicker than their original plan also is to contribute to profitability enhancement.



Having said that, the reality is the performance among many industries was at a low level in the first half of 2011 due to the disaster. Moreover, if yen should get higher than anticipated it could trade off the anticipated revenue increase.



1. How did Nikkei come to the conclusion?



Nikkei collected and analyzed financial data of 1,533 listed companies (excluding financial and new companies) whose financial announcement for financial announcement ending March 2010 has been made by June 25. EBITA (earning before income tax) was used for companies that adopt GAAP (generally accepted accounting principles). TEPCO (Tokyo Electric Power Co., Inc) was excluded because their outlook is uncertain.



2. What is the conclusion?



Profit for the fiscal year ending March 2012 is estimated to be 22.76 trillion yen, which is only 6% decrease from the fiscal year ending March 2011. Profit has been increasing for the past three quarters since the quarter ending March 2009 and therefore the estimation may sound negative. However, this is far greater than the fiscal year ending March 2010 which was 15.53 trillion yen. This is approximately 70% of the greatest profit in history for the fiscal year ending March 2008.



The trend of the fiscal year ending March 2012 is expected to be “slump in the first half, recovery in the second half”.



3. What are the reasons for the slump of the first half of the fiscal year?



They are primarily the broken link of supply chain and depressed consumer consumption. As a result, profit is estimated to be 8.8 trillion yen, which is minus 32% from the previous year.



In the case of Toyota for example, it is estimated to be in the red by 100 billion yen. And for automobile and its component industries, profit is expected to be minus 93% from the previous year.



Slump of automobile impacts wide a scope of industries. For example, profit of Furukawa Electric Co., Ltd. is estimated to be 9 billion yen, which is minus 44% from the previous year because of the decrease in orders of automobile components. The company is cautious in making estimation of production recovery; it estimates that their production for July and August this year will be only as much as 80% of the July and August of 2010. Automobile shipment is estimated to be 1.1 million cars, which is minus 26% from the previous year according to NYK Line.



4. What are the reasons for expected drastic recovery in the second half of the fiscal year?



Demand increase of the recovery from the disaster and increase in overseas sales are expected to highly contribute to 24% increase in profit from the previous year, reaching profit of 13.96 trillion yen.



For example, profit of Toshiba is expected to increase by 42% from the previous year, which is to be a drastic recovery from 13% decrease in the first half. This is because of the anticipated demand increase of recovery from the disaster in sectors such as consumer electronics and infrastructure. For the same reason, 53% increase in profit is expected for iron and steel and 26% increase in profit is expected for construction as well.



With such profitability recovery, 48% of companies calculated are expected to improve in revenue and/or profitability.



Automobile production in Japan is to return to the previous year level by as early as July. Honda even plans to increase by 20% after autumn.



5. Are there any possible negative factors for performance recovery?



Yes, there are.



One is exchange rate. Many companies estimate the exchange rate to be 1 USD = 80 – 85 JPY and 1 Euro = 115 JPY. However, the current yen exchange rate is already at their profitability limit and if the yen should get higher there is a risk of decrease in their profitability from export business.



Limit in electricity supply is the other major negative factor. If re-start of operation of nuclear power plants that are currently being inspected for regular inspection and maintenance should delay, it would be a negative factor for the performance for the second half of the fiscal year ending March 2012.





Resources:-
Nikkei, Japan’s leading newspaper specialized in business and economy, estimated that financial performance of Japanese companies are to drastically recovering in the second half of fiscal year ending March 2012, from slump in the first half attributing to the broken supply chain and consumer spending cut due to the Japan disaster. Such recovery is expected primarily because of demand increase of recovery from the disaster. However, there are possible negative factors for the drastic recovery such as exchange rate (high yen) and electricity supply limit.