Osaka – Sunday, August 1, 2010
Nikkei, Japanese newspaper specialized in business/economy, reported today that emerging market business is driving drastic revenue and profitability recovery of listed Japanese Companies. According to financial announcements for April – June 2010 (Q1 for most Japanese companies), profit is five times that of April – June 2009, clearly showing the recovery of manufacturers such as automobile and consumer electronics supported by demand of emerging market and cost reduction. Profitability has recovered to the level of 90% before the worldwide economic crisis in 2008, and the Q1 profit is 29% of the total estimated profit for fiscal 2010.
However, there are many risks such as high yen and ambiguous worldwide economy trend; therefore, many companies are extremely cautious in their forecast of their latter 2010 performance.
1. How did Nikkei come to the conclusion?
Nikkei collected and analyzed financial data of 559 listed companies (excluding financial and new companies) that are:- a)fiscal year ends in March; b)financial announcement for 2010 Q1 has been made by July 30. These 559 companies cover 36% of total in number and 62% in market value.
2. What is the overall conclusion?
Total sales covering all industry increased by 14% from previous year (PY). This was because after the worldwide recession, companies reviewed which business to focus and initiated cost reduction, to streamline revenue structure. Then with demand increase of emerging markets their sales increased, and therefore their total profit reached 3.83 trillion yen, which is fives time that of PY, and 46% increase from Jan – Mar 2010. Compared with April – June 2008 before the worldwide recession, sales has recovered to 86% and profit to 93%.
3. How are specifics?
April – June Profit of Major Japanese Listed Companies (in billion yen)
(Source: Nikkei, translated by the author)
Industry / Company Name / 2008 / 2009 / 2010
Automobile / Honda* / 224.2 / 5.4 / 256.1
Automobile / Nissan / 82.4 / -26.1 / 155
Electronics / Panasonic* / 119.2 / -51.7 / 84.3
Electronics / Sony* / 62.9 / -32.9 / 78.9
Electronics / Hitachi* / 83.6 / -80.8 / 144.2
Machinery / Komatsu* / 92.7 / 8.7 / 50.1
Iron & Steel / Nippon Steel / 144 / -56.6 / 61.8
Trading / Mitsubishi Corp* / 181.9 / 61.9 / 180.5
Real Estate / Mitsui Fudosan / 22.3 / 28.8 / 13
Maritime / NYK Maritime / 65.1 / -27 / 38.1
* GAAP: Generally Accepted Accounting Principle
1) Sales increase: electronics
60% of total 3.7 billion yen profit recovery was contributed by consumer electronics and automobile. Panasonic’s EBITA (Earning Before Interest, Taxes and Amortization) improved by 130 billion yen because sales were strong in most businesses including digital consumer electronics such as flat panel TVs and home appliances. China sales increased by 75%.
Sony’s business in emerging markets such as of flat panel TVs and PCs increased by 40%.
2) Sales increase: automobile and parts/components
Profits of automobile and parts/components recovered by almost 700 billion yen, which made it in total profit instead of loss. Nissan’s worldwide sales increased by 30%. Small car business was strong and their sales in China increased by almost 70%.
Komatsu’s China sales of construction machinery increased by almost 80%.
3) Restructuring
Restructuring effects such as fixed and variable cost reduction is also prominent. Toshiba had cut 430 billion yen of personnel and R&D cost in 2009. Toshiba’s sales were less than 2008 but operating profit was the highest.
4) Non-manufacturers
Profit of trading companies was 2.3 times that of 2009 attributing to high resources. For maritime and container ship businesses were strong and came back to black from red. Retailers and real estates decreased their profit because of weak domestic business.
4. What is the outlook for latter half of 2010?
Asia is assumed to remain the engine of further business/financial performance recovery of Japanese companies for fiscal year ending March 2011.
1) Cautious outlook
Despite recent drastic profit recovery, it is interesting to note that many companies are cautious in their outlook for latter half of 2010 (fiscal year ending March 2011). This is even though April – June profit of many companies was over 25% of total profit estimation for the whole year, such as automobile and parts/components that reached 45.7%.
2) Reasons for cautious outlook
(1) High yen and ambiguious worldwide economy
Yen has been high; recently it was been in just over 80 yen / USD. High yen is a negative factor for Japanese manufacturers.
In addition, there is a sense of economy recession in the U.S, and Europe, and risk of change in Chinese economy. NYK Maritime executive points out there is a risk that Europe’s economy anxiety spreads worldwide and latter half of 2010 is ambiguous. Nippon Steel executive comments that prices of raw materials and steel have not been decided yet and it is impossible to make rationale estimation for latter half of 2010.
(2) Termination of government’s economy stimulant incentives
Incentives to promote Japan domestic consumers purchasing ecological cars will end in the end of September. Also, similar incentives for consumer electronics will end in the end of December. Therefore, many executives of the industry are extremely anxious that domestic sales may fall by as much as 20% – 30%.
2010年6月27日日曜日
Asia Business Drives Recovery of Japanese Companies
Osaka – Sunday, June 27, 2010
Nikkei, Japanese newspaper specialized in business/economy, reported today that Asia business is driving revenue recovery of Japanese Companies. It came clear that Asia is the engine of generating revenue (profit) for one out of four companies when they analyzed operating revenue of financial data by region for fiscal year ending March 2010.
Operating profit from Asia business has recovered to the level of 82% of those of before the worldwide financial crisis in 2008. This is far greater than Americas (43%) and Japan (30%). It is true that there are risks such as increase in personnel cost of China. However, the Japanese government has developed the new growth strategy as explained in the previous article Japan's New Growth Strategy Approved - What Is It? making the most of growth in Asia economy and therefore it is likely that further shift in Asia business will take place among Japanese companies.
1. How did Nikkei come to the conclusion?
Nikkei collected and analyzed financial data of 419 listed companies (excluding financial and new companies) that are:- a)fiscal year ends in March; b)discloses revenues by region; and c)sequent data is available since 2000.
2. How much was the operating profit generated by Asia business?
Operating profit generated by Asia (including Oceania) business was 1.8814 trillion yen in total, which covers 26% of total operating profit generated worldwide. Although this percentage is behind Japan, which was 52%, it is far greater than Americas (11%) and Europe (3%).
3. How is Asia business driving recovery of major companies?
Companies covering 25% of 419 companies analyzed have been recovering driven by Asia business. Most of them are of major manufactures of automobile and electronics. Operating profit generated by Toyota’s Asia business was the greatest, totaling 203.5 billion yen. This attributed to Toyota’s consolidated operating profit returning to black even though their America and Europe business still remains in red.
Major Companies Generating Revenue/Profit Primarily from Asia Business
(Source: Nikkei, translated by the author)
Company Name / Amount of Operating Profit from Asia Business (billion yen) / % of Operating Profit from Asia Business*
Toyota / 203.5 / 139
Denso / 75.3 / 54
TDK / 65.9 / 251
Suzuki / 56.1 / 67
Toshiba / 46.1 / 41
Daikin / 37.9 / 88
HOYA / 34.1 / 58
Seiko Epson / 27.2 / 158
Hitachi Construction Machinery / 26.5 / 219
Rohm / 26.5 / 108
* above 100 = the total operating profit from business in other regions are negative (i.e. loss)
Suzuki’s business is strong in India, where they have market share of approximately 50% in passenger cars. Card produced locally topped 1 million for the first time. The top management commented “operating profit generated by business in India covers almost 70% of consolidated operating profit”.
Toshiba’s operating profit from Asia business doubled from previous year totaling 46.1 billion yen. This was because of business growth in their infrastructure and digital consumer electronics businesses.
4. How is Asia business recovery compared?
Revenue and profitability recovery from Asia business is outstanding. Sales have recovered to 70% and operating profit has recovered to 82% of the level of fiscal year ending March 2008, i.e. before the worldw ide financial crisis. Profitability of Asia business is also high compared with other region. Operating profit of Asia for the analyzed companies turned out to be 9% in average, which is far greater than Japan (45), Americas (3%) and Europe (1%).
This is because profit tends to expand in the process of market recovery for Asia where cost is comparatively low and inflation is comparatively high, compared with, for example Japan, whose profitability is more difficult to improve with high yen and deflation.
5. What is the outlook for fiscal year ending March 2011?
Asia is assumed to remain the engine of further business/financial performance recovery of Japanese companies for fiscal year ending March 2011.
For example, UniCharm Corporation estimates to increase its operating profit by 19%. For sales increase, third plant in China has been constructed in the end of 2009. TOTO plans to generate approximately 70% of assumed worldwide operating profit from China business. To achieve this, they will strengthen sales of housing equipment in inland area.
The government’s new growth strategy leading to strengthening economic relationship with Asia countries could mean positive effect on Asia business of Japanese companies. However, there are risks such as devaluing of the Chinese yuan (RMB) and increase in personnel cost of factory workers in high growing market of China, which has big impact on management. In addition, competition with strong companies of the west and Korea is severe. It is high likely that the quality of Asia business strategy determines how their Asia business further grows.
Nikkei, Japanese newspaper specialized in business/economy, reported today that Asia business is driving revenue recovery of Japanese Companies. It came clear that Asia is the engine of generating revenue (profit) for one out of four companies when they analyzed operating revenue of financial data by region for fiscal year ending March 2010.
Operating profit from Asia business has recovered to the level of 82% of those of before the worldwide financial crisis in 2008. This is far greater than Americas (43%) and Japan (30%). It is true that there are risks such as increase in personnel cost of China. However, the Japanese government has developed the new growth strategy as explained in the previous article Japan's New Growth Strategy Approved - What Is It? making the most of growth in Asia economy and therefore it is likely that further shift in Asia business will take place among Japanese companies.
1. How did Nikkei come to the conclusion?
Nikkei collected and analyzed financial data of 419 listed companies (excluding financial and new companies) that are:- a)fiscal year ends in March; b)discloses revenues by region; and c)sequent data is available since 2000.
2. How much was the operating profit generated by Asia business?
Operating profit generated by Asia (including Oceania) business was 1.8814 trillion yen in total, which covers 26% of total operating profit generated worldwide. Although this percentage is behind Japan, which was 52%, it is far greater than Americas (11%) and Europe (3%).
3. How is Asia business driving recovery of major companies?
Companies covering 25% of 419 companies analyzed have been recovering driven by Asia business. Most of them are of major manufactures of automobile and electronics. Operating profit generated by Toyota’s Asia business was the greatest, totaling 203.5 billion yen. This attributed to Toyota’s consolidated operating profit returning to black even though their America and Europe business still remains in red.
Major Companies Generating Revenue/Profit Primarily from Asia Business
(Source: Nikkei, translated by the author)
Company Name / Amount of Operating Profit from Asia Business (billion yen) / % of Operating Profit from Asia Business*
Toyota / 203.5 / 139
Denso / 75.3 / 54
TDK / 65.9 / 251
Suzuki / 56.1 / 67
Toshiba / 46.1 / 41
Daikin / 37.9 / 88
HOYA / 34.1 / 58
Seiko Epson / 27.2 / 158
Hitachi Construction Machinery / 26.5 / 219
Rohm / 26.5 / 108
* above 100 = the total operating profit from business in other regions are negative (i.e. loss)
Suzuki’s business is strong in India, where they have market share of approximately 50% in passenger cars. Card produced locally topped 1 million for the first time. The top management commented “operating profit generated by business in India covers almost 70% of consolidated operating profit”.
Toshiba’s operating profit from Asia business doubled from previous year totaling 46.1 billion yen. This was because of business growth in their infrastructure and digital consumer electronics businesses.
4. How is Asia business recovery compared?
Revenue and profitability recovery from Asia business is outstanding. Sales have recovered to 70% and operating profit has recovered to 82% of the level of fiscal year ending March 2008, i.e. before the worldw ide financial crisis. Profitability of Asia business is also high compared with other region. Operating profit of Asia for the analyzed companies turned out to be 9% in average, which is far greater than Japan (45), Americas (3%) and Europe (1%).
This is because profit tends to expand in the process of market recovery for Asia where cost is comparatively low and inflation is comparatively high, compared with, for example Japan, whose profitability is more difficult to improve with high yen and deflation.
5. What is the outlook for fiscal year ending March 2011?
Asia is assumed to remain the engine of further business/financial performance recovery of Japanese companies for fiscal year ending March 2011.
For example, UniCharm Corporation estimates to increase its operating profit by 19%. For sales increase, third plant in China has been constructed in the end of 2009. TOTO plans to generate approximately 70% of assumed worldwide operating profit from China business. To achieve this, they will strengthen sales of housing equipment in inland area.
The government’s new growth strategy leading to strengthening economic relationship with Asia countries could mean positive effect on Asia business of Japanese companies. However, there are risks such as devaluing of the Chinese yuan (RMB) and increase in personnel cost of factory workers in high growing market of China, which has big impact on management. In addition, competition with strong companies of the west and Korea is severe. It is high likely that the quality of Asia business strategy determines how their Asia business further grows.
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