Osaka – Saturday, January 30, 2010
Nikkei, specialized in economy/business and politics, reported on January 28 that financial performance of many major Japanese manufacturers have started to recover drastically driven by external demand. It seems that Sony’s consolidated operational profit has gone back to black by 1000 billion yen after 5 quarters for October – December 2009. Honda also seems to double its consolidated operating profit for the same period from the previous quarter of July – September 2009. Ongoing revenue improvement attributes to changing to profit structure more optimized for generating profit by fixed cost reduction and productivity efficiency improvement, plus increase in external demand with worldwide economy recovery.
Better Profit Generation with Cost Reduction
(Source: Nikkei, edited and translated by the author)
Company Name / Operating Revenue (billion yen) / Operating Revenue for Previous Year (billion yen) / Factors
Sony / Approx. 100 / -17.9 / Cost reduction. TV and game business recovering
Honda / 120 - 170 / 102.4 / Strong fuel efficient car business in India and Thailand. Japan business getting stronger as well.
Toshiba / Approx. 10 / -158.8 / Improvement in fixed cost and recovery in semiconductor business.
Canon* / 92.1 / 35.8 / Recovering in worldwide camera sales. Expense compressed.
Fuji Film Holdings / Approx. 5 / 1.2 / Improvement in LCD film and business machine business.
TDK / More than 11 / -5.1 / Strong hard disk related business.
Murata Manufacturing Company / Approx. 11 / -3 / Demand increase in electronic components for PC etc.
Note: For October – December 2009. Canon’s data is of announcement, others is of Nikkei estimation.
Sony drastically improved its game and LCD TV business that were in a slump. PS (Play Station) 3 that had reduced manufacturing cost made a big hit with positive effect of price reduction in the U.S. which contributed to returning to black after 4 quarters. LCD TV sales are now strong in the U.S., Japan and China. Job cuts and site integration contributed to improving operating profit and loss to zero level. However, operating profit improvement that had once been estimated to be 20 billion yen for fiscal year ending March 2010 is expected to be limited. This is because there are anxieties such as restructuring expense to accumulate toward the end of March 2010, and uncertainties/risks such as high yen.
Honda is improving its financial performance driven by growth in the emerging market. Fuel efficient small and medium size car business has become strong in Asia such as India and Thailand, and cost reduction measures such as enhancing local content contributed to positive effect. As a result, Honda’s consolidated operating profit for October – December 2009 seems to have doubled from July – September 2009 to 120 – 170 billion yen.
Honda produced approximately 890,000 cars worldwide October – December 2009, which is increase by 80,000 from July – September. Honda’s bicycle business is also strong in emerging market in particular. Operating profit is estimated to reach 190 billion yen for fiscal year ending March 2010, but it is possible that it reaches more than 300 billion yen.
Companies such as Hitachi is benefiting from worldwide automobile sales recovery, which is decreasing its operating loss of automotive equipment business. Hitachi’s flat panel TV business is also improving. As a result, Hitachi’s consolidated operating profit seems to recover reaching 100 billion yen, which is much more than the original plan of 20 billion yen.
Although there are anxieties and uncertainties such as high yen and domestic economy plunging again, it is expected that revenue of major manufacturers continues to improve driven by external demand. Canon announced its financial performance for fiscal year ending December 2009 on January 27, 2010, in which it estimated that consolidated operating profit for fiscal year ending December 2010 is to reach 330 billion yen, which is +52% from previous year. This is due to continuation of strong sales of single-lens reflex camera, which is of high profitability, especially in China.
It is a pity that Toyota is not one of the manufacturers that is drastically recovering its financial performance, with recent recalls.
2010年1月24日日曜日
China Business Drives Financial Recovery of Japanese Companies
Sunday, January 24, 2010 – Osaka, Japan
Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported on January 23 that according to the outlook of financial performance for fiscal year ending March 2010, China business is to be the driver for many automobile and machinery manufacturing companies. For Nissan and Komatsu, 40%-50% of consolidated operating profit is estimated to be generated from China business and profit by region for China is to be greater than those of developed countries. This shows that Chinese economy is driving recovery of company financial performance when demand of Japan, the U.S. and Europe continues to plunge. Having said that, some experts say that Chinese economy seems to be overheated and competition is getting more and more severe. China is a promising marketing but there are challenges/issues such as risk management and thorough cost reduction.
1. How Chinese economy has been?
Chinese economy has been revitalized with positive effect of the economy stimulation measures implemented by the Chinese government (approximately 53 trillion yen) in November 2008. Chinese economy has recovered to 2 digit growth for October – December 2009 and its presence has been enhancing in the world economy.
2. How have Japanese companies been benefiting from revitalized Chinese economy?
China has become the largest automobile market (unit base) in the world last year, and Japanese automobile companies also have been increasing their sales, in particular Nissan. Nissan was quicker than other Japanese companies in strengthening product lines of small cars and developing sales/distribution network, leading to approximately 750,000 unit sales (almost +40% from previous year) for 2009. Operating profit from China business is expected to reach 50-60 billion yen, which is almost half the consolidated operating profit. Nissan estimates to enjoy consolidated operating profit of 120 billion yen when Toyota is estimated to remain in red. Nissan is quicker in recovering its financial achievement by generating profit in growing marketing of China.
Component manufacturers are also benefitting from demand growth in China. NSK’s business in the developed countries remains in low level and is expected to generate 60% - 70% of its consolidated operating profit from China business.
Chinese Business Outlook of Japanese Automobile and Machinery Manufacturers
(Source: Nikkei, edited and translated by the author)
Company Name / Operating Profit: % of China Business / Consolidated Operating Profit (billion yen) / Vs. Previous Year / Trend of Chinese Business
Nissan / Almost 50% / 120 / Returning to black / Quick in establishing sales distribution network, leading to sales growth of almost 40% for 2009
Honda / +40% / 155 / +13% / Strong sales of Accord in cities on the coast
Komatsu / About 40% / 72 / -53% / Strong hydraulic shovel business, growth by 30%, overwhelming Japan business
Furukawa Electric / +25% / 10 / +3% / With strong infrastructure investment, high voltage cable in full production in China and increase in business growth
NSK / 60% / - 70% / 8 / -64% / Bearing business grows targeting automobile and industry machinery companies, when business in Japan, the U.S. and Europe continues to plunge
Regarding machinery manufacturers, sales of China for Komatsu and Hitachi Construction Machinery are approximately 20% of worldwide business, which is greater than Caterpillar. Reducing cost by manufacturing locally, Komatsu’s operating profit from Chinese business is almost 40% of worldwide business, and Komatsu is quicker than Caterpillar in recovering its financial performance.
More companies in other industries are benefitting from growing Chinese market. For example, Toto’s business of luxurious toilets (using luxurious materials etc.) is strong in China. Their China business is expected to be in black when Japan and other business are expected to remain in red. Operating profit from China business is to reach approximately 30%, the biggest worldwide.
3. What are the anxieties and risks of Chinese economy and business?
Chinese economy seems to be overheated, according to some experts. It is prominent that increase in export of steel material to Chinese market is contributing to consolidated financial performance for iron and steel giants. However, many of the executives in this industry are cautious, commenting that “if credit squeeze measure at to be taken (to prevent overheating), the current strong steel material market trend in China may well change”.
Honda is enjoying strong sales of Accord in China but profit of joint venture business in China is to remain the same with previous year. It is because price erosion is extreme in China, when each company strengthens production and sales organization. As proportion of Chinese business increase, necessity of risk management for business fluctuation and increase in competition in this market increases.
Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported on January 23 that according to the outlook of financial performance for fiscal year ending March 2010, China business is to be the driver for many automobile and machinery manufacturing companies. For Nissan and Komatsu, 40%-50% of consolidated operating profit is estimated to be generated from China business and profit by region for China is to be greater than those of developed countries. This shows that Chinese economy is driving recovery of company financial performance when demand of Japan, the U.S. and Europe continues to plunge. Having said that, some experts say that Chinese economy seems to be overheated and competition is getting more and more severe. China is a promising marketing but there are challenges/issues such as risk management and thorough cost reduction.
1. How Chinese economy has been?
Chinese economy has been revitalized with positive effect of the economy stimulation measures implemented by the Chinese government (approximately 53 trillion yen) in November 2008. Chinese economy has recovered to 2 digit growth for October – December 2009 and its presence has been enhancing in the world economy.
2. How have Japanese companies been benefiting from revitalized Chinese economy?
China has become the largest automobile market (unit base) in the world last year, and Japanese automobile companies also have been increasing their sales, in particular Nissan. Nissan was quicker than other Japanese companies in strengthening product lines of small cars and developing sales/distribution network, leading to approximately 750,000 unit sales (almost +40% from previous year) for 2009. Operating profit from China business is expected to reach 50-60 billion yen, which is almost half the consolidated operating profit. Nissan estimates to enjoy consolidated operating profit of 120 billion yen when Toyota is estimated to remain in red. Nissan is quicker in recovering its financial achievement by generating profit in growing marketing of China.
Component manufacturers are also benefitting from demand growth in China. NSK’s business in the developed countries remains in low level and is expected to generate 60% - 70% of its consolidated operating profit from China business.
Chinese Business Outlook of Japanese Automobile and Machinery Manufacturers
(Source: Nikkei, edited and translated by the author)
Company Name / Operating Profit: % of China Business / Consolidated Operating Profit (billion yen) / Vs. Previous Year / Trend of Chinese Business
Nissan / Almost 50% / 120 / Returning to black / Quick in establishing sales distribution network, leading to sales growth of almost 40% for 2009
Honda / +40% / 155 / +13% / Strong sales of Accord in cities on the coast
Komatsu / About 40% / 72 / -53% / Strong hydraulic shovel business, growth by 30%, overwhelming Japan business
Furukawa Electric / +25% / 10 / +3% / With strong infrastructure investment, high voltage cable in full production in China and increase in business growth
NSK / 60% / - 70% / 8 / -64% / Bearing business grows targeting automobile and industry machinery companies, when business in Japan, the U.S. and Europe continues to plunge
Regarding machinery manufacturers, sales of China for Komatsu and Hitachi Construction Machinery are approximately 20% of worldwide business, which is greater than Caterpillar. Reducing cost by manufacturing locally, Komatsu’s operating profit from Chinese business is almost 40% of worldwide business, and Komatsu is quicker than Caterpillar in recovering its financial performance.
More companies in other industries are benefitting from growing Chinese market. For example, Toto’s business of luxurious toilets (using luxurious materials etc.) is strong in China. Their China business is expected to be in black when Japan and other business are expected to remain in red. Operating profit from China business is to reach approximately 30%, the biggest worldwide.
3. What are the anxieties and risks of Chinese economy and business?
Chinese economy seems to be overheated, according to some experts. It is prominent that increase in export of steel material to Chinese market is contributing to consolidated financial performance for iron and steel giants. However, many of the executives in this industry are cautious, commenting that “if credit squeeze measure at to be taken (to prevent overheating), the current strong steel material market trend in China may well change”.
Honda is enjoying strong sales of Accord in China but profit of joint venture business in China is to remain the same with previous year. It is because price erosion is extreme in China, when each company strengthens production and sales organization. As proportion of Chinese business increase, necessity of risk management for business fluctuation and increase in competition in this market increases.
2010年1月3日日曜日
How Japan’s Growth Strategy Should Be?
Sunday, January 3, 2010 – Osaka, Japan
Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported on December 31 2009 that on December 30 the Japanese government defined basic policy new growth strategy for sustainable economic growth. “Economic management is to be performed, positioning achievement of nominal growth rate* as the most important challenge” is specified. Targets including “By 2010 average nominal growth rate of 3% and bigger growth than actual growth rate of 2%” with engines of industries including environment, healthcare and tourism, and “nominal GDP (Gross Domestic Product) of 650 trillion yen for 2020” were specified. However, according to an article reported today by Nikkei, approximately 60% of 17 economy experts are dissatisfied with the government’s economic policy and estimate that it takes a few years for the economy to recover.
1. Why “nominal“ instead of “actual” is used to define growth target?
It is unusual for the government to define growth target in “nominal” instead of “actual” excluding effects of price fluctuation. “Nominal“ is used from the sense of urgency of the current economic situation; deflation mentioned in the previous article "How Japan Can Get Out From 10 Year Deflation?" and its negative effect on family budget and company business.
2. How has Japan’s nominal GDP been until today? What are the upcoming plans?
For nearly 20 years since 1990, Japan’s nominal GDP has been hovering at the low level of 500 trillion yen, and therefore 650 trillion yen level is increase by +30% vs. 2008. Growth of nominal growth rate of +3% has not been achieved since 1991.
In order to achieve both nominal growth rate of 3% and actual growth rate of 2%, first, deflation needs to be overcome then control inflation rate under 1%/year. Mr. Naoto Kan, Vice Prime Minister and Head of National Strategy emphasized in the press conference held on December 30 that “these targets are sufficiently achievable”; however, experts feel that it is difficult to achieve the targets, considering the past Japanese economy performances and financial policies.
Prime Minister Mr. Yukio Hatoyama expressed in the press conference on December 30 his determination to achieve the target, saying that he is fully aware that the effectiveness of his administration really counts. The government is to develop growth strategy action plan (roadmap/timeline) for the time span until 2020 by June.
3. Which fields are to be focused to achieve growth strategy?
The following 6 fields are specified as focuses for growth strategy.
1) Environment and energy
Expand environment related market from 70 trillion yen to 120 trillion yen. Create 1.4 million jobs. Leverage Japan’s technologies to contribute to cutting 1.3 billion ton worldwide GHG, equivalent to Japan’s emission volume. Leverage IT to make next generation transmission network pervasive to control electricity supply. Make pervasive eco-friendly housing and expand natural energy use, and LED and other energy saving lighting.
2) Healthcare
Create healthcare, nursing and medical market of 45 trillion yen and 280 jobs by leveraging technologies to create internal and external demand. Initiate R&D of innovative medical and nursing technologies such as regenerative medicine, telemedicine system, nursing robots etc. and provide healthcare related services to Asian markets expected to experience aging society. Strengthen infrastructure supporting aging society such as medical, nursing and housing to eliminate anxieties for the future to promote consumption by elders.
3) Asia
Create demand together with Asia, “the growth centre of the world”, positioning formulation of EFAAP covering 21 countries and regions that are currently members of APEC as its foundation. Develop infrastructure demand of Asia such as transportation, water and energy.
4) Tourism and revitalizing local community
Achieve in line with 1)-3)
5) Science and technologies
Achieve in line with 1)-3)
6) Employment and human resources
Achieve in line with 1)-3)
4. How effective is the growth strategy?
The author basically agrees with views of majority of experts; measures for achievement are not clear and need to focus more on motivating companies and other private sector to invest in growth sectors such as deregulation, tangible growth strategy development and execution, and develop mid-term financial policy outlook/plan. Focusing on assisting family budget, the biggest anxiety lies in whether the Hatoyama administration can educe vitality of companies, the source/engine of economic growth.
Reasons for such evaluation from experts include lack of explanation of concrete policies, and lack of perspective that main player (source/engine) of economic growth is companies. The latter is more critical.
Drivers and engines of economic growth are R&D of companies and equipment investment. It is unlikely to achieve high growth driven by inefficient public sector, and sufficient financial resource cannot be acquired, neither. In fact, in 2008, value added (personnel cost, profit, corporate tax etc.) generated by companies excluding financial institutes reached 26.4 trillion yen. This means that more than 50% of nominal GDP is generated by companies.
5. What is the ideal scenario for economic recovery and achieving the target?
The government is supposed to buy over companies and market, and give incentives and motivation, creating favourable environment for companies and other private sectors to proactively invest in growth sectors. That is the solution to solve the root cause of the ongoing economic plunge. Also minimizing interference of government is necessary and public institutions not to get in the way of private sectors making decisions.
However, from the growth strategy reported, such message is not sufficiently delivered. It does not remove anxieties mentioned in the previous articles "How Japan Can Get Out From 10 Year Deflation?", "Japanese Companies Refraining from Equipment Investmen", "Service Price Drop in Japan Prominent: The Biggest Among 10 Major Countries" and "Japan's Debt to Drastically Increase - What is the Effect on Economy?"
Mentality of “Economy for human being based on friendship and love” alone is not sufficient to achieve the economic growth. Nikkei introduces varieties of innovative technologies of all sectors and industries (environment and energy, healthcare, IT etc.) in their special reports on January 1 2010. It is with tangible growth strategy, tactics and action plan leveraging such technologies, that create new demand and market in sectors and industries where needs exist in aging society with low birthrate, ubiquitous networking society. And it is with appropriate economic policies mentioned by the economists in Nikkei’s report on January 3 such as deregulation, tangible mid-term financial policy outlook, reduction in corporate tax rate (currently 40%), concluding EPA/FTA with Asian countries/regions, and pension system reform that create favourable environment for the growth strategy to be actually executed.
It is only when companies invest in such growth sectors, (many of them contributing to improving social infrastructure and systems), collaborate with academia and other public sectors in R&D in particular, and operate efficiently with high productivity, that they would be able to generate revenue to improve their financial performance. It is with good financial performance of companies that leads to new job creation, higher salaries for their employees, pensions guarantee etc., which contributes to minimizing anxieties of citizens making their own living and live happily after retirement as well as providing citizens with better lives and society, based on the mentality of “friendship and love”. It is by eliminating their anxieties that citizens utilize allowances for consumer spending instead of setting aside for saving, meaning the government’s economy boosting measures become successful, and as a result Japan will be able to get out of deflation, its economy recovered, and achieve the target.
We would need to wait and see what kind of roadmap and action plan the government will develop and announce in June.
* Nominal Growth Rate (Source: Nikkei, edited and translated by the author)
Nominal growth rate is GDP growth rate including effects of price fluctuation. Almost equals to sum of after-tax pay of workers and profits generated by companies. In general, changes in GDP are measured by actual growth rate (excluding effects of price fluctuation) but nominal growth rate can be said to precisely reflect the actual sensation of business and economy because income and profits are all of nominal value.
Average economic growth rate by decades since 1980
Decades / Nominal Growth Rate (%) / Actual Growth Rate (%)
1980s / 6.1 / 3.8
1990s / 2.0 / 1.4
2000s / -0.5 / 0.7
Rise in nominal growth rate leads to both getting out of deflation and economic growth. In 2000s, actual growth rate was +0.7% but nominal growth rate was -0.5%, which implies that long term economic recovery was achieved but lacked in actual sensation. This was because nominal growth rate was minus.
Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported on December 31 2009 that on December 30 the Japanese government defined basic policy new growth strategy for sustainable economic growth. “Economic management is to be performed, positioning achievement of nominal growth rate* as the most important challenge” is specified. Targets including “By 2010 average nominal growth rate of 3% and bigger growth than actual growth rate of 2%” with engines of industries including environment, healthcare and tourism, and “nominal GDP (Gross Domestic Product) of 650 trillion yen for 2020” were specified. However, according to an article reported today by Nikkei, approximately 60% of 17 economy experts are dissatisfied with the government’s economic policy and estimate that it takes a few years for the economy to recover.
1. Why “nominal“ instead of “actual” is used to define growth target?
It is unusual for the government to define growth target in “nominal” instead of “actual” excluding effects of price fluctuation. “Nominal“ is used from the sense of urgency of the current economic situation; deflation mentioned in the previous article "How Japan Can Get Out From 10 Year Deflation?" and its negative effect on family budget and company business.
2. How has Japan’s nominal GDP been until today? What are the upcoming plans?
For nearly 20 years since 1990, Japan’s nominal GDP has been hovering at the low level of 500 trillion yen, and therefore 650 trillion yen level is increase by +30% vs. 2008. Growth of nominal growth rate of +3% has not been achieved since 1991.
In order to achieve both nominal growth rate of 3% and actual growth rate of 2%, first, deflation needs to be overcome then control inflation rate under 1%/year. Mr. Naoto Kan, Vice Prime Minister and Head of National Strategy emphasized in the press conference held on December 30 that “these targets are sufficiently achievable”; however, experts feel that it is difficult to achieve the targets, considering the past Japanese economy performances and financial policies.
Prime Minister Mr. Yukio Hatoyama expressed in the press conference on December 30 his determination to achieve the target, saying that he is fully aware that the effectiveness of his administration really counts. The government is to develop growth strategy action plan (roadmap/timeline) for the time span until 2020 by June.
3. Which fields are to be focused to achieve growth strategy?
The following 6 fields are specified as focuses for growth strategy.
1) Environment and energy
Expand environment related market from 70 trillion yen to 120 trillion yen. Create 1.4 million jobs. Leverage Japan’s technologies to contribute to cutting 1.3 billion ton worldwide GHG, equivalent to Japan’s emission volume. Leverage IT to make next generation transmission network pervasive to control electricity supply. Make pervasive eco-friendly housing and expand natural energy use, and LED and other energy saving lighting.
2) Healthcare
Create healthcare, nursing and medical market of 45 trillion yen and 280 jobs by leveraging technologies to create internal and external demand. Initiate R&D of innovative medical and nursing technologies such as regenerative medicine, telemedicine system, nursing robots etc. and provide healthcare related services to Asian markets expected to experience aging society. Strengthen infrastructure supporting aging society such as medical, nursing and housing to eliminate anxieties for the future to promote consumption by elders.
3) Asia
Create demand together with Asia, “the growth centre of the world”, positioning formulation of EFAAP covering 21 countries and regions that are currently members of APEC as its foundation. Develop infrastructure demand of Asia such as transportation, water and energy.
4) Tourism and revitalizing local community
Achieve in line with 1)-3)
5) Science and technologies
Achieve in line with 1)-3)
6) Employment and human resources
Achieve in line with 1)-3)
4. How effective is the growth strategy?
The author basically agrees with views of majority of experts; measures for achievement are not clear and need to focus more on motivating companies and other private sector to invest in growth sectors such as deregulation, tangible growth strategy development and execution, and develop mid-term financial policy outlook/plan. Focusing on assisting family budget, the biggest anxiety lies in whether the Hatoyama administration can educe vitality of companies, the source/engine of economic growth.
Reasons for such evaluation from experts include lack of explanation of concrete policies, and lack of perspective that main player (source/engine) of economic growth is companies. The latter is more critical.
Drivers and engines of economic growth are R&D of companies and equipment investment. It is unlikely to achieve high growth driven by inefficient public sector, and sufficient financial resource cannot be acquired, neither. In fact, in 2008, value added (personnel cost, profit, corporate tax etc.) generated by companies excluding financial institutes reached 26.4 trillion yen. This means that more than 50% of nominal GDP is generated by companies.
5. What is the ideal scenario for economic recovery and achieving the target?
The government is supposed to buy over companies and market, and give incentives and motivation, creating favourable environment for companies and other private sectors to proactively invest in growth sectors. That is the solution to solve the root cause of the ongoing economic plunge. Also minimizing interference of government is necessary and public institutions not to get in the way of private sectors making decisions.
However, from the growth strategy reported, such message is not sufficiently delivered. It does not remove anxieties mentioned in the previous articles "How Japan Can Get Out From 10 Year Deflation?", "Japanese Companies Refraining from Equipment Investmen", "Service Price Drop in Japan Prominent: The Biggest Among 10 Major Countries" and "Japan's Debt to Drastically Increase - What is the Effect on Economy?"
Mentality of “Economy for human being based on friendship and love” alone is not sufficient to achieve the economic growth. Nikkei introduces varieties of innovative technologies of all sectors and industries (environment and energy, healthcare, IT etc.) in their special reports on January 1 2010. It is with tangible growth strategy, tactics and action plan leveraging such technologies, that create new demand and market in sectors and industries where needs exist in aging society with low birthrate, ubiquitous networking society. And it is with appropriate economic policies mentioned by the economists in Nikkei’s report on January 3 such as deregulation, tangible mid-term financial policy outlook, reduction in corporate tax rate (currently 40%), concluding EPA/FTA with Asian countries/regions, and pension system reform that create favourable environment for the growth strategy to be actually executed.
It is only when companies invest in such growth sectors, (many of them contributing to improving social infrastructure and systems), collaborate with academia and other public sectors in R&D in particular, and operate efficiently with high productivity, that they would be able to generate revenue to improve their financial performance. It is with good financial performance of companies that leads to new job creation, higher salaries for their employees, pensions guarantee etc., which contributes to minimizing anxieties of citizens making their own living and live happily after retirement as well as providing citizens with better lives and society, based on the mentality of “friendship and love”. It is by eliminating their anxieties that citizens utilize allowances for consumer spending instead of setting aside for saving, meaning the government’s economy boosting measures become successful, and as a result Japan will be able to get out of deflation, its economy recovered, and achieve the target.
We would need to wait and see what kind of roadmap and action plan the government will develop and announce in June.
* Nominal Growth Rate (Source: Nikkei, edited and translated by the author)
Nominal growth rate is GDP growth rate including effects of price fluctuation. Almost equals to sum of after-tax pay of workers and profits generated by companies. In general, changes in GDP are measured by actual growth rate (excluding effects of price fluctuation) but nominal growth rate can be said to precisely reflect the actual sensation of business and economy because income and profits are all of nominal value.
Average economic growth rate by decades since 1980
Decades / Nominal Growth Rate (%) / Actual Growth Rate (%)
1980s / 6.1 / 3.8
1990s / 2.0 / 1.4
2000s / -0.5 / 0.7
Rise in nominal growth rate leads to both getting out of deflation and economic growth. In 2000s, actual growth rate was +0.7% but nominal growth rate was -0.5%, which implies that long term economic recovery was achieved but lacked in actual sensation. This was because nominal growth rate was minus.
2009年12月13日日曜日
With Slow Japanese Stock Market Recovery TSE to Revise Listing Regulation
Sunday, December 13, 2009 – Osaka, Japan
Today, Japan’s leading newspaper specialized in economy/business and politics, reported that Japan stock market is still in the plunge when stock prices are at high level worldwide. Japan is the only country whose stock price fluctuation ratio is minus since end of this August (timing of General Election) among 20 major countries and regions. This is said to attribute to high yen, increase in capital investment and investors avoiding to invest in Japan stock from suspiciousness on management of the economy by Hatoyama administration. The Nikkei Stock Average has recovered to over 10,000 yen after having once plunged to far below 9,000 yen at the lowest, but compared to other stock market, it is prominent that Japan stock price has not been recovering sufficiently.
1. Stock prices of countries and regions excluding Japan and Italy have been on the rise since September in line with worldwide economic recovery.
Since the General Election in end of August, The Nikkei Stock Average dropped by 3.7% as of December 11. It has once declined by 13.4% in the end of November due to drastic high yen. On the other hand, stock prices of other major countries have been firmly improving since September with bottom-out of worldwide economy. Italy’s stock price has remained almost constant since September but all others have been rising; +27% for Russia, over +20% for China and Brazil, and the U.S has been steadily improving with approximately +10%.
2. There are several reasons for plunge in Japan stock price.
The first reason is drastic high yen. Since Japan relies much on export-oriented industries, this has huge negative impact on the Japanese economy.
The second reason is many companies have been issuing many new stocks to increase capital and enormous amount of share of stock were supplied to the stock market, leading to dilution of outstanding stocks.
The third reason is uncertainty of government’s economic policy, leading to negative impact on market psychology. Immediate execution of countermeasures for deflation and high yen is critical but Hatoyama administration has other issues such as political donation and transfer of Futenma airbase, and some experts in economy are worried that the priority of economy under Hatoyama administration might be not so high. In addition, finalizing 2010 budget is taking time because the administration is having a tough time in reducing request of budget allocation. With this, on December 11, in bond market, long-term interest rate rose because of the laxing fiscal discipline, and in the stock market, many experts view that the Hatoyama administration has not yet developed long-term growth strategy.
3. Current situation needs to be improved immediately.
Under the severe current situation, Japan needs economic measure to be implemented immediately. Expectation of mid/long-term economic growth of Japan is shrinking among overseas investors. And with ongoing deflation as mentioned in the previous article "How Japan Get Out From 10 Year Deflation?", Japan’s GDP is at one of the lowest level in 19 years.
Under ongoing deflation situation, it would be difficult for companies to increase revenue and profit, and stock price tends to decrease as well. An expert in stock market comments that overseas investors are likely to avoid investing to countries that are going through deflation. And according to a survey executed by the U.S. Merrill Lynch in November, the percentage of investors who are timid to Japanese stocks was the highest since autumn of 2002.
Trading value for 2009 at the TSE (Tokyo Stock Exchange) is assumed to be at the lowest level in 5 years. Also, it is assumed that trading value of Shanghai Stock Exchange of China will be greater than that of TSE. Number of companies that newly listed this year in Japan is 19, which is the least in 31 years.
One of the few positive atmospherics is the fact that Japanese stocks on hand of investors seems to be less than usual. So when investors change their view and judgment on the administration’s management of the economy and/or exchange rate changes, big investors may increase again their Japanese stocks on hand, which would lead to improvement in Japan stock market.
However, in general, many experts view that for the time being, stock market prices will not improve so much because of the anxiety that the economy will plunge again with deflation.
With deteriorating cash flow of Japanese companies as reported in recent articles by Nikkei, it is natural that Japanese companies would need to raise capital and plunge in stock price would be a big negative factor for them. According to a Nikkei’s article of December 12, debt that Japanese companies have on UAE (general construction, trading etc.) of 66 billion yen (approximately 7.5 billion USD out of 15 billion USD) in total are still uncollected, as of December 11. Also, according to another Nikkei’s article of December 10, there is an anxiety that financial situation (especially consolidated cash flow and interest-bearing debt) of Japanese general construction companies, is deteriorating, attributing to factors such as big burden of reimbursed expenses of big overseas projects of UAE and Algeria.
4. TSE is to revise listing regulation to create an environment in which companies will be able to increase capital flexibly, with minimum negative impact on their shareholders.
According to another today’s article of Nikkei, TSE is to revise listing regulation to create an environment in which companies will be able to increase capital flexibly, with minimum negative impact on their shareholders. The objective of the revision is to enhance flexibility of raising capital and to activate plunging stock market.
Under the current environment, capital increased by public offering leads to drastic decrease in EPS (earnings per share), and current shareholders will gain loss from their stock. TSE will revise listing regulation by the end of the year so that companies can flexibly set capital increase and raise capital by allocating new share subscription right to their shareholders. This kind of method is called Right Issue in overseas stock market, and in Europe, this method is used to raise approximately 60% of total capital raised.
Today, Japan’s leading newspaper specialized in economy/business and politics, reported that Japan stock market is still in the plunge when stock prices are at high level worldwide. Japan is the only country whose stock price fluctuation ratio is minus since end of this August (timing of General Election) among 20 major countries and regions. This is said to attribute to high yen, increase in capital investment and investors avoiding to invest in Japan stock from suspiciousness on management of the economy by Hatoyama administration. The Nikkei Stock Average has recovered to over 10,000 yen after having once plunged to far below 9,000 yen at the lowest, but compared to other stock market, it is prominent that Japan stock price has not been recovering sufficiently.
1. Stock prices of countries and regions excluding Japan and Italy have been on the rise since September in line with worldwide economic recovery.
Since the General Election in end of August, The Nikkei Stock Average dropped by 3.7% as of December 11. It has once declined by 13.4% in the end of November due to drastic high yen. On the other hand, stock prices of other major countries have been firmly improving since September with bottom-out of worldwide economy. Italy’s stock price has remained almost constant since September but all others have been rising; +27% for Russia, over +20% for China and Brazil, and the U.S has been steadily improving with approximately +10%.
2. There are several reasons for plunge in Japan stock price.
The first reason is drastic high yen. Since Japan relies much on export-oriented industries, this has huge negative impact on the Japanese economy.
The second reason is many companies have been issuing many new stocks to increase capital and enormous amount of share of stock were supplied to the stock market, leading to dilution of outstanding stocks.
The third reason is uncertainty of government’s economic policy, leading to negative impact on market psychology. Immediate execution of countermeasures for deflation and high yen is critical but Hatoyama administration has other issues such as political donation and transfer of Futenma airbase, and some experts in economy are worried that the priority of economy under Hatoyama administration might be not so high. In addition, finalizing 2010 budget is taking time because the administration is having a tough time in reducing request of budget allocation. With this, on December 11, in bond market, long-term interest rate rose because of the laxing fiscal discipline, and in the stock market, many experts view that the Hatoyama administration has not yet developed long-term growth strategy.
3. Current situation needs to be improved immediately.
Under the severe current situation, Japan needs economic measure to be implemented immediately. Expectation of mid/long-term economic growth of Japan is shrinking among overseas investors. And with ongoing deflation as mentioned in the previous article "How Japan Get Out From 10 Year Deflation?", Japan’s GDP is at one of the lowest level in 19 years.
Under ongoing deflation situation, it would be difficult for companies to increase revenue and profit, and stock price tends to decrease as well. An expert in stock market comments that overseas investors are likely to avoid investing to countries that are going through deflation. And according to a survey executed by the U.S. Merrill Lynch in November, the percentage of investors who are timid to Japanese stocks was the highest since autumn of 2002.
Trading value for 2009 at the TSE (Tokyo Stock Exchange) is assumed to be at the lowest level in 5 years. Also, it is assumed that trading value of Shanghai Stock Exchange of China will be greater than that of TSE. Number of companies that newly listed this year in Japan is 19, which is the least in 31 years.
One of the few positive atmospherics is the fact that Japanese stocks on hand of investors seems to be less than usual. So when investors change their view and judgment on the administration’s management of the economy and/or exchange rate changes, big investors may increase again their Japanese stocks on hand, which would lead to improvement in Japan stock market.
However, in general, many experts view that for the time being, stock market prices will not improve so much because of the anxiety that the economy will plunge again with deflation.
With deteriorating cash flow of Japanese companies as reported in recent articles by Nikkei, it is natural that Japanese companies would need to raise capital and plunge in stock price would be a big negative factor for them. According to a Nikkei’s article of December 12, debt that Japanese companies have on UAE (general construction, trading etc.) of 66 billion yen (approximately 7.5 billion USD out of 15 billion USD) in total are still uncollected, as of December 11. Also, according to another Nikkei’s article of December 10, there is an anxiety that financial situation (especially consolidated cash flow and interest-bearing debt) of Japanese general construction companies, is deteriorating, attributing to factors such as big burden of reimbursed expenses of big overseas projects of UAE and Algeria.
4. TSE is to revise listing regulation to create an environment in which companies will be able to increase capital flexibly, with minimum negative impact on their shareholders.
According to another today’s article of Nikkei, TSE is to revise listing regulation to create an environment in which companies will be able to increase capital flexibly, with minimum negative impact on their shareholders. The objective of the revision is to enhance flexibility of raising capital and to activate plunging stock market.
Under the current environment, capital increased by public offering leads to drastic decrease in EPS (earnings per share), and current shareholders will gain loss from their stock. TSE will revise listing regulation by the end of the year so that companies can flexibly set capital increase and raise capital by allocating new share subscription right to their shareholders. This kind of method is called Right Issue in overseas stock market, and in Europe, this method is used to raise approximately 60% of total capital raised.
2009年11月29日日曜日
Japanese Companies Refraining from Equipment Investment
November 29, 2009 – Osaka, Japan
Today Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported that according to their survey result, total equipment investment* for 2009 is -17.6% from 2008 which is the biggest drop since 1990, and is also -2.7% from the original plan made in the beginning of 2009. Although business environment seems to started to improve and many companies have been making upward revision their financial performance estimation, economy outlook is not bright with drastic high yen etc. Thus in general, Japanese companies are refraining from aggressive investment, especially major manufacturers such as automobile and consumer electronics.
2009 Revised Equipment Investment Plan (In million yen)
(Source: Nikkei, translated by the author)
Industry / No. of Companies / 2009 Revised Plan (vs. 2008) / Vs. the Original Plan / 2008 Performance (Vs. 2007)
Total Industry / 1,598 / 22,668,971 (-17.6) / -2.7 / 27,525,633 (-6.1)
(Excluding Electricity) / 1,589 / 20,137,434 (-19.9) / -2.9 / 25,137,427 (-7.8)
Manufacturers / 810 / 11,715,060 (-26.1) / -3.2 / 15,847,995 (-8.2)
The survey of equipment investment trend (based on revised plan of 1,598 companies) was executed in October. According to the result, the total equipment investment has decreased from previous year for 2 consecutive years; 2008 was -6.1 from 2007 and 2009 was -17.6% from 2008. This is primarily because manufacturers’ drop is as big as -26.1%. Non-manufacturers’ is -6.2% which is comparatively small but it is second to -9.1% in 2002 when IT bubble collapsed.
Looking by industry, among 17 manufacturers, 15 excluding food and pharmaceuticals are minus from 2008, among which 7 industries including automobile, machinery and electronics are decrease in more than 30%. For non-manufacturers, 4 industries including electricity (+6%) and transportation (+10.3) are plus from 2008 but the remaining 12 industries including telecommunications and retailers are minus.
In addition, many companies are further cutting investment from the original plan. For example, Nippon Steel Corporation cut its original plan of investment for production capacity increase by 50 billion yen to 340 billion yen, and Toyota cut by 70 billion yen to 760 billion yen, leading to -3.2% from the original plan for overall manufacturers. Non-manufacturers’ is -2.2% from the original plan, which is minus in 11 years, attributing especially to maritime transportation (-30.7%) and land transportation (-10%).
According to the government, flash report of July-Sep GDP is +4.8% from the previous quarter which is plus for 2 consecutive quarters and equipment investment also increased after 6 quarters. This may well mean that production that had once dropped due to global economic crisis started to recover; however, there are anxieties of another plunge in economy and high yen. When looked by yearly, it is quite possible that companies are really tightening their investment.
If this circumstance should continue, an expert points out that with companies relying more on their revenue from external demand, it cannot be avoided that equipment will be invested overseas.
* Equipment Investment and Economy
(Source: Nikkei, edited and translated by the author)
Equipment investment of companies is an important constituent of GDP, and is a metrics of business climate outlook. Increase in investment means that economy is expanding, and decrease in investment means plunge in economy. In general, GDP growth rate and equipment investment increase-decrease rate are linked in many cases.
Primary objectives of investment include increase in production, renewal of old equipment and countermeasures of safety and environment. Investments such as new factory construction and implementation of large machinery have big positive impact on related industries and leads to economic expansion.
Today Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported that according to their survey result, total equipment investment* for 2009 is -17.6% from 2008 which is the biggest drop since 1990, and is also -2.7% from the original plan made in the beginning of 2009. Although business environment seems to started to improve and many companies have been making upward revision their financial performance estimation, economy outlook is not bright with drastic high yen etc. Thus in general, Japanese companies are refraining from aggressive investment, especially major manufacturers such as automobile and consumer electronics.
2009 Revised Equipment Investment Plan (In million yen)
(Source: Nikkei, translated by the author)
Industry / No. of Companies / 2009 Revised Plan (vs. 2008) / Vs. the Original Plan / 2008 Performance (Vs. 2007)
Total Industry / 1,598 / 22,668,971 (-17.6) / -2.7 / 27,525,633 (-6.1)
(Excluding Electricity) / 1,589 / 20,137,434 (-19.9) / -2.9 / 25,137,427 (-7.8)
Manufacturers / 810 / 11,715,060 (-26.1) / -3.2 / 15,847,995 (-8.2)
The survey of equipment investment trend (based on revised plan of 1,598 companies) was executed in October. According to the result, the total equipment investment has decreased from previous year for 2 consecutive years; 2008 was -6.1 from 2007 and 2009 was -17.6% from 2008. This is primarily because manufacturers’ drop is as big as -26.1%. Non-manufacturers’ is -6.2% which is comparatively small but it is second to -9.1% in 2002 when IT bubble collapsed.
Looking by industry, among 17 manufacturers, 15 excluding food and pharmaceuticals are minus from 2008, among which 7 industries including automobile, machinery and electronics are decrease in more than 30%. For non-manufacturers, 4 industries including electricity (+6%) and transportation (+10.3) are plus from 2008 but the remaining 12 industries including telecommunications and retailers are minus.
In addition, many companies are further cutting investment from the original plan. For example, Nippon Steel Corporation cut its original plan of investment for production capacity increase by 50 billion yen to 340 billion yen, and Toyota cut by 70 billion yen to 760 billion yen, leading to -3.2% from the original plan for overall manufacturers. Non-manufacturers’ is -2.2% from the original plan, which is minus in 11 years, attributing especially to maritime transportation (-30.7%) and land transportation (-10%).
According to the government, flash report of July-Sep GDP is +4.8% from the previous quarter which is plus for 2 consecutive quarters and equipment investment also increased after 6 quarters. This may well mean that production that had once dropped due to global economic crisis started to recover; however, there are anxieties of another plunge in economy and high yen. When looked by yearly, it is quite possible that companies are really tightening their investment.
If this circumstance should continue, an expert points out that with companies relying more on their revenue from external demand, it cannot be avoided that equipment will be invested overseas.
* Equipment Investment and Economy
(Source: Nikkei, edited and translated by the author)
Equipment investment of companies is an important constituent of GDP, and is a metrics of business climate outlook. Increase in investment means that economy is expanding, and decrease in investment means plunge in economy. In general, GDP growth rate and equipment investment increase-decrease rate are linked in many cases.
Primary objectives of investment include increase in production, renewal of old equipment and countermeasures of safety and environment. Investments such as new factory construction and implementation of large machinery have big positive impact on related industries and leads to economic expansion.
2009年11月7日土曜日
Japanese Companies to Bottom-Out Fiscal Year Ending March 2010, but Demands Caution
November 7, 2009 – Osaka, Japan
Today, Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported that financial performance of Japanese listed companies in total to bottom-out by the end of the fiscal year (FY) ending March 2010, according to estimation of head quarters of the companies. Consolidated profit for FY ending March 2010 is estimated to be +0.7% vs. previous year, although the estimation in August was -9%. This is because of reduction in fixed cost* and economy-boosting measures of governments of various countries, which led to drastic improvement in profit and loss (P/L) of consumer electronics and automobiles. However, there are anxieties such as ongoing high yen situation and improvement of business climate likely to terminate after January 2010. Therefore, some experts view that outlook demands caution.
Increase/Decrease of Consolidated Profit by Industry: Consumer Electronics and Automobile are the Drivers of Recovery
Source: Nikkei (translated by the author)
Increase From Previous Year
Electronics / 1 .484 trillion yen
Oil / 734 billion yen
Automobile and Components / 50.63 billion yen
Electricity etc. / 1.263 trillion yen
Decrease From Previous Year
Steel / -1.2145 trillion yen
Trading / -61.84 billion yen
Machinery / -36.91 billion yen
Marine Transportation etc. / -1.478 trillion yen
Nikkei reports that the data used are of 940 companies who have finished making financial announcement for first half of 2009 (April-September 2009) by November 6, 2009 (excluding financial institutions). These companies cover 78% of total market value.
According to the current analysis, consolidated profit for FY ending March 2010 is expected to be +0.7% from previous year, which is 9.8 trillion yen. Some experts view that the speed of recovery is more than anticipated and it is possible that the final performance achievement would be better than this. Consolidated profit of listed companies was directly and negatively impacted by the worldwide economic crisis, resulting in decrease in profit first time in 7 quarters, by more than 60%.
Improvement in revenue by quarter has been evident since January this year. January-March in loss was the bottom, and it went back in black in total for April-June, and the profit increased for July-September, meaning consecutive improvement. This is the reason for the favourable outlook for the total FY year ending March 2010.
The driver for the performance improvement is reduction in fixed cost. Sales are estimated to be approximately 343 trillion yen which is -13% from previous year but the profit is estimated to be about the same with previous year because cost reduction by companies is ongoing with the greater speed than originally assumed. For example, Komatsu is to double the amount of fixed cost reduction to 50 billion yen. Thus, profit ratio of listed companies in general is to improve, highlighting the recovery driven by rationalization.
Economy-boosting measures by the government played as a driver for the performance improvement as well. Consumer electronics that posted large amount of loss benefited from eco-point system, an economy-boosting measure implemented by the Japanese government, and their sales (e.g. TV) increased, leading to increase in profit by almost 1.5 trillion yen. Automobiles and components are also estimated to increase their profit by approximately 500 billion yen, going back to black. For example, Nissan is benefiting from positive effect of government’s economy-boosting measures designed to promote buying new cars to replace old ones, to revise its original outlook of increasing loss to 20 billion yen in profit. Improvements in oil attributing to increase in resource price are also evident.
On the other hand, financial performance of steels and machinery are deteriorating. This is because their primary customers of automobile and electronics are still cautious of facility investment and production increase. Trading companies are also to decrease their profit because their automobile and steel businesses are struggling.
The outlook for the future remains uncertain. There are many companies that out-perform vs. original plan for April-September but estimation for total year remains the same. For example, VP of JFE Holdings comments that it is doubtful whether the improvement in steel stock demand continues, and that high yen is also an anxiety factor. Many management executives are not confident in sustainable business improvement because of doldrums of consumer spending and employment.
* Brief Explanation on Fixed Cost (source: Nikkei, edited and translated by the author）
Fixed Cost is the cost that is constant regardless of fluctuation in sales of a company such as employment cost of back office department and depreciation cost of plant and equipment. On the other hand, cost that fluctuates linking with by production volume and sales such as raw material cost and operating labour cost are called “variable cost”. Many companies cut fixed cost to quickly recover their profitability when they face drop in sales.
Sales equaling total of fixed and variable cost is called break even point. Dividing this by sales is break even point ratio. According to Nikkei’s analysis of 1633 listed companies (non-consolidated), this ratio was about 80% before 2007 but for 2008 it increased to more than 89% because the reduction in fixed cost was not in par with drastic drop in sales and revenue.
Today, Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported that financial performance of Japanese listed companies in total to bottom-out by the end of the fiscal year (FY) ending March 2010, according to estimation of head quarters of the companies. Consolidated profit for FY ending March 2010 is estimated to be +0.7% vs. previous year, although the estimation in August was -9%. This is because of reduction in fixed cost* and economy-boosting measures of governments of various countries, which led to drastic improvement in profit and loss (P/L) of consumer electronics and automobiles. However, there are anxieties such as ongoing high yen situation and improvement of business climate likely to terminate after January 2010. Therefore, some experts view that outlook demands caution.
Increase/Decrease of Consolidated Profit by Industry: Consumer Electronics and Automobile are the Drivers of Recovery
Source: Nikkei (translated by the author)
Increase From Previous Year
Electronics / 1 .484 trillion yen
Oil / 734 billion yen
Automobile and Components / 50.63 billion yen
Electricity etc. / 1.263 trillion yen
Decrease From Previous Year
Steel / -1.2145 trillion yen
Trading / -61.84 billion yen
Machinery / -36.91 billion yen
Marine Transportation etc. / -1.478 trillion yen
Nikkei reports that the data used are of 940 companies who have finished making financial announcement for first half of 2009 (April-September 2009) by November 6, 2009 (excluding financial institutions). These companies cover 78% of total market value.
According to the current analysis, consolidated profit for FY ending March 2010 is expected to be +0.7% from previous year, which is 9.8 trillion yen. Some experts view that the speed of recovery is more than anticipated and it is possible that the final performance achievement would be better than this. Consolidated profit of listed companies was directly and negatively impacted by the worldwide economic crisis, resulting in decrease in profit first time in 7 quarters, by more than 60%.
Improvement in revenue by quarter has been evident since January this year. January-March in loss was the bottom, and it went back in black in total for April-June, and the profit increased for July-September, meaning consecutive improvement. This is the reason for the favourable outlook for the total FY year ending March 2010.
The driver for the performance improvement is reduction in fixed cost. Sales are estimated to be approximately 343 trillion yen which is -13% from previous year but the profit is estimated to be about the same with previous year because cost reduction by companies is ongoing with the greater speed than originally assumed. For example, Komatsu is to double the amount of fixed cost reduction to 50 billion yen. Thus, profit ratio of listed companies in general is to improve, highlighting the recovery driven by rationalization.
Economy-boosting measures by the government played as a driver for the performance improvement as well. Consumer electronics that posted large amount of loss benefited from eco-point system, an economy-boosting measure implemented by the Japanese government, and their sales (e.g. TV) increased, leading to increase in profit by almost 1.5 trillion yen. Automobiles and components are also estimated to increase their profit by approximately 500 billion yen, going back to black. For example, Nissan is benefiting from positive effect of government’s economy-boosting measures designed to promote buying new cars to replace old ones, to revise its original outlook of increasing loss to 20 billion yen in profit. Improvements in oil attributing to increase in resource price are also evident.
On the other hand, financial performance of steels and machinery are deteriorating. This is because their primary customers of automobile and electronics are still cautious of facility investment and production increase. Trading companies are also to decrease their profit because their automobile and steel businesses are struggling.
The outlook for the future remains uncertain. There are many companies that out-perform vs. original plan for April-September but estimation for total year remains the same. For example, VP of JFE Holdings comments that it is doubtful whether the improvement in steel stock demand continues, and that high yen is also an anxiety factor. Many management executives are not confident in sustainable business improvement because of doldrums of consumer spending and employment.
* Brief Explanation on Fixed Cost (source: Nikkei, edited and translated by the author）
Fixed Cost is the cost that is constant regardless of fluctuation in sales of a company such as employment cost of back office department and depreciation cost of plant and equipment. On the other hand, cost that fluctuates linking with by production volume and sales such as raw material cost and operating labour cost are called “variable cost”. Many companies cut fixed cost to quickly recover their profitability when they face drop in sales.
Sales equaling total of fixed and variable cost is called break even point. Dividing this by sales is break even point ratio. According to Nikkei’s analysis of 1633 listed companies (non-consolidated), this ratio was about 80% before 2007 but for 2008 it increased to more than 89% because the reduction in fixed cost was not in par with drastic drop in sales and revenue.
2009年11月1日日曜日
Financial Improvement in Japanese Listed Companies
November 1, 2009 – Osaka, Japan
Today, Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported that in general financial performance of Japanese listed companies has been continuously improving for two consecutive quarters. Nikkei analyzed financial performance of listed companies for July-September 2009, and the result was that the total consolidated profit was 2.3 times that of April-June 2009, meaning improvement for two consecutive quarters. The improvement is because of rationalization/cost reduction efforts especially of manufacturers and termination of sales drop attributing to economy-boosting measures* by the government of respective countries. Having said that, whether the performance improvement continues is a question because the positive effect of government policies has taken a round and the high yen still continues.
Consolidated Profits of Major Companies (100 million yen)
Source: Nikkei (translated by the author)
Company Name / July-September / April-June
Increase in Black Companies
Honda / 661 / 54
Mitsubishi Corporation / 831 / 619
Komatsu / 97 / 87
Returning to Black Companies
Panasonic / 253 / -517
JFE / 98 / -672
Mitsui OSK Lines / 14 / -114
Decrease in Red Companies
Hitachi / -293 / -808
Nippon Steel / -302 / -556
Sony / -170 / -329
Deterioration in Performance Companies
Nintendo / 457 / 648
Japan Tabacco / 563 / 788
Kawasaki Kinsen / -271 / -227
Notes: EBIT (Earnings before Income Tax) for companies using GAAP, profit in Japan auditing principle for others
Nikkei reports that the data used for analysis is of 527 companies that have finished making financial announcement for 2009 Q3 by October 30, 2009 (excluding financial institutions). These companies cover 63% of total market value industry-wide.
Their performance was negatively impacted by the worldwide economic crisis and went to red January-March. It went back to black in total April-June (97.49 million yen in black) with rationalization but manufacturers remained in red in total by 25.47 billion yen. And for July-September their performance in total was in black by 2.2021 trillion yen, and manufacturers in total also returned to black after three quarters by 81.58 billion yen. 68% of companies have improved from April-June.
Increase in sales was the driver for performance improvement. Consolidated sales for July-September increased by 10% from April-June, marking the first sales increase of a quarter (vs. previous quarter) after four quarters. Revenue of manufacturing companies increased by 12% from the previous quarter.
Favourable Japan domestic market sales also contributed to performance improvement. This was driven by economy-boosting measures designed to promote consumer purchase of environmentally-friendly products. Honda increased its sales by 3% and Mazuda by 31% from previous quarter with the economy-boosting measures, leading to favourable sales of fuel-efficient cars benefiting from tax reduction of eco-friendly cars (eco = ecology & economy). Panasonic also benefited from economy-boosting measures and its domestic sales/revenue of TV and washing machine increased by 9%. Steel giants that supply materials including Nippon Steel and other three companies increased their sales/revenue.
Aggressive demand of China and other emerging countries also contributed to performance improvement. LCD sales of Sharp for July-September were 22.23 billion yen which was 26% increase from the previous quarter. This highly attributes to Chinese government’s measures designed to promote penetration of consumer electronics in which 13% cash back is given as subsidy to consumers who purchase consumer electronics.
Further rationalization efforts by manufacturers also greatly contributed to performance improvement. Fujitsu reduced cost by 40 billion yen which led to returning to black for July-September. Toshiba originally planned to cut fixed cost by 67 billion yen but increased the amount of fixed cost cut to 200 billion yen for April-September.
Although the performance has been improving, performance for 2009 for total industry is still at low level compared with previous year of 2008 and there are still concerns; therefore, the outlook is not necessarily bright. 2009 sales is 23% and profit is 42% of 2008. Demand recovery of developed countries is still ongoing, and Sony’s CFO comments that Christmas season also needs to be promoted with cautiousness. Senescence of economy-boosting measures and high yen are also concerns. Since incentives of respective countries designed to promote buying new cars to replace old ones is to end soon, it is quite possible that there comes a “rebound” after April 2010, as Honda’s VP comments. Three ship giants including NYK Logistics made downward revision of their performance outlook for fiscal year ending March 2010, but they may need to further make downward revision because of high yen.
*Brief Explanation on Economy-Boosting Measures
(source: Nikkei, edited and translated by the author）
This is policies by the government including financial policy with the objectives of stabilizing economic situation. With worldwide economic crisis, government of respective countries one after another adopted policies to stimulate consumer spending, leading to economic recovery. In Japan, incentives to promote consumers purchasing environmentally-friendly products were given for 2009 (due to end March 2010). Tax reduction and subsidies were given for consumers buying eco-friendly cars. Also in Japan, eco-point system in which points achieved by purchasing energy-saving consumer electronics can be changed with local specialty products. In the U.S, subsidy for buying fuel-efficient cars to replace old ones was provided (ended August 2009). Germany also adopted the same incentive (ended September 2009). And China adopted a tax incentive measure for consumers buying small cars (due until end of 2009) and a subsidy incentive for consumers buying consumer electronics (due until 2012).
Today, Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported that in general financial performance of Japanese listed companies has been continuously improving for two consecutive quarters. Nikkei analyzed financial performance of listed companies for July-September 2009, and the result was that the total consolidated profit was 2.3 times that of April-June 2009, meaning improvement for two consecutive quarters. The improvement is because of rationalization/cost reduction efforts especially of manufacturers and termination of sales drop attributing to economy-boosting measures* by the government of respective countries. Having said that, whether the performance improvement continues is a question because the positive effect of government policies has taken a round and the high yen still continues.
Consolidated Profits of Major Companies (100 million yen)
Source: Nikkei (translated by the author)
Company Name / July-September / April-June
Increase in Black Companies
Honda / 661 / 54
Mitsubishi Corporation / 831 / 619
Komatsu / 97 / 87
Returning to Black Companies
Panasonic / 253 / -517
JFE / 98 / -672
Mitsui OSK Lines / 14 / -114
Decrease in Red Companies
Hitachi / -293 / -808
Nippon Steel / -302 / -556
Sony / -170 / -329
Deterioration in Performance Companies
Nintendo / 457 / 648
Japan Tabacco / 563 / 788
Kawasaki Kinsen / -271 / -227
Notes: EBIT (Earnings before Income Tax) for companies using GAAP, profit in Japan auditing principle for others
Nikkei reports that the data used for analysis is of 527 companies that have finished making financial announcement for 2009 Q3 by October 30, 2009 (excluding financial institutions). These companies cover 63% of total market value industry-wide.
Their performance was negatively impacted by the worldwide economic crisis and went to red January-March. It went back to black in total April-June (97.49 million yen in black) with rationalization but manufacturers remained in red in total by 25.47 billion yen. And for July-September their performance in total was in black by 2.2021 trillion yen, and manufacturers in total also returned to black after three quarters by 81.58 billion yen. 68% of companies have improved from April-June.
Increase in sales was the driver for performance improvement. Consolidated sales for July-September increased by 10% from April-June, marking the first sales increase of a quarter (vs. previous quarter) after four quarters. Revenue of manufacturing companies increased by 12% from the previous quarter.
Favourable Japan domestic market sales also contributed to performance improvement. This was driven by economy-boosting measures designed to promote consumer purchase of environmentally-friendly products. Honda increased its sales by 3% and Mazuda by 31% from previous quarter with the economy-boosting measures, leading to favourable sales of fuel-efficient cars benefiting from tax reduction of eco-friendly cars (eco = ecology & economy). Panasonic also benefited from economy-boosting measures and its domestic sales/revenue of TV and washing machine increased by 9%. Steel giants that supply materials including Nippon Steel and other three companies increased their sales/revenue.
Aggressive demand of China and other emerging countries also contributed to performance improvement. LCD sales of Sharp for July-September were 22.23 billion yen which was 26% increase from the previous quarter. This highly attributes to Chinese government’s measures designed to promote penetration of consumer electronics in which 13% cash back is given as subsidy to consumers who purchase consumer electronics.
Further rationalization efforts by manufacturers also greatly contributed to performance improvement. Fujitsu reduced cost by 40 billion yen which led to returning to black for July-September. Toshiba originally planned to cut fixed cost by 67 billion yen but increased the amount of fixed cost cut to 200 billion yen for April-September.
Although the performance has been improving, performance for 2009 for total industry is still at low level compared with previous year of 2008 and there are still concerns; therefore, the outlook is not necessarily bright. 2009 sales is 23% and profit is 42% of 2008. Demand recovery of developed countries is still ongoing, and Sony’s CFO comments that Christmas season also needs to be promoted with cautiousness. Senescence of economy-boosting measures and high yen are also concerns. Since incentives of respective countries designed to promote buying new cars to replace old ones is to end soon, it is quite possible that there comes a “rebound” after April 2010, as Honda’s VP comments. Three ship giants including NYK Logistics made downward revision of their performance outlook for fiscal year ending March 2010, but they may need to further make downward revision because of high yen.
*Brief Explanation on Economy-Boosting Measures
(source: Nikkei, edited and translated by the author）
This is policies by the government including financial policy with the objectives of stabilizing economic situation. With worldwide economic crisis, government of respective countries one after another adopted policies to stimulate consumer spending, leading to economic recovery. In Japan, incentives to promote consumers purchasing environmentally-friendly products were given for 2009 (due to end March 2010). Tax reduction and subsidies were given for consumers buying eco-friendly cars. Also in Japan, eco-point system in which points achieved by purchasing energy-saving consumer electronics can be changed with local specialty products. In the U.S, subsidy for buying fuel-efficient cars to replace old ones was provided (ended August 2009). Germany also adopted the same incentive (ended September 2009). And China adopted a tax incentive measure for consumers buying small cars (due until end of 2009) and a subsidy incentive for consumers buying consumer electronics (due until 2012).
2009年10月11日日曜日
Japanese Manufacturers’ Main Businesses Returning to Black
October 10, 2009 – Osaka, Japan,
Nikkei, Japan’s leading newspaper specialized in economy and politics, reported today that main businesses of Japanese manufacture giants especially high-tech companies that once fell in the red have been going back to black. This is because of Japanese manufactures’ efforts in cost reduction, together with digital consumer electronics and automobile sales hitting the bottom attributing to demand increase of emerging markets and positive effect of government policy such as eco-point system (incentive for consumers purchasing eco-friendly consumer electronics and automobiles). Price hovering at appropriate level due to supply volume control is also a contributor of the recovery. Continuous improvement in operational income by sector would be the overall performance support for such companies in the process of recovery, although there are some uncertainty factors such as high yen.
Market recovery is conspicuous in semi-conductors, HDD and precision component. Toshiba’s flash memories used in mobile audio music players and PC recording media have returned to black for fiscal quarter of July-September instead of original expectation of October-December. Toshiba had been cutting production by 30% January-June this year. And decrease in price stopped and then demand started to recover. Hitachi’s HDD business has also been recovering; its operation income was minus 9 billion yen for April-September but is expected to return to black for October-December.
Positive effects of emerging marketing demand and government policy have led to digital consumer electronics sales hitting the bottom. Sharp’s LCD panel business was in the red by 14.7 billion yen April-June but is expected to go back to black by 16 billion yen for fiscal year ending March 2010. With incentive/tax reduction for eco (ecological & economical) cars, sales related to EV car have been good. Koito’s Japan domestic business of light supplied for Toyota’s Prius cars has been drastically improving. Its operating income was minus 1.2 billion yen for April-June but seems to have returned to black by 5+ billion for July-September.
Cost reduction is also a contribution factor for recovery. Hoya transferred its digital camera production to overseas, and together with good new product sales its business for September seems to have returned to black. Digital camera businesses of Fuji Film Holdings and Olympus are expected to return to black as well. Energy plant business of IHI was in the red by 6.2 billion for fiscal year ending March 2009 but is expected to land on 11 billion yen in black for fiscal year ending March 2010, attributing to clearing out unprofitable overseas businesses plus drop in purchasing cost.
The worldwide economic crisis and recession started autumn last year had hit directly revenues of companies, resulting in total of approximately 3.6 trillion yen in red for total of all Japanese manufacturers for fiscal year ending March 2009. Consumer electronics, automobile and component businesses were the hardest hit, with an example of Toshiba’s semiconductor business that went in the red by 280 billion yen. And then amount of red decreased to 730 billion yen for total manufacturers for April-June, which is 1/8 of January-March. Therefore many experts assume that it has hit the bottom and if recovery trend continues it is possible that the complete recovery scenario for fiscal year ending March 2010 becomes a reality.
Some possible risks for such a recovery scenario include high yen for many Japanese manufacturers whose business relies heavily on export, and uncertain business trend for January-March 2010. Machine tool and semiconductor manufacturing equipment sectors relying on increase in production and investment are quite possible to remain in the red because few companies still refrain from increasing equipment investment with the assumption of demand recovery.
The author strongly believes that performance (operational income) recovery of Japanese manufacturers has an impact on feasibility of Japanese government’s new policy and upcoming action plans as well as on overall economic recovery. Government’s revenue (corporate tax) fluctuates by the degree of recovery in their performance, and in fact this is a big topic in recent budgeting of the government for 2010. It is also the requirement for labour market recovery and stable earnings for citizens, meaning it has big impact on consumer spending. Of course, it also greatly influence investment etc.
Nikkei, Japan’s leading newspaper specialized in economy and politics, reported today that main businesses of Japanese manufacture giants especially high-tech companies that once fell in the red have been going back to black. This is because of Japanese manufactures’ efforts in cost reduction, together with digital consumer electronics and automobile sales hitting the bottom attributing to demand increase of emerging markets and positive effect of government policy such as eco-point system (incentive for consumers purchasing eco-friendly consumer electronics and automobiles). Price hovering at appropriate level due to supply volume control is also a contributor of the recovery. Continuous improvement in operational income by sector would be the overall performance support for such companies in the process of recovery, although there are some uncertainty factors such as high yen.
Market recovery is conspicuous in semi-conductors, HDD and precision component. Toshiba’s flash memories used in mobile audio music players and PC recording media have returned to black for fiscal quarter of July-September instead of original expectation of October-December. Toshiba had been cutting production by 30% January-June this year. And decrease in price stopped and then demand started to recover. Hitachi’s HDD business has also been recovering; its operation income was minus 9 billion yen for April-September but is expected to return to black for October-December.
Positive effects of emerging marketing demand and government policy have led to digital consumer electronics sales hitting the bottom. Sharp’s LCD panel business was in the red by 14.7 billion yen April-June but is expected to go back to black by 16 billion yen for fiscal year ending March 2010. With incentive/tax reduction for eco (ecological & economical) cars, sales related to EV car have been good. Koito’s Japan domestic business of light supplied for Toyota’s Prius cars has been drastically improving. Its operating income was minus 1.2 billion yen for April-June but seems to have returned to black by 5+ billion for July-September.
Cost reduction is also a contribution factor for recovery. Hoya transferred its digital camera production to overseas, and together with good new product sales its business for September seems to have returned to black. Digital camera businesses of Fuji Film Holdings and Olympus are expected to return to black as well. Energy plant business of IHI was in the red by 6.2 billion for fiscal year ending March 2009 but is expected to land on 11 billion yen in black for fiscal year ending March 2010, attributing to clearing out unprofitable overseas businesses plus drop in purchasing cost.
The worldwide economic crisis and recession started autumn last year had hit directly revenues of companies, resulting in total of approximately 3.6 trillion yen in red for total of all Japanese manufacturers for fiscal year ending March 2009. Consumer electronics, automobile and component businesses were the hardest hit, with an example of Toshiba’s semiconductor business that went in the red by 280 billion yen. And then amount of red decreased to 730 billion yen for total manufacturers for April-June, which is 1/8 of January-March. Therefore many experts assume that it has hit the bottom and if recovery trend continues it is possible that the complete recovery scenario for fiscal year ending March 2010 becomes a reality.
Some possible risks for such a recovery scenario include high yen for many Japanese manufacturers whose business relies heavily on export, and uncertain business trend for January-March 2010. Machine tool and semiconductor manufacturing equipment sectors relying on increase in production and investment are quite possible to remain in the red because few companies still refrain from increasing equipment investment with the assumption of demand recovery.
The author strongly believes that performance (operational income) recovery of Japanese manufacturers has an impact on feasibility of Japanese government’s new policy and upcoming action plans as well as on overall economic recovery. Government’s revenue (corporate tax) fluctuates by the degree of recovery in their performance, and in fact this is a big topic in recent budgeting of the government for 2010. It is also the requirement for labour market recovery and stable earnings for citizens, meaning it has big impact on consumer spending. Of course, it also greatly influence investment etc.
2009年9月13日日曜日
Drastic Deterioration in Break Even Point Ratio of Japanese Manufacturers May Well Indicate Further Tough Job Market in Japan
Sunday, September 13, 2009 – Osaka, Japan
Nikkei, Japan's leading newspaper specialized in economy and politics, reported today that break even point ratio* of Japanese manufacturers for 2008 increased by 13.1% from 2007 to 89.2%, reaching the level of 7 years ago. This is because the degree of cost reduction such as of fixed cost was not in line with the drastic reduction in sales attributing to worldwide bad economy. It is said that the performance of manufacturers are beginning to improve, but since increasing sales is difficult companies will need to further cut costs to improve break even point ratio. This implies that there will be further job and/or salary cuts meaning tough job market continues.
This finding is based on the Nikkei’s survey in which data of 1009 manufacturers listed whose metrics can be compared on the consecutive basis were collected and analyzed. The most critical reason for the deterioration in break even point ratio is reduction in sales, which was minus 10.7% vs. 2007 for 2008.
Looking into more details, it can be concluded that companies were unable to cope sufficiently with drop in sales. This is because variable cost such as cost of raw materials was minus 9.7% vs. 2007 for 2008, i.e. the attrition rate is smaller than that of sales. On the other hand, fixed cost was plus 1.5% vs. 2007 for 2008 although personnel cost was minus 2.9% vs. 2007 for 2008. This is because companies had been aggressively investing until the first half of 2008 leading to depreciation being plus 7.6% vs. 2007 for 2008. It is estimated that consolidated sales for the year ending in March 2010 would be minus 13% vs. previous year and cost reduction would be the key for performance improvement.
Looking into more detail by industry, break even point ratio for automobile that has dropped sales drastically in the U.S. and Europe reached 96.2% which was increase by 23% from 2007, and this figure is serious because it had not surpassed 90% since 1995. Other industries whose drop in the figure was serious include oil (71 points), nonferrous (8 points), precision machinery (16 points). Food was the only industry whose figure improved among 17 industries.
Break even point ratio of over 100% means cost is bigger than sales thus the company going in red. Break even point ratio of Advantest Corporation whose sales of semiconductor test equipment reached 150% resulting in consolidated operation loss of 49.5 billion yen. Therefore, the company is planning to decrease fixed cost by job and salary cut in order to decrease the amount of loss. It is likely that other companies would take the same measures to improve their break even point; therefore, the job market is likely remain tough for the time being.
* Break Even Point Ratio: break even point of a company is the sales when the cost and sales is the same. Dividing this by the actual sales is the break even point ratio. Below 100% means the company is in black and over 100% means the company is in red. The smaller the break even point ratio, the more resistant to drop in sales thus better profitability.
Nikkei, Japan's leading newspaper specialized in economy and politics, reported today that break even point ratio* of Japanese manufacturers for 2008 increased by 13.1% from 2007 to 89.2%, reaching the level of 7 years ago. This is because the degree of cost reduction such as of fixed cost was not in line with the drastic reduction in sales attributing to worldwide bad economy. It is said that the performance of manufacturers are beginning to improve, but since increasing sales is difficult companies will need to further cut costs to improve break even point ratio. This implies that there will be further job and/or salary cuts meaning tough job market continues.
This finding is based on the Nikkei’s survey in which data of 1009 manufacturers listed whose metrics can be compared on the consecutive basis were collected and analyzed. The most critical reason for the deterioration in break even point ratio is reduction in sales, which was minus 10.7% vs. 2007 for 2008.
Looking into more details, it can be concluded that companies were unable to cope sufficiently with drop in sales. This is because variable cost such as cost of raw materials was minus 9.7% vs. 2007 for 2008, i.e. the attrition rate is smaller than that of sales. On the other hand, fixed cost was plus 1.5% vs. 2007 for 2008 although personnel cost was minus 2.9% vs. 2007 for 2008. This is because companies had been aggressively investing until the first half of 2008 leading to depreciation being plus 7.6% vs. 2007 for 2008. It is estimated that consolidated sales for the year ending in March 2010 would be minus 13% vs. previous year and cost reduction would be the key for performance improvement.
Looking into more detail by industry, break even point ratio for automobile that has dropped sales drastically in the U.S. and Europe reached 96.2% which was increase by 23% from 2007, and this figure is serious because it had not surpassed 90% since 1995. Other industries whose drop in the figure was serious include oil (71 points), nonferrous (8 points), precision machinery (16 points). Food was the only industry whose figure improved among 17 industries.
Break even point ratio of over 100% means cost is bigger than sales thus the company going in red. Break even point ratio of Advantest Corporation whose sales of semiconductor test equipment reached 150% resulting in consolidated operation loss of 49.5 billion yen. Therefore, the company is planning to decrease fixed cost by job and salary cut in order to decrease the amount of loss. It is likely that other companies would take the same measures to improve their break even point; therefore, the job market is likely remain tough for the time being.
* Break Even Point Ratio: break even point of a company is the sales when the cost and sales is the same. Dividing this by the actual sales is the break even point ratio. Below 100% means the company is in black and over 100% means the company is in red. The smaller the break even point ratio, the more resistant to drop in sales thus better profitability.
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