Osaka - Sunday, June 26, 2011
Nikkei, Japan’s leading newspaper specialized in business and economy, reported today that performance of Japanese listed companies for the latter half of fiscal year 2011 ending March 2012 is to rapidly recover. This is expected to result in as small as 6% decrease vs. previous year for consolidated profit for the total fiscal year ending March 2012.
This is primarily to be driven by demand from recovery from the Japan disaster, which is why revenue increase by24% is anticipated in the latter half of 2011. It is possible that automobile production recovery quicker than their original plan also is to contribute to profitability enhancement.
Having said that, the reality is the performance among many industries was at a low level in the first half of 2011 due to the disaster. Moreover, if yen should get higher than anticipated it could trade off the anticipated revenue increase.
1. How did Nikkei come to the conclusion?
Nikkei collected and analyzed financial data of 1,533 listed companies (excluding financial and new companies) whose financial announcement for financial announcement ending March 2010 has been made by June 25. EBITA (earning before income tax) was used for companies that adopt GAAP (generally accepted accounting principles). TEPCO (Tokyo Electric Power Co., Inc) was excluded because their outlook is uncertain.
2. What is the conclusion?
Profit for the fiscal year ending March 2012 is estimated to be 22.76 trillion yen, which is only 6% decrease from the fiscal year ending March 2011. Profit has been increasing for the past three quarters since the quarter ending March 2009 and therefore the estimation may sound negative. However, this is far greater than the fiscal year ending March 2010 which was 15.53 trillion yen. This is approximately 70% of the greatest profit in history for the fiscal year ending March 2008.
The trend of the fiscal year ending March 2012 is expected to be “slump in the first half, recovery in the second half”.
3. What are the reasons for the slump of the first half of the fiscal year?
They are primarily the broken link of supply chain and depressed consumer consumption. As a result, profit is estimated to be 8.8 trillion yen, which is minus 32% from the previous year.
In the case of Toyota for example, it is estimated to be in the red by 100 billion yen. And for automobile and its component industries, profit is expected to be minus 93% from the previous year.
Slump of automobile impacts wide a scope of industries. For example, profit of Furukawa Electric Co., Ltd. is estimated to be 9 billion yen, which is minus 44% from the previous year because of the decrease in orders of automobile components. The company is cautious in making estimation of production recovery; it estimates that their production for July and August this year will be only as much as 80% of the July and August of 2010. Automobile shipment is estimated to be 1.1 million cars, which is minus 26% from the previous year according to NYK Line.
4. What are the reasons for expected drastic recovery in the second half of the fiscal year?
Demand increase of the recovery from the disaster and increase in overseas sales are expected to highly contribute to 24% increase in profit from the previous year, reaching profit of 13.96 trillion yen.
For example, profit of Toshiba is expected to increase by 42% from the previous year, which is to be a drastic recovery from 13% decrease in the first half. This is because of the anticipated demand increase of recovery from the disaster in sectors such as consumer electronics and infrastructure. For the same reason, 53% increase in profit is expected for iron and steel and 26% increase in profit is expected for construction as well.
With such profitability recovery, 48% of companies calculated are expected to improve in revenue and/or profitability.
Automobile production in Japan is to return to the previous year level by as early as July. Honda even plans to increase by 20% after autumn.
5. Are there any possible negative factors for performance recovery?
Yes, there are.
One is exchange rate. Many companies estimate the exchange rate to be 1 USD = 80 – 85 JPY and 1 Euro = 115 JPY. However, the current yen exchange rate is already at their profitability limit and if the yen should get higher there is a risk of decrease in their profitability from export business.
Limit in electricity supply is the other major negative factor. If re-start of operation of nuclear power plants that are currently being inspected for regular inspection and maintenance should delay, it would be a negative factor for the performance for the second half of the fiscal year ending March 2012.
Resources:-
Nikkei, Japan’s leading newspaper specialized in business and economy, estimated that financial performance of Japanese companies are to drastically recovering in the second half of fiscal year ending March 2012, from slump in the first half attributing to the broken supply chain and consumer spending cut due to the Japan disaster. Such recovery is expected primarily because of demand increase of recovery from the disaster. However, there are possible negative factors for the drastic recovery such as exchange rate (high yen) and electricity supply limit.
2010年12月5日日曜日
Profitability Recovery of Japanese Companies Under High Yen
Osaka – Sunday, December 5, 2010
In the previous article "High Yen Slashes Profitability of Japanese Companies – The Reality" the author introduced some cases of how Japanese companies including those that are usually regarded as globally competitive have been suffering from the recent high yen.
In this article, the author would like to introduce some cases of how other companies have managed to recover their revenue and profitability despite the recent high yen.
1. How much Japanese listed companies recovered their performance in Apr-Sep 2010 despite extreme high yen?
1) Overall
The increase rate of consolidated operating profit was 2.4 times that of the previous year, which was much more than the original estimation of 70% increase from the previous year. The profit level recovered to 98% of Apr-Sep 2008 (i.e. before the worldwide economic crisis), and to 80% of Apr-Sep 2007 (i.e. the peak).
2) Specific examples
(1) Ushio, Inc.
Business of Ushio, Inc., whose business supports 3D movie boom with 3D film projector for theatres, continues to be strong even in high yen situation. They could only sell 3 products 10 years ago but their business is expected to grow as much as 7500 units, with global market share of 60%.
(2) Ricoh
Ricoh’s business in Americas that had been sluggish started to recover despite the recent high yen. They had thoroughly transferred sales know-how to the U.S. companies they had acquired, and their America business is expected to become positive soon in 2011, first time after 14 quarters.
2. How did Japanese companies manage to recover profitability despite the recent high yen?
1) Cost reduction
Primary reason for the profitability recovery is extreme cost reduction measures since the worldwide recession, which is sometimes said as practically the biggest post-war restructuring. Manufacturers drastically reduced cost (personnel etc.) last year to lower break even point by 13%. This decrease percentage is the biggest in the past 25 years (i.e. statistics is available and thus can compare).
Companies have been continuing their efforts to cut costs and improve productivity. For example, the reason for increase in Hitachi’s operating profit for Apr-Sep 2010 was increase in revenue and cost reduction (50% each).
Positive effects of such of their efforts have been conspicuous; operating profit of Japanese companies in total increased by 2.8% to reach 5.6%. The increase rate is the biggest since the economic bubble collapsed. The operating profit of 5.6% is almost 5.8% or Apr-Sep 2007, which was the peak.
2) Demand growth of emerging markets
Much of their sales and business growth came from growing demand of emerging market, Asia in particular. For example, increase of revenue of Komatsu in total was 33% when it was 58% for China. Increase of revenue of Nissan in total was 28% when it was 64% for Asia.
Some others were especially successful in business of emerging markets with launching products meeting local needs. For example, Sony developed and launched low cost flat panel TVs with limited functions in India and deprived the top market share position in India of Samsung.
3) Countermeasures to the high yen
This includes production shift to overseas as mentioned in the previous article, leveraging low cost components supplied from overseas, and owning both receivables and payables in foreign currencies.
For example, Hitachi Construction Machinery Co., Ltd. increased their production in Europe to raise their overseas production rate. Kawasaki Kisen Kaisha, Ltd. started to study accepting some portion of their receivables of their newly supplied products in USD instead of in Japanese yen. NEC separated their export-oriented semiconductor business and as a result they are no longer affected by foreign exchange fluctuation against USD. Toshiba, with similar measure, had positive effect with high yen, benefiting also with production outsourcing expansion to overseas contractors.
3. What is the outlook for the latter fiscal year of 2010?
1) Overall
Anxiety psychology proliferates among Japanese companies due to continuing high yen, termination of government’s economy stimulation incentives and slow recovery of economy of developed countries; however, there are some possible solutions of overcoming such anxiety factors. One is cultivating and harvesting the “new revenue seed” that was planted and came out in the first half of 2010. Another is flexibly adapting to external and internal environmental changes to upgrade available technologies and open/create new market.
2) Specific examples
(1) Ozu Corporation
Ozu Corporation, a leading paper distributor in Japan, started new business, operating their new factory of plants. With decreasing paper demand, they aim to benefit the recent trend of “security of foods”.
(2) NHK Spring Co., Ltd.
NHK Spring Co., Ltd started production and supply of new suspension that supports magnetic head of HDD (Hard Disk Drive). They already enjoy global market share of 45% but aim to further get ahead of their competitors with next generation products whose control accuracy has more than doubled.
In the previous article "High Yen Slashes Profitability of Japanese Companies – The Reality" the author introduced some cases of how Japanese companies including those that are usually regarded as globally competitive have been suffering from the recent high yen.
In this article, the author would like to introduce some cases of how other companies have managed to recover their revenue and profitability despite the recent high yen.
1. How much Japanese listed companies recovered their performance in Apr-Sep 2010 despite extreme high yen?
1) Overall
The increase rate of consolidated operating profit was 2.4 times that of the previous year, which was much more than the original estimation of 70% increase from the previous year. The profit level recovered to 98% of Apr-Sep 2008 (i.e. before the worldwide economic crisis), and to 80% of Apr-Sep 2007 (i.e. the peak).
2) Specific examples
(1) Ushio, Inc.
Business of Ushio, Inc., whose business supports 3D movie boom with 3D film projector for theatres, continues to be strong even in high yen situation. They could only sell 3 products 10 years ago but their business is expected to grow as much as 7500 units, with global market share of 60%.
(2) Ricoh
Ricoh’s business in Americas that had been sluggish started to recover despite the recent high yen. They had thoroughly transferred sales know-how to the U.S. companies they had acquired, and their America business is expected to become positive soon in 2011, first time after 14 quarters.
2. How did Japanese companies manage to recover profitability despite the recent high yen?
1) Cost reduction
Primary reason for the profitability recovery is extreme cost reduction measures since the worldwide recession, which is sometimes said as practically the biggest post-war restructuring. Manufacturers drastically reduced cost (personnel etc.) last year to lower break even point by 13%. This decrease percentage is the biggest in the past 25 years (i.e. statistics is available and thus can compare).
Companies have been continuing their efforts to cut costs and improve productivity. For example, the reason for increase in Hitachi’s operating profit for Apr-Sep 2010 was increase in revenue and cost reduction (50% each).
Positive effects of such of their efforts have been conspicuous; operating profit of Japanese companies in total increased by 2.8% to reach 5.6%. The increase rate is the biggest since the economic bubble collapsed. The operating profit of 5.6% is almost 5.8% or Apr-Sep 2007, which was the peak.
2) Demand growth of emerging markets
Much of their sales and business growth came from growing demand of emerging market, Asia in particular. For example, increase of revenue of Komatsu in total was 33% when it was 58% for China. Increase of revenue of Nissan in total was 28% when it was 64% for Asia.
Some others were especially successful in business of emerging markets with launching products meeting local needs. For example, Sony developed and launched low cost flat panel TVs with limited functions in India and deprived the top market share position in India of Samsung.
3) Countermeasures to the high yen
This includes production shift to overseas as mentioned in the previous article, leveraging low cost components supplied from overseas, and owning both receivables and payables in foreign currencies.
For example, Hitachi Construction Machinery Co., Ltd. increased their production in Europe to raise their overseas production rate. Kawasaki Kisen Kaisha, Ltd. started to study accepting some portion of their receivables of their newly supplied products in USD instead of in Japanese yen. NEC separated their export-oriented semiconductor business and as a result they are no longer affected by foreign exchange fluctuation against USD. Toshiba, with similar measure, had positive effect with high yen, benefiting also with production outsourcing expansion to overseas contractors.
3. What is the outlook for the latter fiscal year of 2010?
1) Overall
Anxiety psychology proliferates among Japanese companies due to continuing high yen, termination of government’s economy stimulation incentives and slow recovery of economy of developed countries; however, there are some possible solutions of overcoming such anxiety factors. One is cultivating and harvesting the “new revenue seed” that was planted and came out in the first half of 2010. Another is flexibly adapting to external and internal environmental changes to upgrade available technologies and open/create new market.
2) Specific examples
(1) Ozu Corporation
Ozu Corporation, a leading paper distributor in Japan, started new business, operating their new factory of plants. With decreasing paper demand, they aim to benefit the recent trend of “security of foods”.
(2) NHK Spring Co., Ltd.
NHK Spring Co., Ltd started production and supply of new suspension that supports magnetic head of HDD (Hard Disk Drive). They already enjoy global market share of 45% but aim to further get ahead of their competitors with next generation products whose control accuracy has more than doubled.
2010年11月14日日曜日
Negative Effects of High Yen on Japan – The Reality
Osaka – Sunday, November 13, 2010
High yen, hovering at the level of 80 – 85 yen per USD, was what export-oriented Japanese companies suffered from around 1995, and what made many of them shift some of their production to other countries of Asia. Yen has been hovering again at the level of 80-82 yen per USD for quite a while now when many of the Japanese companies are said to have originally made their made business plan at the exchange rate 87 – 95 yen per USD and therefore has been a serious issue in Japan.
Taking this opportunity, the author would like to discuss to clarify possible effects of high yen on Japan, focusing on the negative ones in this article, and positive ones in the upcoming article.
1. Profitability decrease of export-oriented Japanese companies
High yen directly hit profitability of export-oriented Japanese companies, when majority of the major Japanese companies such as Toyota, Sony and Panasonic to name just a few are such companies.
In the case of “made in Japan” products that are exported, high yen means decrease in gross margin because the total cost remains almost the same while the sales price in the market would be cut when converted to yen. If raw materials are imported their cost would be lower but it is the production cost accrued in Japan verses the sales price that is the primary determinant of gross margin.
For this reason, high yen is one of the reasons for slow in revenue and profit recovery of many of the Japanese companies compared to their western and Korean counterparts, as mentioned in the previous article "Japan Stagnates in Stock Market Recovery Unlike Worldwide – Why?"
According to the articles dated November 6 by Nikkei, Japanese leading newspaper specialized in business economy, the recovery rate for major Japanese companies fall behind those of western counterparts. Even Mitsubishi Trading that is #1 in the profit recovery, profit is 90% of that of pre-worldwide crisis. Panasonic is just below 50% and for Komatsu strong in Asia business is 60%.
Toyota’s case is probably one of the good examples to understand how high yen is negatively affective company’s profitability, whose profit remains as little as less than 20% of that of pre-worldwide crisis. According to Nikkei, for Apr-Sep 2010, Toyota, that was in negative by 137 billion yen for Apr-Sept 2009, has managed to turn back go black being in positive by 323 billion yen. This attributes to positive factors including sales increase (+570 billion yen) and improvement in cost competitiveness (+90 billion yen). But negative effect on currency (= high yen, which is higher by 7 yen per USD compared to last year) was 120 billion yen and therefore the total profit was only 323 billion yen
2. Shift in production of export-oriented Japanese companies to overseas
The first measures taken in many cases for cost reduction in high yen situation is cutting production cost by shifting production from Japan to countries of lower labour cost such as ASEAN and China. This is why production shift took place in many manufacturing companies especially consumer electronics and automobile companies in mid 1990s.
The recent high yen is triggering further production shift to overseas. Nissan was one of the first companies that explicitly said they will shift more production sites to Asia, followed by other companies. Others that have not yet announced the production shift but they say that if the high yen continues they also would consider production shift to overseas.
There is no sign of the yen to get lower and some view that it is quite possible that it will get higher than 80 yen per USD. Experts and people of the industry say that if the yen should get as high as 75 yen 100% of the production of automobiles need to be shifted to overseas for the companies to make ends meet.
3. Economy remaining sluggish
In addition, high yen would be a big factor for sluggish economy, because of decrease in consumer spending and slow tourism business. Low consumer spending is one of the primary factors for sluggish economy.
Shift in production to overseas drives restructuring and job cuts. As a result, employment rate goes up. In such a situation, consumer spending would unlikely be stimulated unless the government gives incentives/execute economy stimulation measures that trades off such negative factors.
Also, high yen would likely to keep away tourists coming to Japan because it would cost them more to enjoy their visit to Japan, meaning less consumer spending. This is because even if the number of tourists visiting Japan remains the same, they are more unlikely be able to purchase same amount of products and services as low yen time unless they can afford to bring more money with them.
High yen, hovering at the level of 80 – 85 yen per USD, was what export-oriented Japanese companies suffered from around 1995, and what made many of them shift some of their production to other countries of Asia. Yen has been hovering again at the level of 80-82 yen per USD for quite a while now when many of the Japanese companies are said to have originally made their made business plan at the exchange rate 87 – 95 yen per USD and therefore has been a serious issue in Japan.
Taking this opportunity, the author would like to discuss to clarify possible effects of high yen on Japan, focusing on the negative ones in this article, and positive ones in the upcoming article.
1. Profitability decrease of export-oriented Japanese companies
High yen directly hit profitability of export-oriented Japanese companies, when majority of the major Japanese companies such as Toyota, Sony and Panasonic to name just a few are such companies.
In the case of “made in Japan” products that are exported, high yen means decrease in gross margin because the total cost remains almost the same while the sales price in the market would be cut when converted to yen. If raw materials are imported their cost would be lower but it is the production cost accrued in Japan verses the sales price that is the primary determinant of gross margin.
For this reason, high yen is one of the reasons for slow in revenue and profit recovery of many of the Japanese companies compared to their western and Korean counterparts, as mentioned in the previous article "Japan Stagnates in Stock Market Recovery Unlike Worldwide – Why?"
According to the articles dated November 6 by Nikkei, Japanese leading newspaper specialized in business economy, the recovery rate for major Japanese companies fall behind those of western counterparts. Even Mitsubishi Trading that is #1 in the profit recovery, profit is 90% of that of pre-worldwide crisis. Panasonic is just below 50% and for Komatsu strong in Asia business is 60%.
Toyota’s case is probably one of the good examples to understand how high yen is negatively affective company’s profitability, whose profit remains as little as less than 20% of that of pre-worldwide crisis. According to Nikkei, for Apr-Sep 2010, Toyota, that was in negative by 137 billion yen for Apr-Sept 2009, has managed to turn back go black being in positive by 323 billion yen. This attributes to positive factors including sales increase (+570 billion yen) and improvement in cost competitiveness (+90 billion yen). But negative effect on currency (= high yen, which is higher by 7 yen per USD compared to last year) was 120 billion yen and therefore the total profit was only 323 billion yen
2. Shift in production of export-oriented Japanese companies to overseas
The first measures taken in many cases for cost reduction in high yen situation is cutting production cost by shifting production from Japan to countries of lower labour cost such as ASEAN and China. This is why production shift took place in many manufacturing companies especially consumer electronics and automobile companies in mid 1990s.
The recent high yen is triggering further production shift to overseas. Nissan was one of the first companies that explicitly said they will shift more production sites to Asia, followed by other companies. Others that have not yet announced the production shift but they say that if the high yen continues they also would consider production shift to overseas.
There is no sign of the yen to get lower and some view that it is quite possible that it will get higher than 80 yen per USD. Experts and people of the industry say that if the yen should get as high as 75 yen 100% of the production of automobiles need to be shifted to overseas for the companies to make ends meet.
3. Economy remaining sluggish
In addition, high yen would be a big factor for sluggish economy, because of decrease in consumer spending and slow tourism business. Low consumer spending is one of the primary factors for sluggish economy.
Shift in production to overseas drives restructuring and job cuts. As a result, employment rate goes up. In such a situation, consumer spending would unlikely be stimulated unless the government gives incentives/execute economy stimulation measures that trades off such negative factors.
Also, high yen would likely to keep away tourists coming to Japan because it would cost them more to enjoy their visit to Japan, meaning less consumer spending. This is because even if the number of tourists visiting Japan remains the same, they are more unlikely be able to purchase same amount of products and services as low yen time unless they can afford to bring more money with them.
2010年8月1日日曜日
Japanese Companies Recover Profitability to 90% of Before Recession
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%.
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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