Announcements of business results for companies listed on the Tokyo Stock Exchange (TSE) that concluded their fiscal year at the end of March peaked on Friday. More than half of the TSE-listed companies that have announced their results so far have seen their net profit fall due sales declines caused by the new coronavirus outbreak, in addition to the impact of the U.S.-China trade row and last year's consumption tax hike.
A total of 791 companies -- or 59% of all companies listed on the First Section of the TSE, excluding financial businesses -- had announced their business reports by Thursday. Of them, 439 posted net profit losses, with their combined profits falling by 18.5% from the previous year, according to a survey by SMBC Nikko Securities Inc. The combined profit decline was seen for the second year in a row, and the drop was larger than last year at 3.8%. Operating profit, which indicates profits from a company's core business, fell by 11.3%, whereas sales fell by 0.4%.
"The speed and depth of the latest business downturn is graver than that triggered by the collapse of U.S. financial firm Lehman Brothers [in 2008]," Mazda Motor Corp. Executive Officer Ryuichi Umeshita said at a teleconference to explain the company's financial results on Thursday. He expressed a sense of panic over the negative impact the coronavirus pandemic would have on the economy.
Unlike the 2008 economic crisis when exports were sluggish, the novel coronavirus outbreak delivered a double-blow to the manufacturing industry: A drop in production due to the suspension of operations at overseas plants to prevent infections, as well as a drop in global demand that battered entire industries.
Mazda's full-year net profit fell by 80.8% from the previous year. Likewise, Honda Motor Co. suffered an operating loss of 5.6 billion yen in the January-March period in 2020 due to prolonged plant closures.
Travel restrictions have emptied trains and airplanes to a degree no one could have imagined, causing alarming declines in domestic demand. Retail and airline executives alike voiced concerns over their predicaments.
"Sales generated by customers from abroad in March were almost zero," said Isetan Mitsukoshi Holdings President Toshihiko Sugie.
"This is an unprecedented risk," Japan Airlines Co. Senior Managing Executive Officer Hideki Kikuyama said.
Regarding net profits of major domestic airlines in the January-March quarter, JAL logged a net loss of 22.9 billion yen, while ANA Holdings Inc. posted a net loss of 58.7 billion yen. West Japan Railway Co. (JR West) has suffered its first net loss in 10 years and posted an operating loss of 30.5 billion yen in the January-March quarter.
By the end of last year, companies had already been hit by a decline in exports due to the slowdown of the Chinese economy on the heels of trade tensions between Washington and Beijing. Moreover, consumer sentiment was dampened by the consumption tax hike in October. The coronavirus outbreak was a gut punch under such a bleak economic environment.
"Demand is 'evaporating' across a wide range of industries, and companies are busy lessening the losses," said Tomohisa Ishikawa, director of the Macro-economics Research Center at The Japan Research Institute.
The future outlook for the economy is murky at best, because it's still unclear when the spread of the infections will end. Furthermore, there are grave concerns over a possible "second wave" of infections.
Major companies such as Toyota Motor Corp., Nissan Motor Co., Mazda, JAL and ANA HD are preparing for unforeseen situations by focusing on cash management, setting up lines of credit with banks and other means.
According to the SMBC Nikko Securities survey, the number of companies that forecast their business performance to be "uncertain" increased to about 60% this year, compared with about 10% to 20% in an average year. Although some industries have benefited from widening use of teleworking and an increase in the number of home-delivery services, Nidec Corp. Chairman Shigenobu Nagamori said, "It will take at least a year to recover [from the current situation]."
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