Japan's Ito En buying vending machines to cut lease costs
Beverage maker will phase out leases in five years
TOKYO -- Ito En will soon start buying outright the vending machines it now leases, aiming to cut its debt load before interest rates begin to rise.
The Japanese maker and distributor of green tea drinks currently leases about 160,000 machines installed around Japan, at a cost of more than 10 billion yen ($89.6 million) each year. In the year ending April 2018, Ito En will spend 3.5 billion yen to buy newly installed machines outright. This is expected to help cut lease payments 15% on the year to 8.7 billion yen.
From now on, machines coming up for replacement will be purchased, rather than leased again, putting all machines in Ito En's hands over the course of five years. Some 10 billion yen raised through a bond issue in February will help pay for the effort.
Taking ownership of these machines will mean booking higher depreciation costs. Ito En's machines have a usable life span of eight years, and depreciation costs are seen climbing 18% to 6.3 billion yen this fiscal year from 5.4 billion yen in fiscal 2016. But the shift is seen paying off in the long run, as any increase in interest rates could cause leasing costs to balloon.
Many beverage companies already have their own machines. Coca-Cola Bottlers Japan, the country's largest beverage company, owns 740,000 machines, while No. 2 Suntory Beverage & Food owns 550,000. "We leased machines for a time around 2005, but we ultimately moved to an ownership model in light of interest costs," a representative for Suntory said.