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Listed Japan companies ease COVID blow by slashing expenses $64bn

Fewer trips, ads and on-site events helped cushion profit declines in fiscal 2020

A Nikkei survey of 1,400 companies found that working from home helped them to limit the decline in profits, caused by the pandemic, to 30%. (Photo by Kosuke Imamura) 

TOKYO -- Japan Inc.'s bottom line has been helped by a sharp drop in business expenses in the current business year as a result of staff working from home because of the coronavirus pandemic, a Nikkei analysis shows.

Among the expenses that have dropped sharply are those for advertising and travel as businesses have shifted away from face-to-face meetings and on-site events. For the year ending this month, such cost savings among the 1,400 listed companies that Nikkei analyzed are expected to total some 7 trillion yen ($64 billion), helping to limit the decline in overall annual profits to about 30%.This raises the question of how businesses will use such savings for raise productivity in the future.

There are two kinds of corporate expenses: fixed expenses, which occur regardless of the level of sales, and variable expenses, which fluctuate with sales.

The Nikkei analysis shows that fixed expenses have declined a total of 5% to 124 trillion yen in the current business year, the biggest decline since the 2008 financal crisis brought on by collapse of Lehman Brothers. The biggest declines are in such items as travel expenses, advertising expenses, personnel costs, depreciation expenses, entertainment allowances and utility costs.

Data from the Japan Tourism Agency shows that travel and accommodation expenses, a proxy for business trips, declined more than 70% to 950 billion yen for the April-December period. Advertising spending in Japan also fell by more than 10%, according to advertising agency Dentsu. The decline was led by a 40% drop in event and exhibition spending.

Other expense items have also seen declines. According to the Ministry of Finance's quarterly business survey, personnel expenses dropped 5% during the April-December period. Utility costs also fell, led by an 8.8% fall in electricity sales during the period, according to Tokyo Electric Power.

Entertainment expenses, which totaled 1.9 trillion yen, also plummeted.

Japanese electronics maker Panasonic expects 60 billion yen in cost savings in the current fiscal year, thanks to a drop in business trips and other indirect costs. "We will use office space more efficiently and even look at terminating some of the lease contracts," said Vice President Mototsugu Sato.

Machinery maker Komatsu expects 25.2 billion yen in savings from digital initiatives, including holding global strategy meetings online. Such meetings used to involve bringing the heads of foreign subsidiaries to Japan. 

Japanese trading houses are vigorously cutting business trip costs as Itochu in principle prohibits overseas business travel amid the COVID-19 pandemic. 

System integrator NTT Data also expects to benefit from a decline in travel expenses, mainly at overseas subsidiaries, by 5 billion yen or more. "Online meetings have taken root even with clients. We plan to keep such costs down," said Takashi Nakamura, accounting chief.

The digital shift has even spread to marketing and advertising activity. Mazda Motor in January unveiled a new electric vehicle online, and expects to reduce advertising expenses by 70 billion yen in the current business year.

Optical equipment maker Konica Minolta said it saved 57.3 billion yen in the April-December period by focusing its marketing activity only on clients that were most responsive.

That, along with reduced fixed expenses, has allowed listed companies to lower their break-even point to 79% of sales, compared with 77% in the previous fiscal year.

Such cost-saving moves are expected to continue. A survey by staffing agency Adecco found that more than half of Japanese companies intend to stick with working from home. Hikaru Yasuda, equity strategist at SMBC Nikko Securities, said, "Reducing business trip costs contributed heavily to the fall in their fixed expenses."  

Masatoshi Kikuchi, chief equity strategist at Mizuho Securities, said, "As the cost saving effect from cutting overseas trips has been confirmed clearly, such saving moves will become permanent. They will probably halve entertainment expenses, as well." 

Asahi Group, a brewer, expects more than 50 billion yen in savings in the three years to 2023 by automating warehouse operations and through other digitization steps. The savings will be used for investment in reducing carbon emissions.

AGC, a glass maker, will use savings generated from its staff working from home to train employees in data analyses and other digital technology designed to make administrative operations more efficient.

U.S. companies are accelerating digital transformation in the wake of the coronavirus pandemic, according to a survey by the Japan Electronics and Information Technology Industries Association. The study suggests that businesses should take advantage of the leaner cost structure to invest in new growth fields.

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