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Yen Impact on Panasonic Profit Limited by Overseas Plants

Panasonic Corp. (6752), Japan’s second-largest maker of televisions, said it’s limiting exposure to fluctuations in the yen by boosting overseas production.

The currency’s effect on Panasonic’s earnings has dropped significantly as the company increased the number of production facilities outside Japan to 189 from 117 during the past five years, Chief Financial Officer Hideaki Kawai said in an interview yesterday.

“We still have to take measures so that our businesses can grow regardless of the currency’s movement,” Kawai said. “But we can cope better now than before.”

The Osaka-based company projected its first annual profit in three years last week after cutting jobs, closing plants and selling assets to recover from more than 1.5 trillion yen ($15 billion) in losses the past two financial years. President Kazuhiro Tsuga plans to spend 250 billion yen in the next two years to eliminate losses at units making TVs, mobile phones, semiconductors, circuit boards and optical devices.

The yen touched 102.76 per dollar yesterday, the weakest since October 2008. The Japanese currency has tumbled about 20 percent since November, making it the biggest loser among 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes.

Photographer: Tomohiro Ohsumi/Bloomberg

Pedestrians walk past a Panasonic Corp. advertisement displayed outside the company's Tokyo headquarters in Tokyo, Japan. Close

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Photographer: Tomohiro Ohsumi/Bloomberg

Pedestrians walk past a Panasonic Corp. advertisement displayed outside the company's Tokyo headquarters in Tokyo, Japan.

Panasonic, the maker of Viera TVs, set up treasury offices in nine countries -- including the U.S., China, the U.K., the Netherlands and Thailand -- to manage risks from more than 30 combinations of currency contracts, Kawai said. That compares with four in the 1980s, he said.

Annual Profit

The company’s forecast assumes an exchange rate of 85 yen per dollar, 110 yen per euro and 13.7 yen per yuan.

Panasonic fell 1.7 percent to 883 yen as of 10:16 a.m. in Tokyo trading, narrowing its gain this year to 69 percent. That compares with the 45 percent gain by Japan’s benchmark Nikkei 225 Stock Average and the 115 percent gain by Sony Corp. (6758)

A yen slide versus the dollar would boost the company’s annual operating profit by about 1 billion yen. A 1-yen decline against the euro would boost it by 1.7 billion yen, Kawai said last week.

That compares with about a 6 billion-yen profit gain for a weaker yen against the dollar before the company shifted production bases overseas, he said.

The maker of Lumix cameras generated 52 percent of its revenue in its home market, 14 percent in the Americas and 13 percent in China in the year ended March 31.

Yuan’s Gain

While Panasonic still benefits from a weaker yen against the dollar and euro, the company would lose about 5.2 billion yen in annual profit on each 1-yen decline against the yuan because it makes appliances and other products in China for sale in Japan, Kawai said.

Still, the company doesn’t have a plan to reduce production there or boost domestic manufacturing, Kawai said.

“What’s important is to structure our production bases so that we can absorb demerits from currency movements,” he said. “We’re focusing on making products in each region so that we can respond better to customer needs.”

Net income will probably be 50 billion yen ($488 million) in the 12 months started April 1, compared with a net loss of 754 billion yen a year earlier, the company said May 10. Operating profit may rise 55 percent to 250 billion yen while sales may fall 1 percent, it said.

To contact the reporters on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net; Grace Huang in Tokyo at xhuang66@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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