Panasonic Electric Works Co., Ltd.

Company Profile
Publication Date: 20 Aug 2009

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TABLE OF CONTENTS

TABLE OF CONTENTS
Company Overview..............................................................................................4 Key Facts...............................................................................................................4 SWOT Analysis.....................................................................................................5

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Panasonic Electric Works Co., Ltd.

Company Overview

COMPANY OVERVIEW
Panasonic Electric Works (PEW) formerly Matsushita Electric Works, operates in the six business sectors of lighting products, information equipment and wiring products, home appliances, building products, electronic and plastic materials and automation controls. The company is headquartered in Osaka, Japan and employs 56,848 people. The company recorded revenues of JPY1,597,808 million (approximately $15,978.1 million) during the financial year ended March 2009 (FY2009), a decrease of 7.1% over FY2008. The operating profit of the company was JPY31,851 million (approximately $318.5 million) during FY2009, a decrease of 62% over FY2008. The net loss was JPY13,846 million (approximately $138.5 million) in FY2009, as compared to a net profit of JPY45,451 million (approximately $454.5 million) in FY2008.

KEY FACTS
Head Office Panasonic Electric Works Co., Ltd. 1048 Kadoma Osaka 57l 8686 JPN 81 6 6908 1131 81 6 6903 3558 http://www.panasonic-electric-works.net

Phone Fax Web Address

Revenue / turnover 1.5 (JPY Mn) Financial Year End Employees Tokyo Ticker March 56,848 6991

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SWOT Analysis

SWOT ANALYSIS
PEW is engaged in the six business sectors of lighting products, information equipment and wiring products, home appliances, building products, electronic and plastic materials and automation controls. The company has recorded significant amount of revenues from all its operating segments. Diversified business operations of the company help it to tap high value customers expand its customers base. However, the economic slowdown in Japan and intense competition among the industry players would affect the business operations of the company. Strengths Diversified product portfolio Strong R&D focus Strong balance sheet Opportunities Growth in global electrical components and equipment market Business alliances Growing US sensor market Weaknesses Weak profitability Overdependence on the Japanese market

Threats Economic slowdown in Japan Intense competition Declining housing starts market

Strengths

Diversified product portfolio The company has a diversified product portfolio. PEW operates through six business divisions and each of them accounts for significant amount of sales. The business divisions of the company include electrical construction materials (accounted for 42.9% of the overall revenues for the company in FY2008); building products (32.5); automation controls (10.6%); electronic materials (5.8%); home appliances (5.7%); and others (2.4%). Diversified business operations of the company help it to tap high value customers expand its customers base. In addition, it also helps the company to balance revenues in the face of a slowdown in a particular division. Strong R&D focus PEW has increased its focus on research and development (R&D) in the last few years. During FY2009, FY2008 and FY2007, the company incurred R&D expenditures of JPY60,557 million (approximately $605.6 million); JPY63,131 million ($631.1 million); JPY62,986 million (approximately $629.9 million) respectively. This indicates the companys R&D expenditure in the last three years compared its overall sales stood at 3.9%, 3.6%, and 3.9% respectively.

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SWOT Analysis

The company is strengthening its R&D in a number of priority areas including facility networking technology; microfabrication process technology and functional materials technology; and sensing and bioactivation technologies. During FY2009, the company developed the worlds first light emitting device that causes a phosphor to fluoresce. The company also developed an energy-saving lighting control system for Beijing Olympic Park for the Summer Olympic Games in August 2008. Strong emphasis on R&D enables the company to expand its product portfolio, which confer a competitive advantage by improving brand equity and market share. Strong balance sheet The companys balance sheet remains strong for the previous financial year (FY2009). At the end of March 2009, the companys interest bearing short and long term debt stood at JPY89,042 million (approximately $890.4 million), as against its shareholders equity of JPY685,607 million (approximately $6,856.42 million). This represents a debt equity ratio of 13%. The lower debt equity ratio indicates that the company can generate additional financing to fund its future working capital, capital expenditures, acquisitions and other general corporate requirements. Similarly, the company maintained strong liquidity position. The current ratio of the company for FY2008 stood at 181.2% with the total current assets of JPY490,555 million (approximately $4,950.6) million and current liabilities JPY247,646 million (approximately $2,476.5) million. This indicates that the company is well capable of paying its short term obligations. The strong balance sheet in terms of strong liquidity and solvency position enhances investor and creditors confidence in the company.

Weaknesses

Weak profitability PEW recorded weak financial performance in the previous financial year (FY2008). The companys revenues declined at a rate of 7.1% from JPY1,719,612 million (approximately $17,196.1 million) in FY2008 to JPY1,597,808 million (approximately $15,978.1 million) in FY2009. The profitability of the company also declined significantly during the FY2009. The operating profit of the company declined at a rate of 62% from JPY83,923 million (approximately $839.2 million) in FY2008 to JPY31,851 million (approximately $318.5 million) FY2009. Further, the company recorded a net loss of JPY13,846 (approximately $138.5 million) in FY2009 as compared to a net profit of JPY45,451 million (approximately $454.5 million) in FY2008. Further, the profit margins of the company declined significantly in the previous year. The operating profit margin of the company declined from 4.8% in FY2008 to 1.9% in FY2009. The net profit margin of the company also declined from 2.6% in FY2008 to a negative rate of 0.8% in FY2009. The weakening profitability position would hamper the growth plans of the company, which could erode the investor confidence. Overdependence on the Japanese market

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SWOT Analysis

PEW is highly dependent on the Japanese market. The company generates majority of its revenues from the region. During 2008, PEW generated about JPY1,335,165 million (approximately $13,351.6 million) in revenues from the Japanese market. This represented about 83.5% of the total revenues during FY2009. The company also operates in Europe, North America and Asia. They collectively contributed to 16.4% of total revenues of the company in FY2008. The high reliance on the Japanese market exposes the company to the risk of downturns in the country's macroeconomic conditions and increases its business risk.

Opportunities

Growth in global electrical components and equipment market The global electrical components and equipment market has witnessed a steady growth in the recent years and the market is forecasted to follow similar pattern through 2012. The global electrical components and equipment market generated total revenues of $106.1 billion in 2008, representing a compound annual growth rate (CAGR) of 2.1% for the period spanning 200408. Asia-Pacific accounted for more than 50% of the global electrical components and equipment market's value. Further, the global electrical components and equipment market is forecast to grow at a CAGR of 4% until 2012. PEW provides a wide range of electrical components and equipment. Therefore, the company could leverage the growth in global electrical components and equipment market to boost its revenue base. Business alliances The company has a number of alliances or joint ventures with other companies to expand its business operations. For instance in January 2009, PEW formed a joint venture with Hilti (a provider of markets products for the construction and building maintenance industries) to set up a manufacturing plant in Shanghai, China. The new company would be named Panasonic Electric Works Power Tools (Shanghai) and manufactures cordless screwdrivers for Hilti in Shanghai, China. Further in September 2008, the company partnered with Honda Tsushin Kogyo (HTK) to cooperate each other in their entire value chain activities including R&D, manufacturing and sales operations. The alliances and partnership with other leading players in respective business segment would help the company improve its geographic reach. Growing US sensor market The US sensor market has been witnessing a strong growth since recent years and the trend is likely to continue in the future. The US market for industrial sensors will reach $7.63 billion in 2009 as it grows at an average annual growth rate of 4.7% between 2004 and 2009. Further, the demand is projected to grow by 4.3% per annum through 2012 to reach a value of $12.7 billion. This is primarily attributed to the developments in the semiconductor industry and the successful integration of micro-electromechanical systems (MEMS) as sensing elements. Demand for sensors

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SWOT Analysis

based on emerging technologies, such as MEMS-based sensors and imaging sensors, would see the fastest gains. Process variable sensors would continue to be the largest type of sensors in demand. The automotive industry will remain the largest market and the growth in military and aerospace applications will also be strong. PEW produces a wide range of sensors. The growing sensor market in the US represents an opportunity for the company to capitalize on this market and expand its revenues and profits.

Threats

Economic slowdown in Japan PEW derives majority of its revenue from Japan. For the FY2008, the company derived 83.6% of its revenues from Japan (some this amount is generated in foreign countries. The economic outlook of Japan is expected to be weak after the recent turmoil in financial markets, weak housing market indicators and consumer sentiments. According to IMFs recent economic outlook update July 2009, the real GDP growth rate of Japan declined from 2.7% in 2007 to -0.7% in 2008. Further, the GDP of Japan is expected to decline by 6% in 2009. The economic downturn has led to a severe decline in consumer confidence. Consumers also have less money for discretionary purchases as a result of job losses, foreclosures, bankruptcies and reduced access to credit. Therefore a weak economic outlook for Japan and other key markets would put pressure on the revenues of PEW. Price Competition The company faces different stiff competition from large international companies to relatively small and specialized organizations in Japan and overseas. The products and services of the company are differentiated with the competitive factors including quality, product development, service, price, and customer service. The key competitors of the company include Fujikura, General Electric, Graybar Electric, Samsung Electronic, SANYO Electric, Pinnacle Systems, Whirlpool, and Yaskawa Electric. Some of these competitors operate with greater financial, technological, and marketing resources. The intense competition will adversely affect the company's revenue growth and hence its market position Declining housing starts market The housing starts in Japan were hit severely in the recent period. The housing starts market dropped 5.8% in December, 2008 compared to 2007, following the introduction of tighter building rules in 2007. This tread is continued even in the first half of 2009. For instance, housing starts in Japan fell 32.4% in June 2009, from a year earlier. This is the seventh month in a row as consumers grew cautious about making big spending at a time when job and income conditions are rapidly deteriorating.

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SWOT Analysis

Further, the orders received by 50 major construction companies fell 28% in June 2009, from a year earlier to JPY869.7 billion (approximately $8.7 billion). Due to declining housing starts market, PEW's building division has witnessed decline in its sales. Further, declining of the housing market would affect the financials of the company.

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