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Annual Management Policy Fiscal 2012
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Annual Business Policy Fiscal 2012
Osaka, Japan, April 28, 2011 – President Fumio Ohtsubo of Panasonic Corporation (NYSE symbol: PC) today announced its business policy for the fiscal year ending March 2012 (fiscal 2012) at the company' s business policy meeting. Addressing before an audience of Panasonic Group employees, he first touched upon the impacts of the March 11 earthquake (the Great East Japan Earthquake) on the group' s operations. He then summarized the group' s progress made in the first year of the Green Transformation 2012 (GT12) management plan covering three years through March 2013 and laid out Panasonic' s growth imperatives for fiscal 2012, including reorganization. The following is a summary of his presentation.
One and Half Months after the Great East Japan Earthquake
(1) Recovery and Reconstruction Initiatives: While operations at Panasonic factories in the disaster–hit region have been recovering steadily, disruptions in its supply chain are still affecting the group' s operations.
Towards full recovery of the company and reconstruction of the nation, Panasonic continues to extend a helping hand to the people in the affected region, and at the same time, it is accelerating its efforts to restore its operations to normal state and prepare itself for future disaster risks. While Panasonic plans to cut cost and investment in accordance with changes in sales stemmed from the disaster, it is determined to play a significant role in the country' s reconstruction efforts with its products and business activities.
(2) Contribution through Products and Business Activities: To be specific, to respond to the needs for measures to cope with anticipated power shortages and blackouts, Panasonic will promote the use of energy-efficient LED lighting and propose its solutions that combine energy creation, storage and management. To the nation' s full-scale recovery, the group intends to offer comprehensive solutions for the entire home, building and town that address energy challenges and bring about safe and secure living. The group will put its concept of "green innovation company" into practice along the way.
1. Progress and Key Issues in "GT12"
Under the GT12 three-year midterm management plan, Panasonic set the following targets for FY 2013 ending March 2013.
|Sales ratio of six key businesses||35%||42%|
|Sales of energy systems business||550.8 billion yen||850 billion yen|
|Overseas||Sales in emerging countries*1||505.1 billion yen||770 billion yen|
|Overseas sales ratio||48%||55%|
|Sales of systems and equipment business||2.27 trillion yen||2.6 trillion yen|
|Overseas sales ratio||32%||39%|
*1: Panasonic' s sales of consumer and systems products in BRICs + Vietnam and MINTS + B (Mexico, Indonesia, Nigeria, Turkey, Saudi Arabia and the Balkans)
In the first year of the GT12 plan, from April 2010 to March 2011, Panasonic saw steady growth in the heating/refrigeration/air conditioning and LED businesses among its six key business areas. Sales in the emerging countries registered 20% growth over the previous fiscal year, driven by robust sales in India and Vietnam. The group also experienced progress in CO2 reductions, which exceeded its targets, as a result of increased sales of its energy-efficient products and reduced CO2 emissions from production process. During the first year of GT12, some businesses and regions met their sales targets. Overall, however, substantial sales growth was not materialized in the new business sectors and overseas.
2. Group Reorganization and New Growth Strategy
Direction of Business Reorganization
Panasonic will undergo group-wide reorganization in line with its basic concepts: "Maximize value creation by strengthening contacts with customers," "Realize speedy and lean management" and "Accelerate growth businesses by boldly shifting management resources." The group currently consists of five business segments by technology platform. Putting customers' perspectives in the center, it will be reorganized into three business sectors by business model: Consumer, Components & Devices and Solutions.
In these three business sectors, nine internal companies called "business domain companies" and a marketing division will be set up. Panasonic will build an optimum business model for each business sector and aims to optimize synergies among the group companies.
Growth Strategies of the Three Business Sectors
Consumer business sector consists of two business domain companies, AVC Networks and Heating/Refrigeration/Air Conditioning & Home Appliances, and a marketing division called Global Consumer Marketing.
AVC Networks: The company will develop and grow new businesses by enhancing easy–to–use network–connectable products that fit for everyday living and by creating new business models. In addition to that, AVC Networks will shift development and production to emerging countries to tap into growth of local demand, aiming to achieve sales of 2.1 trillion yen (113% of FY 2011) or more in fiscal 2013.
Heating/Refrigeration/Air Conditioning & Home Appliances: While withdrawal of overlapping businesses with SANYO Electric Co., Ltd. (SANYO) is expected to reduce sales, the company will aim to generate sales of 1.2 trillion yen (94% of FY 2011) or more in fiscal 2013 by speeding up the development of overseas markets for finished products, increasing global sales of small cooking appliances and personal-care and healthcare products as well as expanding B-to-B business which capitalizes on SANYO' s strength. With drastic shift in business focus to overseas markets along with buildup of its competitiveness, the company will accelerate growth after fiscal 2013.
2) Components & Devices
Components & Devices business sector includes three business domain companies: Automotive Systems, Components & Devices and Energy Devices. This business sector will integrate marketing and technologies so that Panasonic can timely propose solutions by anticipating customer needs. The sector will seek to grow as an independent business, not relying on internal demand.
Automotive Systems: The company will target sales of the 700 billion yen level (105% of FY 2011) in fiscal 2013 through creation of multi-media products for high-volume segment for automobile companies and securing the top share in the domestic car navigation market.
Components & Devices: The company will aim to achieve high growth and profitability by offering products worldwide in the areas where fast-paced growth is expected such as the environment, energy and smartphone segments. The company will target sales of 1.8 trillion yen (117% of FY 2011) or more in fiscal 2013.
Energy Devices: To restructure the company' s lithium-ion battery business and increase product competitiveness, it will shift production to China and actively seek to optimize procurement on a global level. The company will invest 55 billion yen through fiscal 2013 in China, including construction of a new factory in Suzhou, to strengthen its integrated production system from electrodes to cells and battery packs. In the solar business, it will cut production costs of its HIT solar cells boasting the world' s highest level energy conversion efficiency as well as enhance its solar cell product lineup by outsourcing polycrystalline solar modules. The company aims for sales of 760 billion yen (115% of FY 2011) or more in fiscal 2013.
This business sector consists of four business domain companies: Systems & Communications, Environment & Energy Solutions, Healthcare & Medical Solutions and Factory Solutions. "Group Comprehensive Solutions Business Promotion" function will be set up in the Environment & Energy Solutions.
Systems & Communications: The company will strengthen its security and communication products and create solutions that use cloud computing. In addition to that, by accelerating sales growth in the global market, the company aims to generate sales of 1.2 trillion yen (129% of FY 2011) or more in fiscal 2013.
Environment & Energy Solutions: In the lighting business, the company will significantly enhance its LED product lineup and strive to strengthen overseas sales, aiming to increase the ratio of LED lighting products to over 40% of all the lighting products as well as its overseas sales ratio to more than 40% in fiscal 2016. For electrical construction materials, the company will expand the business in Asia, mainly in India, by taking advantage of Anchor Electricals, a fully-owned Panasonic subsidiary and top maker of electrical construction materials in the country. As to the "comprehensive solutions" business, Comprehensive Solutions Business Promotion Division will drive the business, proposing complete energy-saving solutions encompassing a collection of wide variety of products, ideas to connect those products as well as repair, maintenance and other services. From such new businesses, the company aims to generate sales of at least 105.5 billion yen in fiscal 2013 and 300 billion yen or more in fiscal 2016. Overall, it will target sales of the 1.6 trillion yen level (108% of FY 2011) in fiscal 2013.
Healthcare & Medical Solutions: The company will provide solutions for such growth areas as in-hospital work assistance, early diagnosis and treatment and home healthcare, aiming to achieve sales of 140 billion yen (117% of FY 2011) or more in fiscal 2013.
Factory Solutions: With mounting systems in the core of the company, it will explore new business opportunities in the production process area. In the existing business areas, it will inject development, manufacturing and sales resources in emerging markets as well as actively utilize its sales partnerships in North America. The company will target sales of 190 billion yen (116% of FY 2011) or more in fiscal 2013.
Reorganization of the Head Office
1) Structure of the New Global and Group Head Office
The head offices of Panasonic Corporation, Panasonic Electric Works Co., Ltd. (PEW) and SANYO and six corporate regional management divisions will be consolidated to form a smaller global and group head office. The new global and group head office consists of a global head office and five regional management headquarters: China and Northeast Asia; North America; Latin America; Asia, Oceania, Middle East and Africa; and Europe and CIS. It will pursue lean, speedy and global business operations.
2) Globalization and Optimization of Functions
The global and group head office will be organized according to job functions. Among the manufacturing-related functions (environment, technology and quality, manufacturing innovation, procurement and logistics), the head office function of the procurement, logistics and part of manufacturing innovation functions will be moved to Asia. Panasonic will also significantly strengthen other functions at the Asian base. Positioning these functions under Global Manufacturing Division, Panasonic will strive to raise the level of manufacturing capability by developing strong manufacturing bases, boosting local procurement and strategically utilizing outside sources.
3) Roles of SANYO and PEW
SANYO will operate businesses and manage assets that cannot be integrated into any of the new domain companies, such as OEM manufacturing of products that compete with the domain companies as well as joint ventures SANYO formed overseas. PEW' s businesses will be fully integrated into the new domain companies, and Panasonic and PEW will operate them in a unified manner.
4) Brand Consolidation
Basically, Panasonic will be the only brand that conveys corporate messages for all the business groups, except for a certain regions and products. Besides, there are many sub-brands as well as products and technologies that have their own names. Panasonic will continue to use them according to its needs, while ensuring consistency in the Panasonic Group.
3. Strengthening Management Structure - Act Decisively, Change and Mix Together
1) Emerging Countries
Panasonic Group aims for sales of 615 billion yen for fiscal 2012 from BRICs + V (Brazil, Russia, India, China and Vietnam) and MINTS + B (Mexico, Indonesia, Nigeria, Turkey, Saudi Arabia and the Balkans). Particularly in India, where the group plans to double its sales in the second year of its India project that aims for a large increase in sales, it will accelerate its initiatives in the strengthening of its product lineup and marketing structure as well as opening of B-to-B showrooms. Panasonic is determined to achieve sales of 100 billion yen in fiscal 2012 in India as a stepping stone to reach sales of 200 billion yen in fiscal 2013.
Taking the welding system area as an example of its B-to-B initiatives, Panasonic will launch new products developed from customers' perspectives, such as inverter-equipped arc welding machines intended for high volume segment customers that were designed by taking into account users' opinions gained through surveys conducted in China and India. The welding system business will build up its sales and service networks and aim to achieve double-digit growth in its sales in the emerging countries.
2) Growth Areas
Devices for Smartphones: In the rapidly growing smartphone market, Panasonic will step up its efforts to reinforce the related device business. Especially, it will build up its high-density circuit board business based on Panasonic' s proprietary ALIVH (Any Layer Interstitial Via Hole) technology by increasing production capacity at overseas factories with investments of about the 10 billion yen level and strengthening the business alliances with major European substrate makers.
Next-generation Lighting Devices: Panasonic recognizes OLED lighting as the next-generation lighting devices that may become equally popular as LED lighting in the market and formed a joint venture called Panasonic Idemitsu OLED Lighting Co., Ltd. with Idemitsu Kosan Co., Ltd. on April 12, 2011. Panasonic will speed up the commercialization and market development for its OLED lighting products.
Solar Business: In Japan, to help reconstruct the nation after the Great East Japan Earthquake, Panasonic will focus on boosting its solar panel supply including purchases from other vendors. In Europe and the United States, Panasonic will create new business models in the solar business, including business alliances with electricity and gas companies, M&A and offering of integrated systems. Overall, Panasonic will aim for sales of the 150 billion yen level in fiscal 2012.
Environmental Engineering Business: To address environmental challenges factories are facing, Panasonic will propose comprehensive solutions for the entire factory. These solutions include its water purification technology using filtration membranes, originally developed by SANYO, as well as energy-saving support service that includes not only products but also consultation for creating and saving energy from factory infrastructure. Panasonic aims for sales of 37 billion yen in fiscal 2012 from this business.
To successfully carry out management innovations, Corporate Division for Group Management Innovation, consisting of six subcommittees and one committee, will orchestrate innovation initiatives across all the group companies and accelerate the group-wide innovation efforts. Individual businesses will also be drastically reorganized.
1) Product Development
The division' s V-Products Subcommittee will conceive and design "V-Products" that can achieve "victory" in the global consumer electronics market. These products will incorporate findings of lifestyle research the group has been conducting in various countries. The products will demonstrate Panasonic' s commitment to quality and user-friendliness but without features that are deemed unnecessary in the designated markets. Panasonic aims for sales of 1 trillion yen or more in fiscal 2013 from these products with overseas sales accounting for at least 60%.
The division' s Environment Innovation Subcommittee will work to boost manufacturing of energy-saving and recycling-oriented products. Panasonic aims to achieve a size of contribution in reducing CO2 emissions equal to 48.3 million tons from such environment-conscious products in fiscal 2013.
2) Management Structure
A new subcommittee (Management Strengthening Subcommittee) which focuses on strengthening Panasonic' s management structure will be placed under the Corporate Division for Group Management Innovation. The subcommittee will drive the group' s cost cutting efforts, aiming to lower the break-even point by 4% in the next two years. It will also work on increasing the group' s cash reserve and aim to improve to turn net cash flow positive in fiscal 2013.
3) Reorganization of Individual Businesses
Flat-panel Television Business: Panasonic will increase purchase of LCD panels from outside vendors and transfer a production line of its third domestic PDP plant in Amagasaki City in Japan to China to reduce asset. Also, it will focus on panel sizes with which it can give full play to its competitiveness in flat panels. For TV sets, it will focus on improving profitability by introducing TVs with distinctive features, while stepping up production overseas.
Semiconductor Business: In order to change the existing system LSI-centered business model, Panasonic will reinforce its efforts to shift development resources to growth areas, build business with new customers and optimize production by choosing right production sites.
Involving all employees of the Panasonic Group, Panasonic will create a new group culture. By sharing management philosophy and making the most of diversity of the group, they will strive to make the new group culture directly contribute to the group' s growth.
4. New Panasonic Group after Reorganization
New Panasonic Group
When the drastic group-wide reorganization is completed, Panasonic will have an optimum structure that enables the group to effectively pursue new growth strategies. Panasonic aims to realize sales of at least 3 trillion yen from each of the three business sectors in fiscal 2013. It expects the group' s total employees will be the 350,000 people level as it will build an organization with global competitiveness.
Panasonic will review overlapping businesses within the group and consider consolidation or transfer them to outside companies. At the same time, Panasonic will reorganize its bases and reassign its personnel, as the reorganization involves consolidation and streamlining at the group' s head offices and all business domains. Panasonic expects the restructuring charges will be the 110 billion yen level in fiscal 2012 and the 50 billion yen level in fiscal 2013.
Synergies and GT12 Targets
Panasonic expects some negative synergies in fiscal 2012, such as sales decline, inherent in the consolidation of home appliances businesses and sales companies. However, it also expects the rationalization and restructuring will more than offset the negative effect and increase its annual operating profit by 6 billion yen in fiscal 2012.
In fiscal 2013, Panasonic predicts synergies from the restructuring will contribute 60 billion yen to its annual operating profit, as increased sales in solar cells, lithium-ion batteries, LED lighting and air conditioning equipment and rationalization are expected to exceed the negative synergies.
Under the GT12 plan, Panasonic set the targets of 10 trillion yen in sales and 5% or more in operating profit to sales ratio for fiscal 2013. Considering impact of exchange rate changes and the above-mentioned synergies, Panasonic maintains the operating profit to sales ratio target of 5% or more for fiscal 2013. For operating profit, it will strive for achieving the original goal of the 500 billion yen level in fiscal 2013. As to sales, Panasonic now aims for 9.4 trillion yen for fiscal 2013, taking into account a further appreciation of the yen and the reorganization plans shaped in its "Transformation Project" that was developed after the GT12 plan.
Panasonic Corporation is a worldwide leader in the development and manufacture of electronic products for a wide range of consumer, business, and industrial needs. Based in Osaka, Japan, the company recorded consolidated net sales of 8.69 trillion yen (US$105.0billion) for the year ended March 31, 2011. The company's shares are listed on the Tokyo, Osaka, Nagoya and New York (NYSE:PC) stock exchanges. For more information on the company and the Panasonic brand, visit the company's website at http://panasonic.net/
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