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Japanese to English: CEO Message of Tokyo Century Lease
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Translation - English Interview with the President
ïŒLeadïŒ
The merger has made Century Tokyo Leasing a company which ranks alongside other leading leasing companies. We will establish ourselves as No.3 in the industry, and expand our business domains with leasing and installment as our foundation. We are seeking opportunities for business development to become a company that goes beyond the ordinary definition of a finance company, and will demonstrate new ways of an evolving leasing company.
Q. How do you view your results for the fiscal year ended March 2009?
A. Earnings were below our initial expectations, but I think we are putting up a good fight in this harsh business environment, and produced firm results compared to other companies in our industry.
Our consolidated results for the fiscal year ended March 2009 for the two merged companies were as follows: operating income 20.9 billion (down 600 million year on year), ordinary income 22.2 billion (down 80 million year on year), net income 10 billion (down 3.2 billion year on year), consolidated operating assets base 2.1 trillion (1.78 trillion of this in lease installment assets).While leased capital investment in the entire industry was 5.44 trillion (down 14.2% year on year), and Century Tokyo Leasing had 520 billion (up 52.5 billion year on year), which constitutes an almost 10% market share. Looking at our figures such as this operating assets balance and newly executed contracts, I feel we are in a position to lead the industry as a major player.
Q. How do you view the leasing industry overall?
A. I believe the leasing industry to be in a relatively favorable position given the severe business environment which surrounds the finance industry.
At the moment, the finance industry in Japan is faring very poorly. For the megabanks and regional banks, there is no magic wand for an easy recovery. Furthermore, the earnings structure for securities companies are damaged, and they are unable to earn high-margin profits that were once a given for investment banks. Insurance companies also cannot foresee any substantial growth in the future amidst a declining population trend. The situation for the consumer finance sector is even more grim; the amendments made to the Money Lending Business Act has put them in dire straits. Amidst all this, I can say that the one industry which has been relatively unscathed by the economic calamity is the leasing industry, which maintains stamina through sound management and makes use of its advantage in its possession of tangible assets.
Financial regulations are expected to become more draconian as there is a tendency in Japan to become a little excessive. Although the leasing industry holds a position in the finance industry, it is relatively free from financial regulations. In this sense, I believe the leasing industry to be holding a favorable position in the Japanese finance sector.
Q. How did the business environment change?
A. Lease capital investment in the fiscal year ended March 2009 decreased 14.2% year on year to 5.4 trillion. The leasing market has been shrinking over the two years since June 2007, showing a year-on-year decrease on a monthly basis each year.
Especially in the fiscal year ended March 2009, in addition to stagnant capital investment due to the economic recession, I think the changes in lease accounting standards had an impact.
To elaborate further on the financial environment, since the bankruptcy of the major U.S. investment bank Lehman Brothers last September, financial markets have not functioned properly, leading to high funding costs such as a temporary spike in the issue rates for commercial paper. Moreover, the number of bankruptcies reported for domestic companies grew 16.8% year on year to 13,200, increasing for the third consecutive year.
In this way, the leasing industry found itself to be in a very harsh business environment due to stagnant capital investment, interest rate trends, the rapidly deteriorating financial environment since last autumn, and increasing company bankruptcies.
Q. Was this merger a response to these changes in the business environment? Also, what are the most noticeable benefits from the merger?
A. We thought the next three or four years would be an uphill battle, so we decided on the merger last September. There are defensive and offensive aspects which were borne from the merger.
First comes our defensive measures. We first thought of boosting our capital strength and earnings power to help us endure the unforgiving economic conditions. In short, this means building on our business strengths, and the merger makes it relatively easy to achieve this. Next comes our offensive measures. By becoming one of the top three in the industry, we wanted to demonstrate our presence as a leading company and raise our profile to our customers as well as increase our employeesâ morale. The combined, new lease contracts generated from the two merged companies amounted to roughly 10% of market share in fiscal 2008. This is almost the same scale as the industryâs top company. We believe the successful merger has created an environment in which we can compete alongside other leading companies. On top of that, there is an added merit of increased productivity since our operating assets exceeds over 2 trillion.
Q. Please describe the cost synergies
A. By integrating information systems and other benefits due to the merger, we are expecting several billion yen of annual cost reductions in the future.
The information system of the former Tokyo Leasing had to be replaced by the new system in 2009, but we are instead using the information system of the former Century Leasing System. It is a good example of the cost synergy achieved by the integration. System integration will incur one time costs, but we think the combined expenses of both companies will save about 1 billion to 1.5 billion per year in the future. We also see several billion yen of merger benefits if we maintain a lean structure by integrating overlapping areas and management departments.
Q. What position is Century Tokyo Leasing aiming for in terms of quality and volume?
A. Our aim is to establish our position as No.3 in the industry. We are happy with the third position and have no intention of chasing after the first and second places in terms of the business size. We believe that if we are a good third with services that speak for itself, we will be valued by stakeholders.
A top leasing company must act as a leader in the leasing industry and must also have the strength to start new businesses. To reach the position where we can discharge these responsibilities is what I mean by establishing ourselves as No. 3 in the industry. I think ranking as No.3 in terms of size is just fine. This is because we believe the amount of funds a leasing company can raise with a proper interest rate is between two to three trillion yen. Fundraising costs rise if that level is exceeded. In other words, because there are limits to the amount we can borrow and appropriate level must be maintained from the aspect of asset efficiency, I think our current size puts us in the optimal position that serves us and our shareholders best.
Q. What is the basic strategy being pursued by Century Tokyo Leasing?
A. We will strengthen our relationship with our primary business partners to expand our business domains, and become an essential partner for manufacturers. We also would like to change our ways of doing business, such as remarketing end-of-lease assets globally. .We are seeking opportunities to become a company that goes beyond the ordinary definition of a finance company in the future.
ITOCHU Corporation is our largest shareholder with about 20% of our shares. Starting with China, this trading company has business operations throughout the world. We also have major shareholders that are diverse in range, including leaders in the financial industry, such as Mizuho Financial Group, Inc., Nippon Life Insurance Company, and Asahi Mutual Life Insurance Company, and in real estate we have Nippon Tochi-Tatemono Co., Ltd. We would like to utilize each of our primary business relationships and expand our business domains. We will push forward with multifaceted sales activities covering a broad customer base ranging from large companies to medium and small companies, and refine our abilities to focus on increasingly diverse customer needs, while further strengthening our relations with shareholding companies.
Financial intermediation with a focus on tangible assets is a sector which will continue to grow. As the business of leasing companies revolves around tangible assets, it is important to decide on the direction of its operations by working closely with strong manufacturers. We must build even stronger ties with our closely related manufacturers such as Fujitsu Group and JFE Group, and work to find untapped markets. We also could have substantial influence over manufacturersâ sales policies, and feel that we can become their essential partner by getting actively involved in their sales policies. For example, how much business needs we can discover needs overseas, and to keep expanding on those sales channels are some of the crucial business agendas that lie ahead of us.
Moreover, since reuse and recycle of tangible assets are specialties of leasing companies, we believe we should also be the one to take charge in matters related too the business of trading companies. One of the strengths of leasing companies is its ability to accurately appraise the resale value of tangible assets. I donât think we can grow unless we can develop a specialty that is unique to the business that involves tangible assets, for instance, we can create a global secondary market for end-of-lease products if need be.
In terms of our dreams, we aspire to become a company that will not settle only in the confines of the world of finance. And it is important to be aware of this. Our business type happens to be positioned exactly in between that of finance and an ordinary operating company. We are able to operate in the world of finance and by going beyond that, we are also able to conduct operations as an ordinary business company. For example, we could create and operate our own company related to agriculture, medical care, or the environment, etc.
Q. What are some of the pressing issues in the first fiscal year of the merger?
A. For the first couple of years, we will work on cost cutting and reorganization to quickly achieve benefits from integration.
During that period, building a solid foundation will be our highest priority.
For that purpose, we aim to enhance company earnings power through controlling the following three costs. First, we will enhance our screening capabilities and structure that is conducive to the changing economic environment and will bolster our credit risk management structure to minimize credit costs. Second, since we raise large amounts of funds, we must focus on holding down the cost of funds by further improving our ALM functions through the control of market risks such as interest rate risks and liquidity risks. At the same time, we are working hard to maintain a stable indirect fundraising base by building good relationships with financial institutions. Third, we will cut operation costs such as personnel costs and property costs. We recognize that improved cost efficiency is an important business issue for the upgrade of competitive strength in the current business environment. We will continue to pursue a low cost operation with cost effectiveness at the forefront.
We will strengthen our business foundation and business efficiency by quickly integrating our core information systems, organizations, business locations, and group companies, etc., along with efficient allocation of human resources by suitable staff allocation, etc.
Q. What are the strengths of Century Tokyo Leasing?
A. We have a broad business foundation backed by close relationships with diverse major shareholders and manufacturers. Among other things, information equipment leasing business, which holds the top position in the industry and our auto-leasing business, which comes in third, are our major strong points. While further boosting our strengths, we are also expanding in other business fields.
Out of the fiscal 2008 domestic lease capital investment of 5.4 trillion, about 2.3 trillion was made up of information and communication equipment and office equipment, comprising over 40% of total investment. Particularly for information and communication equipment, we can always expect a certain level of demand, regardless of the ups and downs of the economy. Furthermore, it is the most leased asset as it serves to be a measure against obsolescence risk and because equipment requires complex management.
By taking such measures as the establishment of a sales department that specializes in information equipment and through the acquisition of Fujitsu Leasing Co., Ltd. we became the industryâs top company in information and communication equipment and office equipment in fiscal 2008. The combined newly executed contract amount of the two companies came to 292.2 billion, comprising 56% of our entire leasing business. Our close relation with Fujitsu Group is a great strength, and especially amidst a 12% year-on-year average decline in our industry for information and communication equipment leasing, we held our decline to 3% (on a non-consolidated basis). Under our stronger and broader customer base as the result of the merger, we will take advantage of our ties with Fujitsu Group, and continue to focus on information and communication equipment leasing as one of our stronger fields.
We are also expanding our auto leasing business, centered on Nippon Car Solutions Co., Ltd. and Tokyo Auto Leasing Co., Ltd. Through the merger, Century Tokyo Leasing Groupâs auto leasing business clinched the 3rd position in the industry. While the auto leasing market for large fleet users (contracts of 10 or more vehicles) is entering a mature period, it is thought that the non-fleet market (contracts of 9 or fewer vehicles) and individual market will expand, and we will expand our customer base by meeting diversified needs of customers
We are working to strengthen our group sales foundation and consolidated earnings powerãthrough the synergy created from the collaborative structure between our top-rated, auto-leasing business and our leasing businesses.
Q. Please describe your goals and targets in advancing overseas business focused on Asia.
A. First, we will grow our business in Asia by focusing on Japanese companies which already have established operational bases in the region. For example, for leasing business in China, we are aiming to be the top company over the medium term by working closely with ITOCHU Corporation, etc.
Our business in Asia is growing very fast by focusing on existing Japanese companies. in the region. I think the trendâstatic domestic market overshadowed by the growing markets in Asiaâwill continue for a long time. We want to focus our resources in Asia instead of in Europe and the U.S. We are developing our global sales strategy with an eye to the future with a focus on Southeast Asia where we see growth potential by leveraging our overseas networks of our major shareholders.
In the China market, for the moment we have been focusing only on those Japanese companies with an existing business base. However, we are already finding it difficult to cover their needs, as there are 5,000 to 6,000 Japanese companies alone. In that sense, Asia can be considered an extension of the domestic market. ITOCHU Corporation is the trading company that has devoted the most effort into expanding its business in China. Business in China is also growing quickly for the major cosmetics manufacturer with which we have a history of close business relations such as making its group leasing company into a subsidiary, and for the major Taiwan company which owns part of our joint venture company. We are earnestly striving to become the top leasing business in China, by cooperating closely with ITOCHU Corporation and these companies with which we have close ties.
Q. What are your thoughts on profit distributions to shareholders?
A. First of all, we are striving for stable dividends with a 20% payout ratio. In fiscal 2009, it will be 28 yen/share.
Before the merger both companies were aiming for a 20% dividend payout ratio, and Century Tokyo Leasing also wants to continue paying the same level of stable dividends. The former Century Leasing System managed to increase its consolidated dividends from the time of its listing in September 2003 to the previous quarter. The former Tokyo Leasing has increased its dividends for the past 11 consecutive years. Both companies before the merger continued to increase their dividends until the prior fiscal year. However, in fiscal 2009, taking the current economic conditions and industry environment into consideration, we are basically considering to pay out the same amount as in fiscal 2008, at 28 yen per share.
Q. Please share your message to all shareholders and investors.
A. Especially in this harsh business environment with a shrinking lease market, we must change our ways of doing business, and Century Tokyo Leasing is in a position where we can do that.
I think 40% of business management is about being prepared when the unexpected occurs, but the remaining 60% should be dedicated to the generation of ingenious ideas of how to pioneer the next business era. Our company is placed in a very favorable position, with bright future potential. New lease accounting rules for leases is having an impact, and the entire industry will slowly shrink over the next two years. But exactly because we are living in this age, we must have the energy to transform ourselves into something new. Furthermore, we are in a position to do these things. Leasing companies are maintaining their strength and are relatively free from financial regulations. I hope all shareholders will understand that there is no other business type with such strong showing which belongs to the finance industry and would like to ask for their continued support.
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Years of experience: 6. Registered at ProZ.com: Nov 2008.
My name is Daniel Akira Seymour, and I am a native speaker of both Japanese and English. I have received my education in Japan from kindergarten to middle school, and afterwards in the United States. I have worked as an in-house translator/interpreter for Japanese companies, namely in the IT and in the consulting/finance fields in Japan.
I also have a degree in Sanskrit and Hindi from Sanskrit University in India where I have studied and worked for 10 years.
First and foremost, I am a team player and I am very flexible in accommodating the needs of the clients. I am also very punctual and I believe I am able to provide consistency in the quality of work I submit.
I have vast interests, but my specialty lies in finance, banking, software development, medical, and patents.
If you have any questions, please feel free to ask me.
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