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15/27 Distribution Taking on a 2 trillion yen market
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00:10:15.3
In this environment, what are our thoughts on the future? While I think this will surprise you, we plan to invest 20.0 billion yen during the current fiscal year. A land purchase deal in Hachioji came up suddenly. We experienced a significant physical distribution problem in Kanto at the end of last year. There was a large volume of orders on Christmas Day, and our machines ended up breaking down, as we had exceeded their capacity. We thought this would reduce our profits by 150 million yen, but I believe our profits will be reduced by more than 200 million yen. This was an unavoidable problem on that day. We couldn’t anticipate it. The concentration of distribution centers in one area resulted in a failure to obtain trucks. Trucks had to wait too long on the previous day, so they were cancelled. Some trucks transported other places’ goods. A loss of 200 million yen was incurred in a short period. The Sales Division had to get help from various divisions and departments, and went through a painful experience. How can we solve this problem? This year, a distribution center will be built in Osaka. Once it is built, and deliveries from Osaka to Nagoya and from Nagoya to Tokyo are made, this problem will be solved. In July, physical distribution will be arranged in Kyushu, and in Osaka in September (not October). Almost all our warehouses are currently leased from outside the company. Everything can be depreciated and amortized through freight and residential rents. This will not put any pressure on profits. This also applies to Kanto. We currently pay about 270 million yen to lease our warehouses. Probably about 280 million yen. If the depreciation of our machines is considered, while our depreciation expenses for the first year will be high, warehouses with a space of several thousand tsubo can be used free of charge. This being the case, if 35% of our distribution centers for Kanagawa Prefecture and Saitama Prefecture are concentrated in Hachioji, our distribution costs will be reduced. If we start with these matters, we can produce positive results as soon as our Kanto distribution center is established. While we may not have been aware of it, many companies operate using leased warehouses. There has been a wave of demand, and we have to hold inventories to cope with this wave. We have done these things. We will build four distribution centers, including the one in Fukuyama, quickly. What will happen with these four distribution centers? We can explain that we did these things to offset the increase in consumption tax by 3% and 2% and, therefore, we can rationalize everything. What our customers tell us the most is not so much about our current price hike. It is rather, How can we cope with a 3% increase in the consumption tax next spring? How can we even consider it? There is no way we can raise prices under these circumstances. The consumption tax will go up 3% and 2%. How we can respond to this is through physical distribution. If we can properly justify our physical distribution, and convince our purchasers, and they understand that if they use the systems FP Corporation proposes, expenses will not increase by the same amount as the consumption tax, and will be streamlined to some extent. So we can say that although the consumption tax will increase, expenses will be streamlined in return. We believe that expenses will increase next year and the year after next year, but we can solve the problem of being attached for the increase. In this environment, the Company earned a considerable profit in the current fiscal year, thanks to the new products we introduced into the market in the previous fiscal year. However, in actuality, we planned the full-scale production of biaxially stretched OPET products starting in July. Items like this, which were included in our sales and profits, can finally start to be reflected in our products starting around March. We have already issued an order for a second machine, as the machinery manufacturer said that it would do everything as guaranteed, and it has accepted our order. Biaxially stretched PET is quite competitive. Styrene’s weakness is its oil and acid resistance, which is currently the biggest problem. We will solve this. If we purchase our machines at about 70% of their total cost, which is guaranteed right now, we will gain only about 70% in production volume. Even so, the cost is slightly lower than the current cost of OPS. Regarding our second machine, the cost will be reduced by units of 10%. This sheet development resulted in our developing large-sized sheets after we worked really hard on it for about a year. Another thing is PP’s transparency. Regarding this sheet, I think you probably can’t find our technology, which improves the amount of transparency using standard-grade PP, anywhere else in the world. I believe that our success in this will contribute considerably to the current fiscal year’s financial results. However, in the first half, some companies still spurred price competition, because they sought volume. Yet in the second half, we will see the effects of our new products. Therefore, ordinary income for the second half is expected to be 9.5 billion yen. I am more confident now. The areas in which our competitors can’t follow suit will increase rapidly. If so, wholesalers will be restricted to us. There are no similar company. Wholesalers have to handle these highly functional items. If sales to wholesalers centering on FP Corporation’s products automatically increase, I think that wholesalers’ trading area will change more drastically than we imagine. Transparent containers are the biggest market in terms of money. We developed PP and PET, which are lower than current costs. In the case of PP, its heat-resisting temperature is +110 degrees. The cold-resisting temperature is normally around ?20 degrees. However, while officially we have said that PP’s heat-resisting temperature is 110 degrees, its heat-resisting temperature can be as high as +120 degrees. We could produce this material. Multi Solids are sheets we produce using the cutting remnants created by increasing the amount of our Multi FP. Our keenest competition is PP TULC, a lunchbox used by convenience stores. Our Multi Solids, which are highly competitive, compete with PP TULC. We don’t have a limitless amount of Multi Solids. We have about 600?700 tons of Multi Solids that can be sold right now. If the amount of foam in our Multi FP increases, the quantity of our Multi Solids will also grow. I think that the quantity of our Multi Solids will continue to increase. This is where things are. So when people question whether it is okay to have an optimistic outlook for the second half, we believe that we can definitely achieve what we have shown in the outlook. We believed this, and announced an increase in sales and profits, though this was slight. If you look at the next fiscal year, you will find two semiannual fiscal years that are the same as the second half of the current fiscal year. If this is true, there will be a considerable change in the next fiscal year. We will never be beaten by our competitors, who follow us, as in the past. The more we mass-produce, the more the current costs will go down. In the past, FP Corporation took off in a hurry with new things, but it does not need to do that. The more we mass-produce, the more we can reduce our costs. Also, all our distribution centers will be completed. Therefore, you will definitely see a difference among companies in the industry when the consumption tax rises next year and the year after. We can reduce our costs through physical distribution. Other companies can’t do this. Speaking of physical distribution, unit prices jumped in the Kanto area at the end of last year. Distributors did not return a large quantity of products, but proposed increasing unit prices by two or three times. The freight for these small-lot products might be raised. A 10% increase was proposed to us in the spring, but we managed to limit this to an increase of about 5% or 7%. However, I think in the fall there will probably be a double-digit increase, and the unit prices will be close to those in Kanto. All four of our distribution centers will be built before next year. This will reduce our expenses, though only gradually. Yet, the industry’s expenses will increase. Other companies will see a huge difference in their distribution expenses, which are included in selling, general and administrative expenses, from FP Corporation.
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