Impact of Great East Japan Earthquake - One month after quake

Apr. 12, 2011

One month after the Great East Japan Earthquake, initiatives toward reconstruction are making steady progress. JCR announced its comment on the effect of the earthquake on March 14, 2011 and has been making every effort to capture the real picture since then. The outline of where risks lie is gradually becoming clear and JCR has announced its comments and taken rating actions where deemed necessary.

On the other hand, in addition to the fact that there still remains a possibility that risks that have not been sufficiently factored into ratings will become evident hereafter, it is alto true that not everything with respect to risks, which have become apparent so far, such as degree of their effects and time required to eliminate any adverse effects, has become clear.

JCR will continue its efforts to scrutinize the effects of the earthquake on its ratings and will reflect any findings in them as they become clear. In the meantime, JCR organized and summarized the key points in rating for corporations at the moment as below.

One key point is a direct impact on stocks at financial closing after March. Extraordinary losses related to the damage caused by the earthquake, such as repairing, demolishing and removing, are expected manly for corporations that have suffered damage to their production facilities and marketing bases. Depending on the degree of the losses, impact on the financial structure and effect of the financial results on transactions with financial institutions and cash management require a close attention.

In terms of flows, the effect of the earthquake on the financial performance of the corporations that close their books on March 31 is considered limited to a small degree in general for the fiscal year ended March 31, 2011, because the books were closed shortly after the earthquake. However, there are notable cases among consumer-related companies, including service industry and retailers, where sales plunged temporarily to a great extent. JCR will keep an eye on the degree and continuity of the effect in these cases.

Looking at FY2011, the effect on flows must be closely watched. In particular, trends in supply chain and power supply will have a great impact.

With regard to the supply chain, initiatives to remove the bottlenecks that have been identified, such as independent restoration efforts and alternative procurement, are already underway. In the meantime, in cases where there exist no particular problems now as any troubles can be dealt with by utilizing inventories on hand, attention needs to be paid to a possibility of new bottlenecks as time passes.

As for power supply, rolling blackouts have been a concern in this summer's power supply/demand plan as they will greatly affect the industry, but it seems that they will be avoided. However, although various measures are being considered by the government, industry and individual corporations, should large-lot industrial users' maximum power consumption be cut by around 25%, this would considerably restrict activities of manufacturers at their production facilities and activities of retailers, restaurant operators, and leisure companies at their marketing bases.

While sales of corporations as a whole will be restrained due to the factors described above, factors to raise costs, such as a rise in raw material and fuel prices, are increasing. Their effect on corporate earnings is expected to become evident to some extent, but the degree of such effect may vary among industries, and even from company to company in the same industry, due to such factors as their regional characteristics and business portfolio. JCR will take into account these circumstances and make a careful judgment for individual cases in ratings hereafter.