Panasonic Connect CEO Yasuyuki Higuchi.
In recent years, listed companies have been under increasing pressure to implement management reforms from the Tokyo Stock Exchange, activist funds, institutional investors, and others.
A growing number of companies, including Taisho Pharmaceutical Holdings, Snow Peak, Lawson, Benesse Holdings, and Benefit One, are delisting and withdrawing from the stock market.
On the other hand, even though the company is not listed, we calculate the “theoretical enterprise value” by comparing the stock price and financial information of listed competitors.Management reform from an investor perspectiveOne company that is taking on this challenge is Panasonic Connect, a subsidiary of Panasonic Holdings.
We asked CEO Higuchi Yasuyuki about the background to this.
*This article was first published on April 8, 2024
Reference articles:”I knew the persistence of Panasonic’s culture”: Why corporate culture reform should be done top-down
・Management from the perspective of shareholders, even though the company is not listed
・Be a leader who can “cut losses” in your business
・Impatience with Sony Group and Hitachi
・A common standard for executives and business divisions
・Select the top 7 companies and the 3 companies the business division considers to be competitors
・Did we aim for the wrong place? Were we surprised by the data of our rivals?
– Large differences between departments, concentrated investment in high multiples
The resolution of the business model has improved.
Even though the company is not listed, management is based on the perspective of shareholders
Starting in fiscal 2023, Panasonic Connect will calculate the company’s “theoretical enterprise value” and then adopt a system in which executive compensation will be determined based on how that value increases or decreases three years later.
The company is unusual among non-listed companies in that it does not report EBITDA (earnings before interest, taxes, depreciation and amortization) or ROIC (return on invested capital).DisclosureThis time, they are taking it a step further and trying to take a hard look at their current situation from the “market perspective” rather than just looking at their own performance as an inward-looking indicator.
“The longer a Japanese company’s history is,The founder’s management philosophy remains strongIn the past, companies tend to think of contributing to society as their primary purpose.The emphasis on “pursuing profits” and “returning value to shareholders” tends to be low.That’s it.I want to strongly bring back the focus on “increasing shareholder value”That was the underlying idea.”
Be a leader who can “cut losses” in your business
The key point is that each of the company’s six business divisions will determine its theoretical enterprise value, and the sum of these will be considered to be Connect’s enterprise value.
“At Panasonic, the division manager has the same position as the company president.”Mr. Higuchi says, “Instead of just striving to improve the performance of your own division, you should allocate resources with the benefit of the entire company in mind, or more specifically,Cutting the Losses on His Own BusinessI wanted to be able to do that.
“It’s hard to quit a business with such a long history, and when it comes to quitting,The loudest voices in the alumni community are strongly opposed to the idea.,that isEspecially if it’s your family business…This is often the case.
Leaders also lack the courage to continue doing the right thing even if there is opposition, and to make the decision to step down with an eye to the next five or ten years.
Regarding investmentInstead of assessing returns, a strange egalitarianism of “if you invest here, then you should invest there” is widespread.doing.
First of all, from now on,They also have a low sensitivity to identifying business models that will generate profits.I wanted to solve all of these problems.
To increase the overall corporate value of the company,”Maybe I should close my business”And,”If you’re going to invest, it’s better to invest in places that have room for growth (even if it’s not your own division)””I want to encourage more decisions like this,” said Higuchi.
Frustration with Sony Group and Hitachi
The Panasonic Group is truly”Choice and concentration”Panasonic Holdings has made a big splash by announcing that it will sell its subsidiary, an auto parts company with sales of over 1 trillion yen, to a US investment fund.
Panasonic Connect also supports thisIn seven years, eight businesses were closed, three factories were closed, and two businesses were sold.I have been doing so.
In such a company,”Portfolio Management”It is very important to thoroughly raise awareness of this issue.
At the root of this is the fact that the Sony Group and Hitachi, Ltd., which are generally considered to be part of the electronics industry,Sense of crisisis.
Market capitalization isSony Group: 16 trillion yen,Hitachi: 12 trillion yenThese are the 4th and 9th most profitable Japanese companies in the “10 trillion yen club,” whilePanasonic Holdings is ranked 62nd with 3 trillion yen(As of April 5, 2024).
According to Connect, the gap between the two companies began to widen around 2018. The stock price plummeted after the company announced a decline in revenue and profits.”Sony Shock”(2003) and Hitachi in 2008.The manufacturing industry’s biggest deficit since the warNeither of them had smooth sailing, with the release ofEntertainmentFocus onIPStrengthenIntangible assetsSony Group has started to make money throughBusiness portfolio reformProceed withDissolution of parent-child listingorReduction of cross-shareholdingsThe situation has been improved by implementing thorough governance reforms such as the above.
A common standard for executives and business divisions
In particular, after analyzing the changes in Hitachi’s revenue structure and stock price movements over the past 20 years, I became keenly aware that the portfolio reform has been received with high expectations by the stock market.
What was seen behind Hitachi’s recovery was,Implementing “medium- to long-term” management strategiesis.
Connect’s previous management practices were based on comparisons with business plans and the previous fiscal year.Your company’s past and short-termwas.
We have also compared sales figures with competitors on a quarterly basis.Short-term and not evaluated by the market.
In addition, the theoretical corporate value is linked to compensation only for executives, butI want it to function as a tool for employees to gain a “stock market perspective”This was the thought of the accounting and human resources department that led the system design.Division manager classTheoretical enterprise value is the answer that comes from pursuing a quantitative indicator that all companies can commonly aim for, with a market perspective.
Select the top seven companies and three competing companies as considered by the business division
Let’s look at how to calculate theoretical enterprise value.
The indicators are market capitalization, interest-bearing debt, etc.Enterprise Value (EV)butEBITDA(Earnings before interest, taxes, depreciation and amortization)How many years does it cover?Show”EV/EBITDA multiple”is.
Become a benchmark for each business divisionSelect 10 listed competitorsBased on these average EV/EBITDA multiples, we calculate the EV/EBITDA multiple for each business division of Connect. We then multiply the EV/EBITDA multiple by the EBITDA amount to calculate the theoretical enterprise value for each business division.
This is how it came out6 DivisionsTheoretical enterprise valuetotalis set as the theoretical enterprise value of Connect,The amount by which the value has increased or decreased over the past three years will be reflected in executive compensation.That’s how it works.
The ten competitors were selected by the accounting and finance department using market research tools to select the top ten companies in the business field.Top 7 Companies by EV/EBITDA” and from the perspective of the competitiveness of products and services.Three companies that the business division wants to benchmark” was composed of the following.
Was the goal wrong? Surprised by rival data
The process of “selecting competitors and analyzing their EV/EBITDA multiples” also yielded significant insights into business strategy, and more specifically, it highlighted the challenges Conektto faces.
OverallThe multiples of the companies that the division chose as benchmark companies were low.That’s it.
For example, the process automation business, which handles welding robots, etc.hardwareWhile the EV/EBITDA multiple was low, the multiple was high and the market was evaluating the companies.Yaskawa ElectricorFANUCSuch,Strong in software, providing a platform and having many partner companiesIt was a company.
Even in business divisions and on-site solution companies that handle digital transformation in the manufacturing, distribution, and retail industries, the business divisions choseHardware-based companiesThere were many, but the high multiples wereNomura Research InstituteorNTT Data,SCSKSuchSaaS appsIt was a company that provided
For the business division side,Companies that we regularly benchmark(Most of it is hardware-centric)Market expectations for growth are lowAlthough I somehow felt that way,The fact that there is a difference of several timesofQuantificationIt was a big thing to be confronted with.
There is no way we can avoid pursuing a business model that is profitable and well-received by the market.Regarding the target date for increasing the “ratio of software solutions to total sales,” there was a debate as to whether “this time frame is really appropriate.”It’s inside.
Large differences between departments, concentrated investment in high multiples
The theoretical enterprise value of Connect calculated in this way is:Large differences between business divisionsWhile Blue Yonder, a U.S.-based supply chain management SaaS provider that was acquired in 2021 for approximately 860 billion yen, boasts a high multiple, the multiples of its mobile solutions business, which handles notebook PCs and other products, and its media entertainment business, which handles professional video and audio products, were low.
One reason for this is that the former is a rapidly growing area while the latter is a mature market.
In December 2023, the company announced that it will transfer its professional AV business under its Media Entertainment division to Entertainment & Communications, which handles consumer AV equipment within the Panasonic Group.
On the other hand, the company is also accelerating its investments, such as acquiring Dodol, a UK-based developer of logistics systems, through Blue Yonder (December 2023), and Flexis, a German company that develops production and transportation planning systems (February 2024).
Just this March, the company announced that it would acquire American company One Network for approximately $839 million (approximately 127 billion yen).
The transfer of the professional AV business was not directly triggered by the calculation of the theoretical enterprise value, but was a strategy to create more synergy in light of the current situation in which the boundaries between professional and personal use video equipment are becoming blurred.Accelerating business strategies, including rapidly expanding the software ratioIncluding,Attitudes within the company are definitely changingHiguchi says.
The business model has been refined
Panasonic Connect CEO Yasuyuki Higuchi.
“Increased sensitivity to business locations and business modelsI feel that way.
no matter whatIf you focus only on your business, it is difficult to change the way you move your body.I ended up thinking, “Let’s do the best we can with what we have now.”There is no opportunity to be exposed to or understand new ideas..
“By using the new measure of theoretical enterprise value, we were able to learn from the methods of our benchmark competitors and broaden our perspective. However, we still need to work a little harder,” said Higuchi.
The background to the calculation of theoretical enterprise value was that there was no indicator equivalent to the market capitalization of listed companies, but Panasonic Group is currently preparing to go public with its supply chain management business centered on Blue Yonder. Blue Blue Yonder’s ARR (annual recurring revenue) for fiscal year 2022 is $575 million and is expected to continue growing in fiscal year 2023.
“By clarifying the theoretical enterprise value of each business unit, I think people have become more aware and understandable as to why Blue Yonder’s multiple is so high, why it is considered a promising business model, and what will happen if the SaaS recurring model breaks through.
Here (Blue Yonder)There is the greatest room for growthSo,The entire organization will understand and support this growth, and ride on that growth.”I think that Panasonic will be keen to explore ways to do things together in a collaborative manner,” said Higuchi.
Source: BusinessInsider
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