TT-462 -- Turning Around FujiFilm, ebiz news from Japan

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A weekly roundup of news & information from Terrie Lloyd.

General Edition Sunday, March 23, 2008 Issue No. 462


- What's new
- News
- Candidate roundup/Vacancies
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- Corrections/Feedback
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Back in 2006, we wrote about Fuji Photo Film, now named and
listed as Fujifilm Holdings. At that time, the company was
deep in the restructuring process, eventually laying off
thousands of people and reinventing itself from a camera
film company into a Chemicals, Health, and Electronics
business. Under the helmsmanship of CEO Shigetaka Komori,
the company started to turn itself around and had robust
financial results in FY2006, leading the stock price to
soar from around JPY3,500 a share mid-2006 to JPY5,500 a
share just a year later.

But all that has changed over the last 6 months and the
company's stock has been languishing. Partly this has been
due to the overall drop in the Japanese stock market. But
in February the fall was accelerated when Fujifilm
announced that it would be paying JPY130bn (US$1.3bn) to
buy out a majority stake in Toyama Chemical, a drug maker
with no blockbuster products other than some generics and
untested drugs.

On the face of it, Toyama seems to be a big gamble. The
company has had an uneven earnings history and lost money
in 2 of the last 5 years. The deal was greeted with much
scepticism by investors as they questioned whether Fujifilm
would: a) be hurt by such a volatile subsidiary, and b)
whether it had overpaid. Either way, Fujifilm's stock price
has been headed downwards ever since. From February and
into March, it has dropped from around JPY4,200 to just
JPY3,340 on Friday.

So in making the acquisition, is Komori on some kind of ego
trip, taking some of his own drugs, or is there something
to his strategy?

[Continued below...]

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[...Article continues]

In actual fact, we think that Komori is one very smart guy
-- one with an agenda and who is willing to overlook short
term results to substantially rectify the company's lack of
a cash cow since the death of its previous standby -- film.
We believe that his strategy will become obvious in 2-3
years time and he will rank alongside Canon's Fujio
Mitarai as a gifted leader. (No, we don't have shares in

Let us elucidate.

Last week, the Nikkei carried an article about a new
substance that Fujifilm has developed, called Oxibarrier.
The product is an engineered version of astaxanthine, which
is reputed to be 100 - 500 times more powerful then Vitamin
E as an anti-oxidant. The main use of Oxibarrier is for the
removal of body toxins and anti-aging -- both very topical
subjects among young office ladies and retirees alike. Its
main component is also used as a fish food colorant for
commercial fish farms...?!

Fujifilm's expertise was brought to play both for the
production (brewing) of the substance from low-cost algae,
as well as in making the resulting powder more efficacious
and water soluble. Japanese consumers prefer to take
supplements as powders rather than capsules. Fujifilm uses
its film-related refining technology to turn the
astaxanthine into a nano-powder which is easy to mix and

Oxibarrier has been a huge hit, with a 30-day supply
selling for JPY3,800. Fujifilm reckons that it will sell
more than JPY1bn (US$10m) in the first year alone. We guess
that the profit margin is around 90% of the wholesale
price, allowing 5% for packaging and delivery... :-)

This is the second of two hit products for Fujifilm in the
last 18 months, the other being a dietary supplement called
Metabarrier. In both cases, while they are technically
considered food supplements, these "health foods" are
produced in high-tech ways that more closely match the
pharmaceutical model -- and this degree of sophistication
certainly discourages all but the most determined

The Fujifilm value-added component is its R&D and
manufacturing capability to take commonly available base
materials (astaxanthine is related to carotene) and turn
them into useful products. This is an immensely strategic
capability. No more being held hostage by metals mines
overseas for the silver that goes with the halide.

If you look at these points amidst a backdrop of the
world's slow but sure "pharma-tization" of the health food
industry (government and industry labeling and safety
regulations appear to aim to shut down small operators), we
think that Komori is very intelligently betting that he can
combine pharmaceutical manufacturing techniques with health
food marketing.

Granted, this is a big gamble based on a fledgling division
in the JPY2.78trn (US$27.8bn) company, but we believe he
will use his Toyama manufacturing and R&D base to move
forward other technologies that he either buys or
licences. In effect, we're witnessing a long-term "lego"
project, where you have to go buy the pieces to get the
finished object.

Investors of course hate this idea of building for the
future, and would rather see profits today. Now, it could
be that profits for the Toyama subsidiary are not so far
away. According to a recent Businessweek article, Toyama is
sitting on a new flu drug that promises to be an effective
alternative to Roche's Tamiflu. If it works, and we'll know
next year, imagine the scenario. The Japanese government,
the world's biggest user and stockpiler of Tamiflu,
suddenly gets a domestic producer. No guesses as to where
next year's budget of JPY38bn (US$380m) for 35m doses will
go to -- especially since Tamiflu has been besmirched with
last year's banning of its prescription for adults and

Fujifilm may be at a 3-year low in its stock price right
now, but based on evidence of innovative business thinking
in the board room, and by developments such as a pending
new Health Products business, we don't see that situation
remaining for long.

...The information janitors/


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+++ NEWS

- Gas tax bill will have knock-on effects
- ShinGinko in bad shape
- Huge foreigner sell-off
- First listed REIT goes bankrupt
- Household assets fall

-> Gas tax bill will have knock-on effects

Although a battle royale is going on in the media (for and
against) the DPJ's spoiling tactics to try and get the gas
tax levies repealed, there are some other interesting
knock-on effects of the overall tax bill that the
government is trying to get passed. If the bill fails,
which it could, cigarettes, whiskey and other foreign
products will suddenly be subject to the 5% consumption
tax when they are imported, versus being exempted as now.
Real estate purchase tax would also increase from 1% of the
assessed value to 2%, and bond-related fund-raising by
Japanese banks from foreign ones would result in the
foreign banks having to pay 15% withholding tax on the
interest -- most likely killing off that area of the
market. Lastly, large companies will once again be able to
account for client entertainment expenses as losses, a
change that would cut the nation's tax take by JPY300bn
annually. (Source: TT commentary from,
Mar 23, 2008)

-> ShinGinko in bad shape

It amazes us how Tokyo governor Shintaro Ishihara still
comes up smelling of roses despite the ShinGinko debacle.
As readers will recall, the ShinGinko bank was set up by
the Tokyo Metropolitan government in April 2005 after the
idea was championed by Ishihara. Ostensibly established to
help smaller Tokyo firms who found it hard to get loans
from regular banks, ShinGinko has turned out to be a tale
of incompetence and possibly worse. To prevent the bank
from going bankrupt, The Tokyo government has now agreed to
put in another JPY40bn of capital, on top of the JPY100bn
it originally put in 3 years ago. ShinGinko managed to lose
HALF of its original JPY100bn in just 18 months due to bad
loans and cost over-runs...! Observers say that with an
expected rise in bad loans as the economy slows, the new
capital infusion may only last 3-4 years. ***Ed: Now tell us
again why Ishihara got voted in for a 3rd term last year?
The opposition are wasting a classic chance to win points
with the public here.** (Source: TT commentary from, Mar 22, 2008)

-> Huge foreigner sell-off

Fueled both by foreign pessimism over the lack of will by
the government to continue Koizumi's deregulation policies,
the timely strengthening of the yen, and a probable call on
capital back in their home countries, foreign investment
funds sold off a near-record volume of Japanese shares for
the week ending March 14th. In the biggest weekly sell-off
since the Black Monday market crash in October 1987,
foreign investors sold JPY922.7bn (US$923bn approx.) of
shares on a net basis. ***Ed: The strong yen took some of
the sting out of the stock losses for those investors -- so
you can't really blame them for dumping Japanese equities.
Japanese stocks lost an average 17% in value last year.**
(Source: TT commentary from, Mar 21, 2008)

-> First listed REIT goes bankrupt

In what we predict to be a hastening trend, the first
listed REIT, Reicof Co. Ltd., has filed for bankruptcy. The
company has debts of JPY42.6bn (US$426m approx.). Reicof
focused on hotels, and its lawyers say that the company was
getting squeezed as Japanese banks tighten land-related
loan conditions. Apparently banks in 2005 would lend up to
80%-90% of a building's value and now that percentage is
just 60%-70% -- requiring REITs to significantly increase
the amount of capital they need to keep growing. ***Ed:
Well we said a number of times during 2007 that real estate
prices were being artificially inflated by the REITs and
that the trend couldn't last. Tightening credit along with
a basic lack of people and companies rich enough to keep
paying such high prices will be the undoing of a number of
these speculators.** (Source: TT commentary from, Mar 21, 2008)

-> Household assets fall

The Bank of Japan has said that due to falling stock market
prices, the value of assets held by households suffered
their first decline since 2002. Household assets are now
JPY1,544.8trn (US$15trn approx.) as of December, 2007, a
drop of approximately 0.5%. ***Ed: The trend appears to be
a shift from stocks to investment trusts and bonds. The
value of stocks held by households dropped from JPY198trn
in 2006 to JPY164.7trn in 2007, while investment trust
holdings rose from JPY61.4trn in 2006 to JPY71.9trn in
2007. Bonds were up from JPY32.3trn in 2006 to JPY36trn in
2007.** (Source: TT commentary from,
Mar 20, 2008)

NOTE: Broken links
Many online news sources remove their articles after just a
few days of posting them, thus breaking our links -- we
apologize for the inconvenience.


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One wonders how this group will venture into the digital era with a renamed corporation that doesnt relate to the current market,we expect film to disappear as main stream product by the end of this year.
We launch here in Europe-Oslo this week with the next generation offer and this will accelerate the demise of the minilab,as we sit out in a shopping mall printing better quality digital prints, unattended 24/7.