Japan cement makers dread sting from depreciation rules

Japan cement makers dread sting from depreciation rules
Published: 20 April 2007

Japan’s largest cement maker,  Taiheiyo Cement Corp, and No. 3 firm Sumitomo Osaka Cement Co. are both bracing for sluggish earnings from domestic operations this fiscal year because changes in depreciation rules are expected to raise their costs.  
 
Under previous asset depreciation rules, 95 per cent of a company’s fixed-asset investments could be written off. Revisions to the tax law in April allow firms to write off the remaining 5 per cent on existing facilities over five years.  
 
Cement manufacturers use expensive production equipment such as kilns, and many possess old equipment that has been running for more than 10 years.  
 
Because of this, the remaining 5 per cent tends to be comparatively large for the cement industry, which means that the revision will affect this sector more than others.  
 
For Taiheiyo Cement, the remaining 5 per cent comes to roughly 25 billion yen (US$210.7 mllion).  
 
Because this will be written off in equal amounts over the next five years, its depreciation expenses will increase by about 5 billion yen annually.  
 
"There’s a good chance that profit will decline" for Taiheiyo Cement’s domestic operations this year, said Mizuho Securities Co. analyst Hiroshi Matsuda.  
 
Sumitomo Osaka Cement is expected to see its annual depreciation expenses grow by about 1.5 billion yen. Its operating profit is projected to rise by 4 per cent to around 16 billion yen.