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Abu Dhabi, UAETuesday 11 December 2018

Scandal-ridden Kobe Steel abandons income forecast

Japanese behemoth also drops dividend payment on inability to predict fiscal fall-out from data falsification revelations

Kobe Steel executive vice president Naoto Umehara (R) and another executive bow their heads to apologise about data falsification scandal. Kim Kyung-Hoon/Reuters
Kobe Steel executive vice president Naoto Umehara (R) and another executive bow their heads to apologise about data falsification scandal. Kim Kyung-Hoon/Reuters

Kobe Steel withdrew its net income forecast and said it will not pay its dividend, acknowledging that executives cannot predict how a scandal involving falsified product data will affect earnings in coming months.

The steelmaker eliminated its ¥10 per-share interim dividend and said it can’t make a net income forecast because it might have to reimburse customers, the Kobe, Japan-based manufacturer said on Monday announcing first-half earnings. The forecast for net income had been ¥35 billion (Dh1.13bn) for the fiscal year that ends in March.

Over the past three weeks, Kobe Steel has announced it faked data for products ranging from copper and aluminium to steel wires, machinery parts and heavy-plated metal. Clients including Kawasaki Heavy Industries have said they might seek reimbursement from the manufacturer if their customers start asking for replacement products or compensation.

“It is incredibly difficult to make a forecast,” Alexander Robert Medd, the managing director of Bucephalus Research Partnership, said before Kobe Steel’s announcement. “They have no idea what their one-off costs are going to be until customers have decided if they’re going to sue them or what their level of complaint will be.”

While most of the 525 companies affected did not find any safety problems created by data falsification, the manufacturer has said it will help to pay for related costs. Kobe Steel also lost Japanese Industrial Standards certification at one of its factories in Kanagawa and others are at risk as the government expands its inspections.

The company lowered its current profit forecast 9.1 per cent to ¥50bn, and its operating profit 6.2 per cent to ¥75bn. It maintained its revenue forecast of ¥1.88 trillion.

Revamping quality control for aluminum and copper products will increase costs and lower output, the Kobe Steel executive vice president Naoto Umehara said on Monday. The current profit forecast includes a ¥10bn reduction from the data-falsification issues, he said.

The company will probably receive requests to reimburse customers for expenses related to quality checks and replacements, Mr Umehara said.