April 27, 2018 / 9:50 AM / 23 days ago

Kobe Steel posts first profit in three years despite data fraud scandal

TOKYO (Reuters) - Kobe Steel Ltd, Japan’s third-biggest steelmaker, on Friday posted its first annual profit in three years, even after admitting to falsifying quality data, a scandal that affected hundreds of customers and hit Japan’s manufacturing prowess.

The Kobe Steel (Kobelco) headquarters building is seen in Kobe, western Japan October 24, 2017. REUTERS/Thomas White/Files

Kobe Steel reported profit of 63.19 billion yen ($578 million) for the year ended March 31, against a loss of 23.05 billion yen a year earlier.

The result was above its own forecast of 45 billion yen and an estimate of 49.56 billion yen among seven analysts surveyed by Thomson Reuters I/B/E/S.

“Solid demand in steel, aluminium and copper, as well as construction machineries helped boost our sales,” Senior Managing Executive Officer Yoshihiko Katsukawa told a news conference.

Sales rose more than 10 percent to 1.9 trillion yen, indicating the company has not lost significant numbers of customers since announcing the tampering in October last year.

Kobe Steel, which supplies steel and aluminium parts to manufacturers of cars, planes and trains around the world, admitted to supplying products with falsified specifications to more than 600 customers and said the data fraud had been going on for nearly five decades.

The scandal did curb profit for the 2017/18 year by about 12 billion yen, which included compensation payments and legal costs. This year, the tampering issues are forecast to cut earnings by about 10 billion yen.

“The data problem has cut our profit in the steel segment due to reduced orders, but the aluminium and copper segment has not experienced weak orders because of tight supply,” Managing Executive Officer Kazuaki Kawahara said.

However, the company has slowed the production of aluminium and copper as it needed to ensure all the specifications were met, he said.

Backed by improved earnings, the company said it will pay a dividend of 30 yen per share for the year just ended, after skipping payments the previous year.

For the year to March 2019, Kobe Steel predicts a 45 billion yen profit, in line with a mean profit forecast of 44.62 billion yen from six analysts.

This week, Kobe Steel said it was under investigation by Japanese authorities because of the scandal.

The Japanese company is also the subject of a U.S. Justice Department probe.

No financial impact from these investigations has been included in its earnings forecast, Kawahara said.

Nippon Steel & Sumitomo Metal Corp and JFE Holdings Inc reported strong earnings on Thursday, led by solid local demand and higher prices for steel products.

Japanese steelmakers are enjoying the best market conditions in at least three years. Steel prices have risen on increased production by automakers, while construction is in full swing for Tokyo’s 2020 Olympics.

The signboard of Kobe Steel's Kakogawa Works is seen at its main gate in Kakogawa, Hyogo Prefecture, Japan, November 13, 2017. REUTERS/Kim Kyung-Hoon/Files

Reporting by Yuka Obayashi; Editing by Aaron Sheldrick and Christian Schmollinger

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