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

Reuters

Kobe Steel Ltd., Japan’s third-biggest steel-maker, 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 hurt the country’s reputation for manufacturing prowess.

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

The result was above its own forecast of ¥45 billion and an estimate of ¥49.56 billion among seven surveyed analysts.

“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, 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 fiscal 2017 by about ¥12 billion, which included compensation payments and legal costs. This year, the tampering issues are forecast to cut earnings by about ¥10 billion.

“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 slowed production of aluminium and copper because 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 per share for fiscal 2017, after skipping payments the previous year.

For fiscal 2018, Kobe Steel predicts a ¥45 billion profit, in line with a mean profit forecast of ¥44.62 billion from six analysts.

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

The 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 steel-makers 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 the 2020 Tokyo Games.