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Kobe Abandons Net Income Forecast as Scandal Blurs Outlook

Kobe Steel Abandons Net Income Forecast as Scandal Blurs Outlook

(Bloomberg) -- Kobe Steel Ltd. withdrew its net income forecast and said it won’t pay its dividend, acknowledging that executives can’t predict how a scandal involving falsified product data will affect earnings in coming months.

The steelmaker, which eliminated its 10 yen per-share interim dividend, kept its revenue prediction but said it can’t estimate costs related to customer reimbursements, according to a statement Monday from the Kobe, Japan-based manufacturer announcing first-half earnings. The forecast for net income had been 35 billion yen ($308 million) 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 aluminum to steel wires, machinery parts and heavy-plated metal. Clients including Kawasaki Heavy Industries Ltd. have said they might seek reimbursement from the manufacturer if their customers start asking for replacement products or compensation.

“The trust in our company has been lost,” Kobe Steel Executive Vice President Naoto Umehara said at a press conference. “It will have an impact on the orders we receive next fiscal year and the year after.”

Kobe Abandons Net Income Forecast as Scandal Blurs Outlook

While most of the 525 companies affected didn’t find any safety problems created by data falsification, the manufacturer has said it will help 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 percent to 50 billion yen, and its operating profit 6.2 percent to 75 billion yen. It maintained its revenue forecast of 1.88 trillion yen.

Revamping quality control for aluminum and copper products will increase costs and lower output, Umehara said. The current profit forecast includes a 10 billion yen 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, Umehara said.

To contact the reporters on this story: Stephen Stapczynski in Tokyo at sstapczynsk1@bloomberg.net, Masumi Suga in Tokyo at msuga@bloomberg.net.

To contact the editors responsible for this story: Ramsey Al-Rikabi at ralrikabi@bloomberg.net, Steve Dickson, Aaron Clark

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