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Japanese Firms Weather Disasters

Finance: Despite catastrophes, profit drop in fiscal first half is modest

by Jean-François Tremblay
November 7, 2011 | A version of this story appeared in Volume 89, Issue 45

Japanese chemical firms mostly posted lower profits in the first half of their fiscal year ending on March 31, 2012. But given that companies in Japan had to cope with a massive earthquake, a tsunami, power shortages, and a record-high currency during the period, it could have been far worse.

Shin-Etsu Chemical was the major chemical company that was most affected by this year’s catastrophes. Its net earnings were down 18% compared with a year ago. Still, that is a relatively modest erosion in profit considering that the March 11 earthquake severely damaged Shin-Etsu facilities producing polyvinyl chloride and silicon wafers—the company’s main products.

Japan’s largest chemical producer, Mitsubishi Chemical, reported a 15% drop in earnings compared with the same period a year ago. As in Shin-Etsu’s case, the setback is small given that the earthquake downed Mitsubishi’s big Kashima plant for two months.

Japanese companies owe their resilient results in part to an accounting quirk, points out Yoshihiro Azuma, a Tokyo-based chemical stock analyst at the securities firm Jefferies & Co. Their financial statements do not yet convey the impact of the current global slowdown, Azuma says, because of a three-month delay in how Japanese companies account for their foreign subsidiaries.

In this context, Toray Industries appears to be thriving because much of the company’s business is outside Japan, Azuma says. The firm reported a net profit of $520 million, representing a 61% advance compared with a year ago.


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