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Shock absorber maker KYB faces sharp loss after falsifying data

Japanese company will incur heavy costs to replace earthquake dampers

KYB falsified quality test data for earthquake dampers and now needs to book replacement costs.
KYB falsified quality test data for earthquake dampers and now needs to book replacement costs.

TOKYO -- Japanese hydraulic parts manufacturer KYB is expected to report its worst first-half loss ever following revelations that it falsified quality test data on earthquake shock absorbers.

The Tokyo-based company is seen notching a net loss of around 100 billion yen ($88 million) for the April-September half, compared to a net profit of 7.2 billion yen in the year-earlier period. An earlier forecast called for a net profit of 6.9 billion yen.

Japan's largest producer of earthquake dampers will be burdened with costs to replace all absorbers that may have been subject to data falsification over two years. It plans to book around 15 billion yen in the first half, which will cover expenses to manufacture the replacement dampers, as well as shipping and installation costs.

The last time the company posted a first-half net loss was three years ago. KYB is likely to downgrade its full-year projections when it announces its midterm results on Tuesday.

KYB has not booked costs that may occur if clients demand compensation for the closure of facilities because such figures cannot be estimated. The company, therefore, may face further expenses.

In addition, KYB will book impairment charges for damper manufacturing equipment in the first half. This business will suffer a decline in profitability because the company has stopped receiving new orders while it focuses on dealing with the scandal.

The earthquake damper business accounts for less than 1% of KYB's overall sales. Its main business of automotive shock absorbers continued to fare well in the six-month period, and other segments probably earned profits on par with targets. The company had roughly 180 billion yen in equity capital as of March 31.

KYB admitted last month that it falsified test data for shock absorbers, saying a total of 10,928 dampers were affected, and that they had been installed in 980 buildings across Japan, including condominiums.

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