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Toyo Engineering mulls capital increase to shore up eroded base

TOKYO -- Toyo Engineering is considering a capital increase to boost its flagging capital ratio, President Kiyoshi Nakao told The Nikkei in an interview.

     The Japanese plant-engineering company posted a 20.9 billion yen ($171 million) group net loss for fiscal 2014, owing in large part to a 23 billion yen loss in its Brazilian operations. Its capital ratio had fallen to around 17% at the end of March.

     "From this fiscal year onward, we'll accumulate profits and bring our capital ratio back up to at least 20%," said Nakao, who became president in April. "We'll consider a capital increase on top of that," he added, although he did not go into detail, saying only that a public offering is an option.

     Toyo Engineering incurred losses on projects not just in Brazil, but around the world, because it took on "unreasonable orders during a slump," Nakao argued. The company plans to implement more thorough risk management, including such steps as requiring orders with a gross profit margin of less than 8% to be reported to the board and having the president participate in decisions on projects worth at least 30 billion yen.

     For fiscal 2015, the company sees sales growing 9% to 340 billion yen and net income turning positive, coming in at 3 billion yen. Over the next three years, "500 billion yen in orders a year is possible, but we'll focus on profitability and limit our pace to 330 billion yen to 350 billion yen a year," said Nakao.

     Toyo Engineering downgraded its fiscal 2014 operating income forecast to a loss in February due to losses on plant projects in Indonesia and the U.S. Then-President Katsumoto Ishibashi stepped down as a result. In March, the company announced it expected a net loss after the losses in Brazil came to light. The shares have plummeted some 30% so far this year.


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