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Marubeni to take massive write-downs

President Fumiya Kokubu breaks down the numbers.

TOKYO -- Japanese trading house Marubeni will book fiscal 2014 impairment losses of 160 billion yen ($1.34 billion) stemming from holdings in overseas resource businesses and a goodwill write-off at a U.S. subsidiary.

     The losses will amount to 95 billion yen for crude and gas development businesses in the North Sea, the Gulf of Mexico and the U.S., and to 10 billion yen for copper development in Chile.

     The plunge in crude oil prices have been sharper than anticipated, Marubeni President Fumiya Kokubu said in explaining the impairment charges.

     North Sea operations, weighed down by high drilling costs, will account for a 60 billion yen hit. Marubeni entrusts the operations to a longtime partner and was "caught off guard," Kokubu said.

     The company will also book a 50 billion yen loss in Gavilon, an American commodity management company it acquired in 2013 in a deal worth about $2.7 billion, or about 270 billion yen at the time.

     Gavilon's goodwill -- net assets minus the acquisition price -- had been just over 100 billion yen. This will be written down by about half.

     Gavilon stores and distributes corn, soybeans and other products mainly harvested in the U.S., selling them to major distributors such as Cargill. With an annual capacity of some 38 million tons, Gavilon boasts the third-largest grain storage network in the U.S.

     Marubeni bought Gavilon to increase procurement worldwide. But synergies have not been realized as planned due to overlapping sales networks and other challenges. Gavilon's profit for the current fiscal year is expected to come to merely 10 billion yen, short of projections by 5 billion yen, chiefly because of sluggish Chinese sales. Kokubu conceded that the company's acquisition price turned out to be high, as some had pointed out.

     On Monday, Marubeni halved its net profit forecast for fiscal 2014 to 110 billion yen, down 48% from a year earlier and the lowest since fiscal 2009. The company said it still plans to pay 26 yen a share in annual dividends, citing the one-time nature of the losses.

     However, the company has also lowered earnings guidance for next fiscal year, included in the company's medium-term plan. The net profit target has been cut to about 200 billion yen from between 250 billion yen and 300 billion yen.

     As a measure of accountability, Kokubu and the company's chairman, Teruo Asada, will have their pay cut by 50% starting in February. Salaries for corporate officers will be cut by 30% in fiscal 2015. Marubeni will take a second look at its risk management and earnings oversight for overseas businesses.

(Nikkei)

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