UPDATE 1-Goodwill to shut temp unit,seek return to profit

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TOKYO, June 25 (Reuters) - Scandal-hit Goodwill Group Inc 4723.T said on Wednesday it would close a loss-making unit that dispatches temporary workers, as the Japanese staffing firm seeks to clean up its image and return to profit.

The announcement comes a day after the subsidiary, Goodwill Inc, paid an undisclosed fine for allegedly breaching employment regulations by sending temporary workers to one company while knowing they would be subcontracted to other firms.

Local media had reported the Ministry of Health, Labor and Welfare was moving to revoke Goodwill Inc's temporary-staffing business license, though Goodwill Group said the ministry had not informed it of any such action.

Goodwill Group, which has been trying to turn itself around with the help of Cerberus [CBS.UL] and Morgan Stanley (MS.N), said it would liquidate the unit by the end of July and planned to disclose the financial impact of the move when it it became clear.

It said it now aimed to restore its image by changing its name and to revamp earnings by expanding its engineer-dispatch operations and through cost-cutting. The company said it was also considering moving its headquarters.

The group suffered an operating loss of 2.67 billion yen in the nine months ended March 31, after the government ordered Goodwill Inc to suspend operations for two to four months earlier this year for staffing violations.

It also suffered losses related to its exit from the nursing care business after the government found that its unit, Comsn Inc, had inflated staffing numbers and refused to renew its operating licence.

For the full year to June 30, Goodwill Group forecasts an operating loss of 9.0 billion yen.

Goodwill's units that dispatch manual-labour workers by the day or on short-term contracts generated 28 percent of group sales in the fiscal first half through Dec. 31. Its engineering-dispatch operations racked up 36 percent of sales in the same half.

Labour and welfare minister Yoichi Masuzoe said this month he supported some policymakers' calls to ban dispatching workers by the day, amid growing public criticism of such an unstable employment system.

Goodwill Group shares plunged 13.1 percent to 6,610 yen on Wednesday on doubts about the company's outlook. Shares of rival Fullcast Co Ltd (4848.T) tumbled 9.9 percent to 36,500 yen on fears of tighter regulations on temporary staffing services. (Reporting by Yumiko Nishitani; Editing by Chris Gallagher)