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UPDATE 1-Suzuki surprises with forecast for profit rise
June 23, 2011 / 3:19 AM / 6 years ago

UPDATE 1-Suzuki surprises with forecast for profit rise

* Sees op profit of Y110 bln vs consensus Y90.4 bln

* Sees Japan production climbing in August vs year-ago

* Need to spread out Japan facilities to avert risk-CEO

* Shares jump 4.1 pct, outperforming market fall (Adds details)

By Chang-Ran Kim, Asia autos correspondent

TOKYO, June 23 (Reuters) - Suzuki Motor Corp forecast a better-than-expected 2.9 percent rise in annual operating profit on Thursday powered by a sales surge in Asia and a swift resolution to post-quake disruption to vehicle production.

Suzuki said domestic factories were gradually returning to conditions before the March 11 earthquake, allowing it to bring back overtime from July and increase output in August compared with a year earlier for the first time since the quake.

By ramping up production, Suzuki aims to boost global car sales by 6.7 percent to 2.82 million vehicles this business year, with growth expected in India, China and Indonesia.

The news sent Suzuki’s shares up 4.1 percent to 1,773 yen in morning trade, while the benchmark Nikkei average lost 0.4 percent.

Japan’s fourth-largest automaker projected an operating profit of 110 billion yen ($1.4 billion) for the business year ending in March 2012, easily beating the average forecast of 90.4 billion yen in a Thomson Reuters I/B/E/S poll of 20 analysts.

The maker of the Swift and other compact cars sees net profit of 50 billion yen, up 10.7 percent from 2010/11.

Slower growth in India, however, has been seen as a risk for Suzuki and its majority-held subsidiary Maruti Suzuki India Ltd , which accounts for about half of the market.

Suzuki Chief Executive Osamu Suzuki acknowledged the risk that inflationary pressures may dampen Indian consumer spending, saying he was projecting slightly weaker sales this year than Maruti’s official forecasts.

“With inflation and other issues, a decision was made (at Maruti) to lower the sales growth forecast for this financial year from the initial 13 percent to 8 percent,” Suzuki told a news conference. “But I personally think a 5 percent rise would be about right.”

That would bring Maruti’s sales this year to 1.18 million vehicles, up from 1.13 million, he said.

Maruti was also hit by a two-week strike this month by employees demanding recognition of a new union specific to the Manesar plant.

But Suzuki said the strike had lasted just six working days, causing what he called a negligible output loss of 16,000 vehicles.

“In a market where we sell 1.2 million vehicles a year, 16,000 vehicles was a matter of inventory adjustment,” Suzuki said.

He added that he was not surprised at the short-lived labour strife, repeating Maruti’s stance that it would not recognise the separate union. Maruti, held 54.2 percent by Suzuki, has one workers’ union recognised by management.

SPREADING OUT RISK

Suzuki’s guidance assumes a dollar rate of 80 yen, a euro rate of 110 yen and a 60 percent jump in capital expenditure this year as it invests in more output capacity in India, Thailand and Indonesia. In Indonesia, Suzuki said it would build a 100,000-units-a-year engine factory for 30 billion yen to raise the ratio of local content and lower costs.

Further out, CEO Suzuki said the Hamamatsu-based automaker would need to spend to spread out its domestic facilities, all concentrated in the central Tokai region of Japan long seen at high risk of being hit by a massive earthquake.

“Our facilities are all at risk, either of an earthquake, tsunami or (disruption at) a nuclear power plant,” Suzuki said, noting that it had a motorcycle test centre just a few hundred meters from the shoreline.

“If we don’t spread out our factories after all that’s happened, I would be called a fool as a chief executive,” he said. He did not give a timeline or specifics on how Suzuki would diversify its facilities.

Last month, the government forced Chubu Electric Power to close its sole nuclear power plant, which provides power to all four of Suzuki’s domestic car and motorcycle plants to avert a tsunami-induced meltdown that crippled a major power plant of Tokyo Electric Power Co . Chubu Electric has said it would make up for the loss by boosting thermal energy and securing electricity from another utility in western Japan.

Suzuki, which had delayed its forecast announcement due to uncertainty over when the supply chain would recover, posted a 51 percent drop in fourth-quarter operating profit to 14.48 billion yen ($180 million) last month. ($1 = 80.315 Japanese Yen) (Editing by Edwina Gibbs)

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