May 8, 2020 / 5:21 AM / a month ago

Itochu predicts 20% drop in profit amid COVID-19 crisis

TOKYO (Reuters) - Japanese trading house Itochu Corp on Friday posted a record annual profit but forecast a 20% drop in earnings for the 2020/21 financial year as business activity slows and commodity prices slump amid the global coronavirus pandemic.

FILE PHOTO: The logo of Itochu Corp is seen outside the company's headquarters in Tokyo, Japan, November 7, 2016. REUTERS/Toru Hanai

“We expect the pandemic will have a big impact on our earnings in the April-June quarter, but it will be smaller in July-September,” Itochu Chief Financial Officer Tsuyoshi Hachimura told an online news conference.

“(The) economy is expected to pick up slowly after October but we don’t expect a V-shaped recovery,” he said.

Itochu eked out a 0.2% gain in net profit for the year ended March 31 versus the prior year, making a record 501.3 billion yen ($4.7 billion), helped by higher contributions from machineries, metals and foods. But its profit is expected to drop to 400 billion yen this year.

It turned a solid annual performance among Japan’s top five trading houses, as rivals reported a profit decline or loss, hit by a collapse in oil and other commodity prices amid the COVID-19 crisis.

“Our strength lies in our well-diversified portfolio, centred around non-resource businesses,” Itochu President Yoshihisa Suzuki said.

By contrast, Marubeni Corp made a record loss of 197.5 billion yen on massive writedowns on its assets in energy, metals and grains, though it predicted a profit of 100 billion yen this year.

Others reported lower profits, with Mitsubishi Corp reporting a 9.4% decline, Sumitomo Corp seeing a 46.5% plunge and Mitsui & Co posting a 5.5% drop.

Mitsubishi and Sumitomo did not provide guidance while Mitsui projected a 54% drop in profit this year.

“Lower prices of oil and copper will reduce our profit by about 100 billion yen this year,” Mitsubishi Chief Financial Officer Kazuyuki Masu said, adding that the sectors such as automobiles, steel products and plant construction will also be affected.

With deepening uncertainty about the longer-term impact on the global economy, most of the trading houses said they would refrain from big or fresh investments.

“We need to take emergency management measures as our business environment has dramatically changed due to the pandemic,” Mitsui Chief Executive Officer Tatsuo Yasunaga said.

“We are reviewing all of our investment plans in energy and resources without any exceptions.”

Reporting by Yuka Obayashi; Editing by Tom Hogue and Emelia Sithole-Matarise

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