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SCANDAL-HIT MITSUBISHI SEES EARNINGS PLUNGE

Following the news that Mitsubishi Electric Corp has become embroiled in the embarrassing public scandal over alleged illegal payments to corporate racketeers, the Japanese electronics firm has compounded its own misery by turning in a sharply downbeat set of interim results. Net profits for the six months to September 30 fell 78% to the equivalent of $30.6m, missing the forecast it made earlier in the year by $110m, while revenues grew 6% to $11.23bn. Operating profits grew a healthy 47% to $104m on the back of these record revenues, but the company suffered from a massive devaluation in its portfolio of securities together with poor cost controls and large foreign exchange losses, which took a huge bite out of net profits. And the company is sufficiently chastened by its performance to insist that its executives take a temporary 20% pay cut as punishment for their lackluster efforts. Sales of information and telecommunication systems and electronic devices grew 25% as the global fall in DRAM prices was erased by strong demand for telecommunication products. But the company warned that weak semiconductor prices and poor demand in the consumer market would lead to a poor second half. Sales of consumer electronics fell 19%. Meanwhile, the company is still reeling from the news that a racketeering investigation at Mitsubishi Motors Corp is to be widened to include both itself and Mitsubishi Estate Corp. Mitsubishi Electric confirmed newspaper allegations on Friday that it had made payments to a company linked to a recently arrested corporate racketeer or sokaiya accused of extorting money from other Mitsubishi companies. The illegal payments were thought to be made to avoid confrontations and to pacify organized crime groups in Japan. Three Mitsubishi Motors executives have already been arrested. At least half a dozen Japanese firms, including Hitachi Ltd, have admitted involvement with similar individuals and it’s unclear what, if any, impact the scandals will have on company business in the wake of the Japanese government’s pledge to clean up its corporate act. According to Mitsubishi, any negative impact from the scandal would not be felt in this year, because of the time lag between orders and sales. For the full year, the company now expects to reach net profits of just $83m, down 60% on last year, excluding any downturn experienced as a by-product of the scandal. The dividend will also be cut to $0.07 from $0.08 last year.

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CBR Staff Writer

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