Reuters Company News

TOKYO, May 17 Reuters reported that Fuji Heavy Industries, the maker of rugged Subaru-brand vehicles, reported on Friday a surprise 8.3 percent rise in operating profit in the past business year, but it warned of a rougher road this year.

The automaker, 20 percent owned by General Motors Corp, also announced it was pulling out of unprofitable businesses such as train and bus production while revamping its company structure and planning a new flagship model.

"We are aiming to become the world's No 1. maker in all-wheel drive vehicles," President Kyoji Takenaka told a news conference.

Group operating profit at the maker of all-wheel-drive vehicles rose to 88.5 billion yen ($691 million) for the year ended March 31, as a weak yen and solid U.S. sales offset an ageing vehicle lineup in its home market.

The 2001/02 result was well above the highest forecast by analysts canvassed by research firm Multex, which averaged 75.5 billion yen and ranged from 70 billion to 81 billion yen.

Net profit for the automaker rose 34 percent to 30.3 billion yen, its first net profit rise in three years. Earnings per share climbed to 38.83 yen compared with 29.06 yen a year earlier.

Revenue increased 3.9 percent to 1.36 trillion yen.

But Fuji Heavy, although known for its conservative forecasts disappointed with its estimates for the current year, saying it expected operating profit to shrink 30 percent to 62 billion yen.

Stephen Usher, auto analyst at J.P. Morgan, said the forecasts "didn't make any sense" given that company expected vehicle sales to rise 7.1 percent in offshore markets to 299,000 units and drop only 0.4 percent in Japan to 263,000.

"You have to wonder about what their basic assumptions are," he said, noting foreign exchange forecasts had not changed much.

Shares of Fuji Heavy fell after the results but recovered in the last hour of trade to close 2.16 percent higher at 708 yen, outpacing the 0.93 percent rise in the Nikkei average (^N225 - News).

"The company's (2002/03) forecasts have not been accepted by the market," Usher said.

WITHDRAWAL, REVAMP AND MORE PRODUCTS

The automaker said the weaker outlook was due to heavy development costs, increased spending to upgrade factories in the United States and a weak domestic economy.

"We have a lot of costs associated with research and development for the introduction of a new vehicle platform in the second half of 2005/06," said Executive Vice President Hiroshi Suzuki.

As part of its new rolling five-year plan, Fuji Heavy said it would withdraw this year from the production of bus and train bodies, loss-making divisions that had long burdened the company.

It also plans to develop a "holding company-like" structure, with its automotive business at the core and its other businesses divided into three subsidiaries -- an aerospace unit, an industrial products unit and an eco-technology unit.

The maker of the Legacy wagon -- currently its core model -- also said it was looking to develop a new flagship model for the North American market to be introduced in 2005.

Other product plans include the introduction of a "premium Legacy" in 2003, an all-new minicar for the next business year and the development of a 1.5 litre to 2.0 litre premium compact car platform in 2006.

The automaker also said it would be giving up on the joint development with partner GM of a "sports utility wagon" (SUW) that would carry a large number of passengers. Instead they would be working together on a "sporty type of car" for around 2005.

"We decided that in trying to develop the SUW, there would be too much overlap in our respective brand identities and we felt it better to go our separate ways," said Takenaka.

The abandonment of the SUW plan pushed down its profit targets for the years ahead, and Fuji Heavy is now aiming to post an operating profit of 110 billion yen and have global vehicle sales of around 760,000 units by 2006/07.

That compares with a last year's goals of operating profit of 134 billion yen and global sales of 804,000 unit by 2005/06.

Even longer-term, Takenaka said he wanted his company to achieve revenue of more than one trillion yen each in Japan and North America and an operating margin of more than 10 percent by 2010.

Fuji Heavy also said it would seek shareholder approval for a buyback of up to 215 million shares, or up to 140 billion yen worth, representing 28.8 percent of shares outstanding.

While the amount appeared large, Takenaka said the company really did not have any plans at the moment to use scheme other than for stock options.