JPS Suffered from Tough Price Competition under Strong Yen Trend

J-Power Systems (JPS), a fifty-fifty joint venture between Sumitomo Electric Industries and Hitachi Cable to manufacture power transmission and distribution cables, forecasts tough business condition in fiscal 2011 ending in March 2012. President of JPS Sadao Fukunaga expected the firm’s profit result would be very severe in fiscal 2011 though the net sales value is expected to increase slightly year-on-year.

JPS posted 70.5 billion yen of net sales in fiscal 2010, down by 11.7% year-on-year, and the first net loss since the company’s establishment. JPS gained full-year operating and recurring profits in fiscal 2010. Mr. Fukunaga said, the company was likely to post small net profit before Japan Earthquake. Actually, the company posted approximately 1.5 billion yen of extraordinary loss for restoration of production facilities damaged by Japan Earthquake.

The main reason of the profit decline was heavy price competitions in domestic and overseas markets. Especially for power transmission cable projects at overseas, JPS was forced to accept unprofitable orders under strong yen trend to keep the domestic plants’ operating rate. Mr. Fukunaga explained favorable currency rate is around 100 yen per US dollar or 130 yen per euro but actually JPS can cover only cost price under the exchange rate.

Cable shipment scheduled in fiscal 2011 is mainly for order backlogs accepted in recent 1-2 years. Mr. Fukunaga suggested the profit would maintain low with the price level. In addition, in Japan, power companies are likely to cut capital expenditures for cable replacement and new construction projects in fiscal 2011. Domestic sales and profits are also forecasted to decrease.

As for overseas cable plants under construction in India and Saudi Arabia, Mr. Fukunaga explained Indian plant could start commissioning within 2011 while Saudi Arabian plant’s building construction work would finish in or after fall of 2011.