Confirmed losses arising from Joyou’s insolvency will amount to JPY33.2billion
Initial reports Lixil could face JPY44billion losses from the insolvency of Joyou AG may have been overly cautious.
Lixil has reported a focus in the fiscal year ending March 2016, when the investigation into Joyou financial impact has been concluded, for Joyou AG to file a Toyko Stock Exchange disclosure of JPY66billion.
Lixil had already confirmed losses arising from Joyou’s insolvency over the fiscal years ended March 2014 and March 2015 will amount to JPY33.2 billion.
As a result of this issue, forecasts for the fiscal year ended March 31, 2015 have been updated, and Lixil forecasts sales of JPY1.67 trillion, an operating profit of JPY51.5 billion and net income of JPY22.0 billion.
However, income before income taxes was down Y9.4billion from Y62.4billion toY53billion and net profit down Y9billion from Y31billion (before Joyou) to Y22billion.
It follows Joyou AG having to write off $300million on guarantees given to creditors of Hong Kong Zhongyu Sanitary Technology Limited (Joyou Hong Kong).
A preliminary investigation found off-book loans were the main causes for Joyou AG losses and insolvency filing, with the company citing Joyou founder Jianshe Cia and son Jilin Cai having engaed in “inaccurate accounting and unlawful reporting for many years.”
The Cias were removed from the Joyou management board and Lixil is now considering taking “comprehensive legal actions” against them.
President and CEO of Lixil, Yoshiaki Fujimori said, “We have worked swiftly to identify the exposure of Lixil to Joyou. We will leave no stone unturned to fully investigate what actually happened at Joyou and to hold those responsible accountable. While the impact to Lixil is not insignificant, Lixil has the financial strength and resilience to weather this issue without impacting our fundamental operations. Our global business is strong and financially stable.”
Fujimori added, “Despite the regrettable Joyou situation, our globalization strategy will not change. We will, however, continue Lixil’s investigation with the formation of a Management Investigative Committee chaired by myself to determine the root causes and learn from this issue to improve and strengthen Lixil.
“We are already accelerating governance across the company, and the creation of a unified global structure to streamline the management of acquired overseas companies was an important step in this process. In addition, we have resolved to expand internal audit functions; another important step towards enhancing our governance functions and capabilities and strengthening risk management.”