Bloomberg News

Itochu Targets 54% Profit Surge at Chemicals, Forestry Unit

October 11, 2011

(Adds company comments on China in seventh paragraph.)

Oct. 11 (Bloomberg) -- Itochu Corp., Japan’s third-largest trading company, plans to boost net income 54 percent by 2015 at its chemical and forestry unit, the biggest outside of metals and energy.

The division targets annual profit of 40 billion yen ($521 million) within three fiscal years by expanding rubber output in Indonesia and expanding global sales of pulp and chemicals, Itochu managing executive officer Satoshi Kikuchi said at a briefing in Tokyo today. This year’s purchase of U.K. tire retailer Kwik-Fit will also boost earnings, Kikuchi said.

Trading in chemicals, rubber and construction materials overtook textile and food as Itochu’s second-biggest contributor to profit this year. In buying Kwik-Fit for $1 billion the chemicals division completed Itochu’s largest purchase in a decade and increased its focus on retailing outside Japan, according to Bloomberg data.

“We’re confident that we can make our target” in spite of a recent weakness in global markets, Kikuchi said.

This year, the trading house is expanding its rubber factories in Indonesia and pulp production in Brazil, viewing the domestic market as having little growth potential, according to an Itochu presentation made in Tokyo today.

Last year’s start-up of a methanol plant in Brunei, in which Itochu holds a 25 percent stake, and a planned expansion for a Chinese chemicals complex, should help Itochu boost its chemicals trading volume to 4 million metric tons in 2015 from 2.55 million tons last year, Itochu said.

The strategy hinges on continued demand growth in China and Asia as a whole, which has started to feel the effects of the sovereign crisis in Europe and sluggish U.S. economic growth, Yuji Fukuda, Itochu’s chief operating officer for the chemicals division, said at the presentation.

“There is a risk that tightening credit markets and weakness in Europe and the U.S. will start to hurt sales in China over the short term,” Fukuda said. “That may temporarily weaken the chemicals market.”

--Editors: Peter Langan, Todd White

To contact the reporters on this story: Yuriy Humber in Tokyo at yhumber@bloomberg.net; Ichiro Suzuki in Tokyo at isuzuki@bloomberg.net

To contact the editor responsible for this story: Rebecca Keenan at rkeenan5@bloomberg.net


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