020242 McDonald's Japan Profits Slide on Mad Cow Fears

Tokyo - McDonald's Co (Japan) Ltd , Japan's top restaurant chain, saw net profits fall by 39% in 2001 after an outbreak of mad cow disease bit deep into revenues.

The company, which is 54.9% owned by U.S. fast-food giant McDonald's Corp, said that its parent net profit fell to 10.19 billion yen ($77.18 million), slightly below analysts' expectations.

It also announced a plan to buy back 1.5% of its shares, which have dropped in price by 50% from the peaks seen after they were listed last July.

Intense price competition, a deflationary environment and consumer fears over Japan's first case of the brain-wasting disease slowed revenue growth, although sales managed to climb 1.1% on the year to 361.6 billion yen.

Before the disease surfaced in Japan last September, the company was expecting revenue of 379 billion yen.

“We saw the worst-ever drop in sales (in the October to December period) as a result of the discovery of mad cow disease,” deputy president Yasuyuki Yagi told a news briefing.

“The disease will have an impact on our sales until at least March,” he added.

Consumers have ignored government assurances about the safety of Japanese beef after three reported cases of the disease, the human variant of which has killed over 100 people in Europe.

As fears about the disease linger, beef-related restaurant chains including Japan's largest beef bowl operator, Yoshinoya D & C Co Ltd , have issued bleak earnings forecasts.

Highlighting the sector's woes, private research firm Teikoku Databank said on Friday that 10 bankruptcies in January could be attributed largely to the fallout from mad cow disease.

McDonald's Japan uses mostly Australian beef, but its efforts to promote that fact have left consumers unimpressed.

On an operating basis, 2001 profits came in at 19.3 billion yen, down 34.4% year- on-year. The company expects operating profits to rise to 21.8 billion yen in 2002.

McDonald's Japan, which operates over 3,500 outlets, said it expects net profits to recover by 12% to 11.45 billion yen in 2002 on projected sales of 365 billion yen.

Before the announcement, shares in McDonald's Japan ended the day down 0.35% at 2,880 yen. Tokyo's Nikkei average fell 0.33% to 10,448.

SHARE BUYBACKS, HOLDING COMPANY

In a move, which could help support its slumping stock price, McDonald's Japan said it would buy back 1.5% of its outstanding shares. It will shell out 10 billion yen for the two million shares, which it will keep as treasury stock.

The company also announced plans to adopt a holding company structure from around July 1, with the aim of centralising decision-making.

An increasing number of big Japanese firms such as telecommunications giant Nippon Telegraph and Telephone Corp and brokerage Nomura Holdings Inc have adopted a similar holding structure in search of an effective allocation of group resources.

McDonald's Japan, which holds a 65% market share in the Japanese hamburger market, said it would set up a 50-50 joint venture in Japan starting in the spring with unlisted British sandwich maker Pret a Manger.

The joint venture aims to open its first store in Tokyo by the end of the year. Last January, U.S. parent company McDonald's acquired a 33-percent stake in the company, known for its fresh, preservative-free sandwiches.

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