McDonald’s Japan revises finances following food safety scandal

By Oli Haenlein

- Last updated on GMT

Workers from supplier Shanghai Husi were filmed picking meat off the floor and using out-of-date beef and chicken
Workers from supplier Shanghai Husi were filmed picking meat off the floor and using out-of-date beef and chicken

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McDonald’s Holdings Japan has revised its financial forecasts to take into account a damaging incident earlier this year, in which workers from supplier Shanghai Husi were filmed picking meat off the floor and using out-of-date beef and chicken.

At the beginning of the year, McDonald’s Holdings Japan forecast revenue of ¥250bn for 2014, which has now been revised to ¥221bn. Operating income has been adjusted to a loss of ¥9.4bn from a profit of ¥11.7bn.

After the incident, which saw McDonald’s Japan stop buying chicken from China, and Hong Kong taking chicken products off the menu completely, McDonald’s Holdings Japan withdrew its initial forecasts in July. The new report lays out its new expectations.

A statement read: “The company withdrew its original earning guidance due to the uncertainty of sales and profits affected by the Shanghai Husi incident. However, we have decided today to re-set our 2014 earnings guidance based on currently available information and estimations.

“The company’s financials have been/will be largely affected by the Shanghai Husi incident. It is probable that sales for this year will be far lower than expected at the beginning of the year. This will significantly affect our overall profitability, due to the profit impact from the sales decline, costs impacts either directly or indirectly resulting from the incident as well as our strategic investments to recover from the incident by regaining customer confidence in our food.

“Furthermore, we expect to see large extraordinary losses from write-offs of unsold food products and impairment charges on our restaurants stemming from the incident, resulting in the large net losses for the year.”

McDonald’s Holdings Japan released figures of the likely financial impact, reporting that the “all stores sales decrease”​ stands at ¥45bn. The company said the impact includes strategic investments aimed at achieving the earliest possible recovery, in addition to the losses due to the incident.

Six people were arrested after the food safety scandal, all of them employees of Shanghai Husi Food Co, which is owned by US supplier OSI Group. Sheldon Lavin, chief executive officer and owner of OSI Group, said at the time: “What happened at Husi Shanghai is completely unacceptable. I will not try and defend it or explain it. It was terribly wrong and I am appalled that it ever happened in the company that I own.”

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