Gad Zeevi
Gad Zeevi Photo by Moti Kimche
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A week after Japanauto's bondholders rejected a debt arrangement proposed by the company, the Subaru importer released forecasts that sales would drop further in 2012 but that profits would rise.

Sales of Subaru vehicles in Israel fell by 31% in 2011. Japanauto's prediction for sales reinforces concern that support from controlling shareholder Gad Zeevi is the only chance the company has of meeting its liabilities, including to bondholders, to whom it owes NIS 122 million. The company has a going-concern warning on its books as of the third quarter of 2011.

The forecast is the fruit of accounting firm BDO, which Japanauto commissioned to determine whether it needs to write down the value of its Subaru import franchise. Its agreement with the Japanese carmaker is automatically renewed every five years.

BDO concluded that the usage value of the franchise is NIS 228 million, so Japanauto had to write down the book value of the franchise by NIS 11 million. It did so in the fourth quarter of 2011, after which the Israel Securities Authority ordered Japanauto to publish the BDO opinion.

Signs of diminishing value have marred Japanauto's books for years. Its number of car deliveries fell from 5,776 in 2009 to 3,191 in 2011, mainly because sales of Subaru's Impreza model collapsed. Japanauto's share of the car import market contracted to a mere 1.4% in 2011.

BDO based its evaluation of the Subaru import franchise on a forecast from the company's management, but deviated from Japanauto's own forecasts for this year and 2013, feeling they were too optimistic.

Japanauto predicts a 26% drop in car deliveries this year, mainly because Impreza sales are all but dead, but it forecasts joy from the launch of the XV model later this year.

Come 2013, Japanauto predicts a 113% jump in sales, to 5,000 deliveries.

Yet bizarrely, just as it anticipates a retreat in sales and revenues for this year, Japanauto management is predicting a shift to the black. Last year the company posted an operating loss of NIS 32 million. This year it's forecasting operating profit of NIS 21.7 million, which is 5% of its turnover.

BDO didn't take management's optimism too seriously, possibly because of the company's poor performance in the recent past. It assumed the company would break even at the operating level in 2012 and first half of 2013, then achieve operating profit of NIS 12 million for the year 2013, or 1.7% of turnover. BDO did however accept the Japanauto forecasts for 2014 and onwards.