Its net loss contracted to 19.5 billion yen (163 million dollars) against a shortfall of 427.8 billion yen a year earlier.

Pre-tax profit came to 68.9 billion yen, compared with a loss of 537.8 billion yen, and revenue of 7.40 trillion yen was up five percent.

Matsushita Electric Industrial Co. Ltd. said the losses were due to the fall in value of its share investments, mainly bank stocks.

Kazumi Kawaguchi, the corporate advisor who heads the accounting group, said the group suffered a book loss of 25.6 billion yen on securities holdings.

The Nikkei-225 average of the Tokyo Stock Exchange has lost almost 30 percent in value over the recently ended financial year.

A new local tax law, passed at the end of March, removed a loophole in accounting rules which enabled Japanese firms to inflate their balance sheets by including items such as deferred tax assets.

"As a result, the company recorded losses relating to adjustments of net deferred tax assets," said Matsushita, which is known for its Panasonic and National brands.

For the current year to March, the firm forecast a net profit of 30 billion yen, a pre-tax profit of 120 billion yen and revenue of 7.45 trillion yen.

Positive factors in the current year are expected to include sales, which are expected to push up operating profit by 71 billion yen, and cost cuts which are likely to contribute 260 billion yen, Kawaguchi said.

"Negative factors will be 240 billion yen in drops in prices, 44 billion yen for the effect of currency rates (a stronger yen), and 23.6 billion yen for advertisements as we integrate brands," he said.

Further structural reforms will cost the firms an extra 50 billion yen, Kawaguchi said.

Matsushita has earmarked 23 billion yen for its home appliance business, 19 billion yen for its components and devices division and eight billion yen for audio-video and communications equipment.

But the projections could be derailed by the spread of Severe Acute Respiratory Syndrome (SARS). The disease has killed 131 people and infected 2,914 in China, according to the Chinese state media.

In April, Asia-related sales fell by more than 10 percent from a year earlier, Kawaguchi said, adding the the company factored only part of this into our earnings projections for the current year.

Matsushita has 53 production and marketing bases in China and employs more than 40,000 workers there.

The epidemic hit Matsushita at an unfortunate time as it plans to double this year its procurement of parts and raw materials from China to 20 percent of the total.

"Since it is from more than 2,000 companies (in China), we are considering how we would replace our procurement... and what we should do with production if we run into a situation where we could not produce goods in China," he said.

SPACE.WIRE