Business | Toshiba warns over survival as it reports US$4.8 billion loss
Toshiba chief executive Satoshi Tsunakawa bows at the start of a news conference at the company's headquarters in Tokyo. Photo: Reuters/Toru Hanai
Toshiba chief executive Satoshi Tsunakawa bows at the start of a news conference at the company's headquarters in Tokyo. Photo: Reuters/Toru Hanai

Toshiba warns over survival as it reports US$4.8 billion loss

Tokyo Stock Exchange is center stage as it weighs the pros and cons of forcing Japanese industrial giant to delist

April 11, 2017 6:15 PM (UTC+8)

Toshiba on Tuesday warned its survival was at risk as the struggling Japanese industrial giant reported a loss of US$4.8 billion in long-overdue financial results.

The filing carried a disclaimer from auditor PricewaterhouseCoopers (PwC) Aarata LLC that it was unable to form an opinion of the results.

The move is unprecedented for a major Tokyo-based firm and puts the Tokyo Stock Exchange center stage as it weighs the pros and cons of forcing Toshiba to delist.

Failing to act tough with Toshiba would bring into question authorities’ credibility in maintaining standards for investors, but a delisting would complicate the crisis engulfing the firm, increasing financing costs and exposing it to further lawsuits from angry shareholders.

Toshiba executives are set to hold a news conference at 0945 GMT.

The unaudited results showed the troubled firm lost 532.5 billion yen in April-December. It has previously forecast losses could balloon to more than a trillion yen in the fiscal year to March.

Japan’s financial regulators had given the firm more time to assess the impact of huge writedowns at its US nuclear unit Westinghouse Electric, which filed for bankruptcy protection last month.

Accountants have been questioning the numbers at the US subsidiary, where massive cost overruns at four nuclear reactors under construction in the southeastern United States have forced its Japanese parent to estimate a US$9 billion annual net loss and take drastic measures.

PwC is questioning not only recent results, but also probing the books at Westinghouse for the business year through March 2016, sources have said, declining to be identified as they were not authorized to speak on the matter publicly.

A logo of Toshiba Corp is seen on a printed circuit board. Photo: Reuters/Yuriko Nakao
A logo of Toshiba Corp is seen on a printed circuit board. Photo: Reuters/Yuriko Nakao

“It’s likely that the company’s financial situation will turn severe” owing to problems at Westinghouse, it said in a Japanese-language statement released with the results.

“There are events and circumstances that may bring about significant questions about the idea of [carrying on] as a going concern,” it added.

The warning comes as media reports say Taiwanese giant Foxconn is offering to pay the cash-strapped firm up to 3.0 trillion yen for its prized memory chip business.

Toshiba has said it needed more time to probe claims of financial misconduct by senior managers at Westinghouse and gauge the impact on its finances.

The probe was started after a whistleblower complained that one or more executives at the US unit exerted “inappropriate pressure” on its accounting.

Toshiba’s auditor said Tuesday it would not sign off on the latest results until it had finished “evaluating” the firm’s probe, among other issues.
“This evaluation process was continuing at the time of the reporting,” it said in the statement.

“As a result, the auditing firm was unable to judge whether the… financial statement requires amendments or not.”

Earlier, Japanese media said the auditor suspects the alleged wrongdoing at Westinghouse had been going on for longer than previously thought, which could mean revising earlier financial statements.

Stock collapses

Toshiba shares have been hammered this year, losing more than half their value since late December when it first warned of multi-billion-dollar losses at Westinghouse.

They fell 2.69% to finish at 223.5 yen on Tuesday, before the results.
The earnings release may give Toshiba some breathing room, but its embattled stock could still be delisted depending on the results of its probe into the alleged wrongdoing.

The decision on whether to delist Toshiba or not now rests with the bourse. Toshiba has been on its supervision list since mid-March after failing to clear up concerns about its internal controls a year and a half after a 2015 accounting scandal.

There are no set rules governing how long the bourse should take to come to a conclusion.

Toshiba_Shares-01

The crisis comes less than two years after the firm’s reputation was badly damaged by separate revelations that top executives had pressured underlings to cover up weak results for years after the 2008 global financial meltdown.

The huge conglomerate – which has 188,000 employees globally – once touted its overseas nuclear business as a future growth driver, filling a hole left after the 2011 Fukushima crisis slammed the brakes on new atomic projects in Japan.

But delays and cost overruns have hit Westinghouse’s finances hard.
Toshiba has sold a number of assets, including a medical devices unit and most of its home appliance business.

Turkish electronics manufacturer Vestel said Monday it is in talks to buy Toshiba’s television unit.

The company also said on Tuesday it was considering an initial public offering for smart meter group Landis+Gyr. Reuters last month reported that it was preparing a potential US$2 billion divestment of the Swiss-based business.

Foxconn motherboards at the annual Computex computer exhibition in Taipei. Photo: Reuters/Tyrone Siu
Foxconn motherboards at an exhibition in Taipei. Photo: Reuters/Tyrone Siu

South Korea’s Hynix and American chipmaker Broadcom are among the firms in the running for Toshiba’s flash memory business, along with Apple-supplier Foxconn, which bought Japanese electronics giant Sharp last year.

Selling the division, which accounts for about one-quarter of Toshiba’s 5.6 trillion yen in annual revenue, is seen as key for the company to turn itself around.

Toshiba is the world’s number-two chipmaker behind South Korean rival Samsung.

But any foreign buyer – particularly a Chinese suitor – would need to pass a Japanese government review, given concerns about security around systems already using Toshiba’s memory chips, which are widely used in data centers as well as smartphones and computers.

Japan’s trade minister Hiroshige Seko repeated on Tuesday that Toshiba’s chip technology was important, not only for Japan’s growth strategy, but also in terms of jobs and information security.

“For those reasons, we continue to carefully monitor Toshiba’s business conditions and sale of its chip business,” Seko said.

Japanese media have said the government was in talks with domestic firms about putting together a bid to keep the technology from going abroad.

 

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