Wed, Apr 12, 2017 - Page 11 News List

Toshiba issues earnings, warns about profitability

NUCLEAR PROBLEM:The firm has been at odds with its auditor over Westinghouse, which pushed Toshiba’s liabilities beyond its assets and has filed for bankruptcy

Bloomberg

Toshiba Corp, the 142-year-old conglomerate, yesterday warned it might not be able to continue as a going concern as it grapples with billions of US dollars in losses from its Westinghouse Electric Corp nuclear business.

The disclosure came as the Japanese company reported earnings for the third quarter after missing two previous deadlines for financial results.

Toshiba posted an operating loss of ¥576.3 billion (US$5.2 billion at the current exchange rate) for the nine months that ended on Dec. 31 last year and said it had negative shareholder equity of ¥225.6 billion, but, significantly, it was not able to get auditor PricewaterhouseCoopers Aarata to approve those figures.

Toshiba has been at odds with its auditors over Westinghouse, which last month filed for bankruptcy in the US.

The auditing firm submitted an independent review with Toshiba’s results that emphasized the risks to its future because of losses in the Westinghouse unit responsible for nuclear projects and breach of covenants on ¥284 billion in loans.

Toshiba’s inability to report earnings has also raised speculation of a possible delisting from the Tokyo Stock Exchange (TSE).

“Toshiba has done everything in its power to gain the understanding of the auditors,” Toshiba CEO Satoshi Tsunakawa said at a media briefing with about 200 reporters in Tokyo. “Without clear prospects for auditor approval, we could no longer inconvenience and worry our investors and other stakeholders and decided on this very unusual way of releasing results.”

Toshiba has missed financial filing deadlines even before the current crisis. The company pushed back earnings announcements twice amid an accounting scandal in 2015, delaying the release by about four months.

In theory, there is no limit on how many times the company can request an extension.

“How the TSE will take this is anyone’s guess now,” Ace Research Institute analyst Hideki Yasuda said. “This is just quarterly earnings. Now the question is whether the company can release the full-year statement in time.”

The bourse kept Toshiba on its list of securities on alert in a December announcement, after originally being included for overstating profits from 2008 through 2014.

The company last month submitted a report detailing plans to improve internal controls. If deemed insufficient, the company would face delisting.

“The disclaimer of opinion by the auditor is an additional item that we must evaluate and consider,” said Miwa Aonuma, a spokeswoman for Japan Exchange Group Inc, which runs the Tokyo Stock Exchange.

Even if Toshiba clears these hurdles, there is a longer-term threat to stakeholders. The nuclear business write-down has pushed Toshiba’s liabilities beyond its level of assets.

If the company cannot reverse the situation in the fiscal year that just ended, it could face demotion to the second section of the Tokyo Stock Exchange. That would in turn force an automatic sell-off by some index funds.

If the situation persists for two straight years, it would be delisted.

“The situation at Toshiba continues to make a mockery of TSE listing rules, as authorities have done their best to allow it as much time as possible for its auditors to approve its” third-quarter results, BGC Partners Ltd Singapore-based head of Japanese equity sales Amir Anvarzadeh wrote in a note prior to the announcement. “We think TSE will continue to remain supportive.”

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