Daily Management Review

Toshiba expects huge losses, investors are in panic


12/28/2016


Japanese manufacturer Toshiba Electronics warned of several billion dollars of losses related to acquisition of American company Westinghouse Electric, which operates in the field of nuclear energy. This statement brought Toshiba’s quotes down. Analysts predict $ 4.3 billion of corporate losses.



FuFu Wolf
FuFu Wolf
Toshiba Corporation expect the largest in its history losses since May 2015. "Currently we are considering a loss of about 100 billion yen related to the purchase", - stated the Japanese corporation. It has already resulted in falling goodwill of the corporation and affected value of Toshiba’s shares.

Toshiba’s President Satoshi Tsunakawa said at a press conference that the company intends to clarify scope of losses before February 2017, when the corporation publishes a financial report for the period from October to December 2016. Now, the company is considering measures to reduce negative consequences, including financing through issuance of shares.

During morning trading on Wednesday, December 28, Toshiba’s quotes exhausted daily limit of fall, going down just 20.4%, or 80 yen. The course fell to 311.60 yen ($ 2.65), according to Nikkei.

Toshiba said that cost overruns in American energy projects, controlled by recently acquired Chicago Bridge & Iron, can be much higher than expected. The company did not name exact amount of the estimated cash losses, referring to a need for a thorough evaluation. Analysts estimate them at the level of 100-500 billion yen ($ 850 million - 4.3 billion).

In 2006, Toshiba acquired a 77% stake in American Westinghouse Electric. In December 2015, the company bought Chicago Bridge & Iron, among other things engaged in construction of a nuclear power plant for $ 229 million.

The company suffered losses of about 260 billion yen, or nearly $ 2 billion 200 million, in the 2015 fiscal year.

After a scandal with financial statements, Toshiba has concentrated its resources on nuclear and semiconductor business. In particular, the Japanese company in 2016 showed interest in building nuclear power plants in the UK, South Africa and Latvia. Back in 2000, Toshiba entered into a joint venture with American-Spanish company Global Nuclear Fuel Americas, engaged in design and manufacture of fuel boiling water-moderated BWR reactors.

At the end of the first half of the current financial year (April-September), Toshiba’s net profit reached 115.3 billion yen ($ 1 billion), compared to 37.3-billion-yen profit a year earlier. Operating profit reached 96.8 billion yen ($ 910.4 million) against operating loss of 89.1 billion yen in April-September 2015. Revenues during this time fell by 4% to 2.58 trillion yen ($ 24.3 billion).

In 2015, media published information that Toshiba top managers deliberately inflated the company's revenues for several years. As a result, a few senior managers, involved in the machinations, were dismissed, and the company recorded enormous losses. Trying to improve its financial position, Toshiba sold its medical unit and most of the businesses (80%) for production of household appliances, which has been reflected in earnings. 

In addition, as noted by Reuters, Toshiba revenues in the last quarter were brought up by a strong demand for NAND flash memory chips from Chinese smartphone makers. The company occupies 19.4%-share on this market, which is the second highest after Samsung Electronics (30,8%), according to IHS analyst data.

source: reuters.com






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