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Toshiba conglomerate: Can we keep going? We don't know

Unprecedented: Unaudited results filing means potential Tokyo Stock Exchange delisting

Toshiba has filed unaudited results for its business, meaning its potential losses from the Westinghouse disaster cannot yet be quantified, putting the conglomerate at risk of collapse.

The survival of the entire corporate Toshiba structure, which controls businesses making laptops, TVs, flash chips and nuclear power stations, is now at risk because of the extraordinarily excessive losses from its Westinghouse Electric Company US nuclear power station-building business.

Toshiba’s auditors, PricewaterhouseCoopers (PwC) Aarata LLC, said forming an opinion about the correctness of Toshiba’s financial results for its third fiscal 2016 quarter, was impossible.

It has issued a statement saying Westinghouse internal controls relating to Westinghouse’s acquisition of CB&I Stone & Webber were inadequate and may have been affected by “pressure" from certain senior managers. An external law firm is looking into this and into potential impact on Toshiba’s financial results.

PwC Aarata is evaluating this and the need for an impairment loss on Westinghouse construction costs which affects Toshiba’s consolidated balance sheet, and has been unable to quantify this.

To add to this financial nightmare, PwC SAarata has said results for the first and second fiscal 2016 quarters are similarly affected.

Toshiba says other businesses are fairly healthy but Westinghouse has “generated a huge loss,” and has now filed for Chapter 11 bankruptcy. Despite this it says it is sure it can secure a sufficient financial base through:

  • Selling assets worth 160 billion yen in fiscal 2016,
  • Pay and bonus cuts for executives and senior staff,
  • Emergency allowance cuts,
  • Selling an up to a majority stake in the separated off Toshiba Memory Business.

According to Reuters: “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 $2 billion divestment of the Swiss-based business.”

Toshiba decided to submit the delayed and now unaudited third fy 2016 quarter results because any further delay “will bring greater disadvantages to is stakeholders.”

The unaudited results say net sales in the first nine months of fiscal 2016 were 3.847 trillon yen, a 166.6bn yen decline from a year ago. The net loss was 532.5 billion yen.

The company’s statement says that if Toshiba were to make full provisions for Westinghouse plus a reserve for possible loan losses then the possible fiscal 2016 net income loss would be 1.01 trillion yen with shareholders’ equity being -620bn yen and Toshiba’s consolidated net assets being -340bn yen.

Taking this and other matters into account Toshiba’s statement says:

There are material events and conditions that raise the substantial doubt about the Company’s ability to continue as a going concern.

Somewhat unsurprisingly, it is not paying a dividend.

Toshiba intends to announce full fy2016 results in mid-May. Although it says it can secure a good financial basis for its operations, its auditors may announce a correction of sufficient severity as to render its financial recovery measures inadequate, leading to a collapse of the group.

As it is the unaudited accounts submission may lead to Toshiba being delisted from the Tokyo Stock Exchange. Reuters reports: “The move is unprecedented for a major Tokyo-based firm and puts the Tokyo Stock Exchange centre stage as it weighs the pros and cons of forcing Toshiba to delist.”

Toshiba management is holding a press conference later today and more details of its dire situation and any rescue plan could then emerge. ®

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