Losses throw Toshiba's ability to continue into question

Losses throw Toshiba's ability to continue into question

Losses deepen to nearly US$5.59 billion for its third quarter results

Toshiba has raised doubts over its ability to continue as a going concern as it reveals that its net income has dipped to nearly US$5.59 billion in losses for the third quarter of financial year 2016, running between October and December last year.

The company's latest results is a decrease of about US$1.12 from the same corresponding period the year before.

This brought its income loss from continuing operations, before income taxes and non-controlling interests to US$5.73 and a consolidated operating loss of US$5.8 billion.

According to Toshiba Corporation, its net sales decreased to US$10.9 billion for that quarter.

This accumulates into its consolidated results for the nine months of April to December 2016, bringing its net loss to US$4.59 billion for the year to date, as the previous year recorded a reversal of deferred tax assets.

The group said, in the statement, that although it recorded higher sales, especially within its memories and hard disk drives (HDDs) segment, the appreciation in yen and the shrinking scale of the PC and TV businesses, as a result of restructuring, resulted in the impact.

Within its energy systems and solutions division, the segment as a whole saw “an immense deterioration in operating income” as a result of Nuclear Power Systems “impairment loss of goodwill”.

In addition, its industrial IT solutions division saw lower sales and higher operating incomes as it claimed system sales to manufacturers declined. But operating income, for the segment as a whole, turned to surplus on the implementation of “emergency measures and actions to improve profitability”.

The company saw upturns within its infrastructure systems and solutions, retail and printing solutions, and storage and electronic devices solutions divisions.

Toshiba Corporation also went on to explain that with the commencement of its subsidiary, Westinghouse Electric Company’s (WEC) rehabilitation proceedings, the group will be deconsolidated from Toshiba Group, starting from FY2016 full-year business results.

This follows news on 29 March, where Toshiba’s consolidated subsidiaries – WEC, WEC’s US subsidiaries and affiliates, and Toshiba Nuclear Energy Holdings – filed for a voluntary petition under Chapter 11 of the US Bankruptcy Code.

“As WEC Group will be deconsolidated, causes of financial deterioration, such as goodwill impairment, will be excluded from figures for non-operating profit and loss in Toshiba’s FY2016 business results.

“However, depending on the plan determined during the course of the rehabilitation proceedings, there is a possibility that the amounts to be reported may change significantly,” it stated.

The company also questions the impact on its liquidity.

It indicated that the rating agencies downgraded Toshiba’s credit rating in the third quarter as a result of its operating loss, causing a “breach of financial covenants in outstanding syndicated loans of 283.5 billion yen”.

The total syndicated loans is recorded as part of the company’s short-term and long-term borrowings of 1,389 billion yen in consolidated balance sheet as of 31 December 2016.

The financial institutions have agreed to extend this to 31 March and when it happens, other bonds and ”certain borrowings” would be callable.

As such, it said that taking into consideration the expenditures of the above, its liquidity will be significantly impacted.

In addition to the foregoing, it also requires a special construction business license from the Japanese government and if it is unable to improve its financial situation to renew the license, there will be “extremely negative impact on business execution”.

“For the reasons stated above, there are material events and conditions that raise the substantial doubt about the company’s ability to continue as a going concern,” it said.

On 11 April, ARN reported that Foxconn, the Taiwanese electronics manufacturer best known as the maker of iPhones and iPads for Apple, is said to be preparing a US$27 billion bid to acquire Toshiba's computer chip assets.

In addition, on 15 March, ARN reported that Toshiba could be delisted from at least two stock exchanges if it is deemed to have not improved its internal management system since its last review late last year.

The company also announced that it will not pay a dividend to shareholders at the date of record of 31 March.

“As the notice on Chapter 11 filing by Westinghouse Electric Company and its group entities, its latest forecast for consolidated net income in FY2016 is for a loss of 1,010 billion yen [US$9.23 billion], if Toshiba were to make provision for the full contractual amount of the parent company guarantee and for credits related to WEC group.

“In light of this, regrettably, the company cannot return a dividend to shareholders,” it said.

Toshiba will be announcing its full-year financial results for FY2016 in mid-May.

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