Prospects dim for Toshiba's removal from TSE watch list
Earnings delay amid Westinghouse probe worsens crisis of trust
TOKYO -- Toshiba's plan to push back an earnings release yet again looks likely to derail its bid to come off the Tokyo Stock Exchange's watch list, making the beleaguered company's uphill battle to regain trust that much harder.
The industrial conglomerate plans to apply for an extension of the deadline to submit earnings for the nine months ended December, which was already pushed back a month in February. As long as the request is approved, it will not have a direct impact on Toshiba's listing status.
The company is scheduled to submit a report on its internal controls to the TSE on Wednesday in hopes of convincing the bourse to cancel Toshiba's designation as a "security on alert." The new extension request is sure to "negatively affect" that decision, a TSE insider said.
The delay comes from an investigation into problems with internal controls at U.S. subsidiary Westinghouse Electric. Toshiba said last month that it will book a more than 700 billion yen ($6.1 billion) impairment charge on U.S. nuclear operations for the April-December period. Reports have emerged that top Westinghouse executives, including Chairman Danny Roderick, may have exerted excessive pressure on employees to minimize losses.
Though this pressure is believed to have begun only when the write-down came to light in late December, the auditing firm retained by Westinghouse to investigate apparently has pointed to the need to look into whether similar incidents occurred in the past. Should this turn out to be the case, Toshiba would be faced with potentially restating earnings for fiscal 2015 or even earlier.
A deadline extension for the April-December earnings announcement would be Toshiba's fourth such step in recent years, after the fiscal 2014 earnings release was also postponed twice amid an accounting scandal. In light of these repeated delays, the TSE may need several months to decide on Toshiba's status, rather than the month or so that had originally been expected. The new evidence of problems at Westinghouse probably will prevent Toshiba from including the results of its examination of foreign subsidiaries or measures to keep internal control issues from recurring in Wednesday's report.
The conglomerate has drawn up a medium-term turnaround plan starting with fiscal 2017. Planned measures include spinning off and selling a substantial stake in its chip business as well as taking Westinghouse off Toshiba's consolidated books. The Japanese company is likely to pursue a Chapter 11 bankruptcy protection filing for the American unit.
Removing these two businesses would slash Toshiba's sales to just under 4 trillion yen, about half the fiscal 2007 peak. The company plans to shift focus to social infrastructure such as elevators and rail, targeting sales of more than 4 trillion yen and an operating profit margin of around 5% in fiscal 2019.
But numerous challenges remain, including choosing investors for the chip business and reworking Toshiba's domestic nuclear operations. More time will be needed before the company can start down the road to recovery.