Toshiba says it inflated profits by nearly $2bn over seven years

http://www.ft.com/intl/cms/s/0/febd9638-5506-11e5-b029-b9d50a74fd14.html#axzz3l3lpJGKE

Last updated: September 7, 2015 12:02 pm

Toshiba says it inflated profits by nearly $2bn over seven years

Kana Inagaki in Tokyo

Toshiba said it had inflated profits by nearly $2bn over seven years as it assessed the fallout from an accounting scandal that has wiped more than a third off the company’s share value.Shares briefly rose nearly 6 per cent after Toshiba finally published its revised earnings on Monday before falling back to close up 1.8 per cent.

Investors said the company must do more to allay concerns about its nuclear and semiconductor businesses, which were the source of the large writedowns.

Masashi Muromachi, who took over as president in July, said the company would reconsider targets it had set earlier for sectors such as healthcare as it sought to restore confidence after disclosing what has become one of Japan’s largest accounting scandals.

Mr Muromachi said at a press conference: “We will go back to our starting line in regards to big targets we had set. Toshiba’s overall sales may decline, but we believe we will become a leaner organisation.”

For the fiscal year to the end of March, the Japanese industrial group, which also makes televisions and laptops, reported a net loss of Y37.83bn ($318m). It recorded a profit of Y60.24bn a year earlier. Before the scandal broke, the company had expected a net profit of Y120bn.

Operating profit fell 34 per cent from the previous year to Y170bn, while revenue rose 2.6 per cent to Y6.66tn.

The company did not issue a forecast for the current financial year to March 2016, but it is scheduled to release its first-quarter earnings on September 14.

Toshiba had been unable to close its books since flagging accounting irregularities in April, but it had warned that it would swing to a full-year net loss as a result of related impairment charges.

An investigation found that senior executives had played a role in inflating profits over seven years, leading to a board shake-up and the resignation of Hisao Tanaka, its former chief executive.

The company missed two deadlines to report results, last week delaying its earnings release for the second time after discovering new accounting issues that required further investigation.

On Monday, Toshiba also said that it had revised down its pre-tax profit figures by Y225bn ($1.9bn) over a seven-year period dating back to 2008. On a net profit level, the downward revisions totalled Y155bn.

The amendments came after Toshiba wrote down the value of a nuclear project in south Texas, its semiconductor division and its consumer electronics businesses such as televisions and PCs.

Mr Muromachi said he planned to announce restructuring measures on lossmaking businesses by the end of the year.

The writedown did not involve Westinghouse, the US nuclear-plant builder Toshiba bought for $5.4bn in 2006, though Toshiba said it had booked Y5.5bn in additional costs linked to the business.

“Toshiba’s decision not to write down the Westinghouse unit leaves uncertainty on its nuclear business,” Naoki Fujiwara, a fund manager at Shinkin Asset Management, said.

“There are still questions about lawsuits and what kind of regulatory penalties Toshiba will receive, so investors won’t be seriously buying Toshiba shares just because they are cheap,” Mr Fujiwara said.

Toshiba shares closed at Y352.70. They have now fallen as much as 34 per cent since the scandal came to light five months ago.

The company will hold an extraordinary shareholders’ meeting on September 30 to seek approval of its new board members.

In an attempt to strengthen its governance structure, Toshiba has proposed appointing seven outside directors to its 11-member board and nominated Shinzo Maeda, senior adviser to Shiseido, as chairman.

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