Toshiba’s profit falls 90% as top executive resigns

Toshiba’s quarterly operating profit fell nearly 90 percent as turmoil at the scandal-plagued Japanese industrial conglomerate deepened with the resignation of a top executive over improper entertainment expenses.

The disappointing results — well below analysts’ forecasts — come as Toshiba is considering a $15 billion takeover proposal from a consortium led by a Japanese private equity firm in what would be the country’s largest take-private deal.

Goro Yanase, Toshiba’s chief operating officer, resigned after auditors found that he had repeatedly submitted entertainment expenses without providing the names of the attendees, in violation of company rules. The alleged misconduct took place when he was a board member of a subsidiary in 2019, prior to his appointment as chief operating officer.

According to S&P Global Market Intelligence, the company posted operating income of 5.3 billion yen (US$40.4 million) for the October-December quarter, far below a consensus estimate of 38 billion yen.

The hard drive business was hit by a sharp slump in demand as manufacturers and companies cut spending in the face of a recession. The conglomerate also booked a 10.2 billion yen impairment on its Toshiba TEC printing business as the subsidiary’s share price fell.

Toshiba cut its full-year operating profit forecast by a quarter and now expects to report 95 billion yen for the fiscal year ended March. This is the second downward revision of the guidance since November.

The company blamed one-off factors for its poor performance, but the abrupt resignation of its chief operating officer is another blow to its reputation. It has evolved from accounting fraud into a financial crisis and a protracted battle with activist investors.

The 147-year-old company received a final takeover proposal last week from Japan Industrial Partners, which has partnered with financial services group Orix, Chubu Electric, chipmaker Rohm and other Japanese companies. If approved by Toshiba’s board of directors and activist shareholders, the proposal would end an eight-year saga that has brought the industrial conglomerate to the brink of collapse.

“Aiming to act in the best interests of shareholders and other stakeholders. . . the company will conduct the necessary negotiations,” Akihiro Watanabe, chairman of Toshiba, said in a statement on Tuesday.

“We strongly believe that the company needs an urgent transformation,” he added. “We believe it is important to make a final decision on the company’s strategic alternatives as soon as possible and to begin work on a new phase.”

“I don’t think there isn’t a business opportunity for Toshiba, but [the latest earnings results and the chief operating officer’s departure] shows that it is in a difficult situation,” said Masahiko Ishino, senior analyst at consulting firm Tokai Tokyo Research Institute. “It could be questionable that banks are funding the massive buyout.”

Video: The Extraordinary Toshiba Saga | FT big deal Toshiba’s profit falls 90% as top executive resigns

Adam Bradshaw

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