Toshiba warns on profit after Q3 slump; COO resigns over expenses

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FILE PHOTO: The logo of Toshiba Corp. is displayed atop of the company's facility building in Kawasaki, Japan

By Makiko Yamazaki and Mayu Sakoda

TOKYO (Reuters) -Japan’s Toshiba Corp cut its annual earnings estimate after third-quarter profit slumped and its chief operating officer resigned over the inappropriate use of entertainment expenses.

The weak performance and the departure of Goro Yanase come at a time when the scandal-ridden industrial conglomerate is assessing a binding buyout proposal from a consortium led by private equity firm Japan Industrial Partners (JIP).

The sluggish results “would make it hard for a bidder to offer a high price (for a buyout),” said Yoshiharu Izumi, senior equity analyst at SBI Securities.

Hit by weak demand for hard disk drives from data centre customers, Toshiba said quarterly operating profit fell 88% to 5.3 billion yen ($40.4 million), far below the Refinitiv consensus estimate of 37 billion yen.

The industrial conglomerate also took a large charge relating to an old project for its power generation systems business, as well as an appraisal loss on a further drop in printer unit Toshiba Tec Corp’s share prices.

Its profit estimate for the year ending in March was cut by a quarter to 95 billion yen.

Adding to the woes, Kioxia Holdings Corp, a memory chip maker 40.6% owned by Toshiba, slipped to a net loss of 84.6 billion yen in the quarter, due to weak demand for personal computers and smartphones.

Toshiba said Yanase had resigned over the inappropriate use of entertainment expenses in 2019 when he was an executive at a company unit.

Toshiba declined to comment on details of the JIP proposal, but board chairperson Akihiro Watanabe said in a statement it was “important to reach a final conclusion on the strategic alternatives of the company as soon as possible and to start working towards a new stage.”

The JIP consortium submitted its formal proposal last week, after sources said the investors had secured 1.4 trillion yen in loan commitments for their buyout including a commitment line of 200 billion yen for working capital.

The final buyout proposal would also include an equity portion of about 1 trillion yen, the sources said, adding that many details of the potential deal have to yet to be fixed.

A buyout, if successful, would draw a line under years of upheaval for the industrial conglomerate ranging from accounting scandals, heavy losses, corporate governance concerns as well as friction with activist investors that led to a strategic review.

($1 = 131.8800 yen)

(Reporting by Makiko Yamazaki; Editing by Edwina Gibbs and Mike Harrison)

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