Accounting scandal at Toshiba – ruinous overpayment for an American nuclear firm

Toshiba admits to a ruinous overpayment for an American nuclear firm Its share price plunged by 40% in three days as investors worried about its financial viability, The Economist, Jan 7th 2017 | TOKYO THE probe in 2015 into one of Japan’s largest-ever accounting scandals, at Toshiba, an electronics and nuclear-power conglomerate that has been the epitome of the country’s engineering prowess, concluded that number-fiddling at the firm was “systemic”. It was found to have padded profits by ¥152bn ($1.3bn) between 2008 and 2014. Its boss, and half of the board’s 16 members, resigned; regulators imposed upon it a record fine of $60m.

Now its deal-making nous is in doubt too. In December 2015—the very same month that it forecast hundreds of billions of yen in losses for the financial year then under way, as it struggled to recover from the scandal—Toshiba’s American arm, Westinghouse Electric, bought a nuclear-construction firm, CB&I Stone & Webster. One year on, on December 27th, Toshiba announced that cost overruns at that new unit could lead to several billions of dollars in charges against profits.

Its shares fell by 42% in a three-day stretch as investors dumped them, fearing a write-down that could wipe out its shareholders’ equity, which in late September stood at $3.1bn. Moody’s and S&P, two ratings agencies, announced credit downgrades and threatened more. Toshiba’s explanation for how it got the numbers so wrong on a smallish purchase is woolly. But it is clear that missing construction deadlines on nuclear-power plants can send costs skyrocketing. Its projects in America, and in China, are years behind schedule. Mycle Schneider, a nuclear expert, says that in America, as elsewhere, engineering problems are compounded by a shortage of skilled manpower. Few plants have been built there recently.

Part of the $229m that Westinghouse paid for CB&I Stone & Webster included $87m of goodwill (a premium over the firm’s book value based on its physical assets). It is that initial estimate that is now being recalculated.

Toshiba had looked to be bouncing back from its accounting nightmare………

Toshiba’s central part in a plan by the government of Shinzo Abe, the prime minister, to pep up growth by exporting nuclear-power technology to emerging countries may help. In June Westinghouse clinched a deal in India to build six new-generation AP1000 reactors, Toshiba’s first order since the triple meltdown at the Fukushima Dai-ichi nuclear plant in 2011. Toshiba is also involved in that site’s costly and complex clean-up. Some think that Japanese banks, known for keeping zombie firms on life support, will stand behind it, come what may. Shares in Toshiba’s two main lenders, Sumitomo and Mizuho, slid last week after the profit warning. Investors expect more big bank loans or a debt-for-equity swap, which allows a bank to turn bad loans into shares.

The consensus on Toshiba’s latest screw-up is that a long-standing culture of poor management is to blame…..http://www.economist.com/news/business/21713896-its-share-price-plunged-40-three-days-investors-worried-about-its-financial

January 6, 2017 - Posted by Christina Macpherson | business and costs, Japan, secrets,lies and civil liberties, USA

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