A heavy fog has descended on Toshiba. The Japanese conglomerate’s shares tumbled on May 11 after it said recently uncovered accounting irregularities were more serious than previously thought. The company is expanding a probe it began around one month ago, but disclosure remains vague. This is deeply unhelpful for investors trying to decode a company that makes everything from flash memory chips to steam turbines.
Toshiba has found that costs were underestimated and losses not recorded on time at certain infrastructure projects. More worryingly, it has also discovered other problems that it vaguely says need further investigation. As the company cancelled its dividend and warned past results for the fiscal year 2013 and even earlier may need to be restated, investors have rushed to dump shares. On May 11, Toshiba declined 17 per cent, the maximum it could fall.
The widening of the accounting problems are worrying for two reasons. First, they centre on the group’s fast-growing energy and infrastructure division and its smaller community solutions division, which includes elevators and traffic control systems. They accounted for 39 per cent of operating profit in the nine months to December. Secondly, it raises the question of whether larger units including Toshiba’s memory business could be affected.
More From This Section
For chief executive Hisao Tanaka, the accounting problems distract from his efforts to turnaround other underperforming parts of the sprawling business. Earlier this year, Toshiba stopped making and selling TVs for the North American market. But there is still much to do. Before the latest disclosure, Toshiba was already trading 35 per cent below the value of its parts as estimated by Credit Suisse. Now Toshiba has an accounting fog on top of its strategic blur.
