Toshiba Corp of Tokyo, Japan disclosed on Tuesday they are considering several billion dollars in losses because of nuclear power acquisition made in the United States. It didn’t go down well in the market, as the Toshiba (TYO:6502) stock plunged by more than 11 percent. This would be yet another blow to the business that has been trying to recover from last year’s $1.3 billion accounting scandal.
The Japanese business revealed that cost overruns of their nuclear construction business, which has been purchased from Chicago Bridge & Iron (NYSE:CBI) is likely to be much more than what was expected initially. Because of this, there could be a need to make a huge writedown.
Toshiba Makes Nuclear Power a Priority and Pays the Price
Incidentally, last year as well, Toshiba had made a similar writedown of more than $2 billion for the nuclear business. Headed by the new Chief Executive Satoshi Tsunakawa, Toshiba has been banking heavily on their nuclear business, positioning the operations as a key instrument of growth, but this strategy isn’t working for the company yet.
In what could be a further cause of worry for the company is that Toshiba has in the meantime scaled down the functioning of their consumer electronics units like televisions and personal computers, which has all been profitable.
The net profit forecast for the full financial year was 145 billion yen. That looked good at the start of the year because last time, the business had suffered a loss of 460 billion yen. This year’s better projections were because of the flash memory chips that Toshiba got from Chinese smartphone makers.
The Loss May Ruin Toshiba’s Financial Forecast
However, any huge loss is surely going to be a setback and may ruin the financial forecast made at the start of the year. The stock market is clearly expecting this, as is evident in the big drop of Toshiba’s price. Plus, the accounting scandal has also damaged the company’s reputation seriously.
Tsunakawa, who has been the Toshiba (TYO:6502) boss since last June, has pledged that he will work overtime to rebuild the trust on the company. It is going to be a priority for them. The CEO has also promised to beef up Toshiba’s capital base. As of September-end, Toshiba has just 7.5 percent of the shareholders equity of 363 billion yen. That could go down further if the business reports a significant loss.