Toshiba’s share price drops after profit forecasts are cut

Toshiba (TYO:6502) shares fell today as they altered their profit forecasts for the financial year ending in March 2018.

The Japanese technology conglomerate have forecasted a loss of 110 billion yen for the financial year. This is a sharp drop from the previous previous expectation of a profit of 230 billion yen.

Toshiba have changed their forecasts due to the impact of an increase in tax they will pay due to the sale of their memory business. On 1 April Toshiba announced that they had separated their memory business to Toshiba Memory Corporation (TMC) in anticipation of selling off this part of the business.

At the time of separation the company was unable to calculate the value of this sector of the business so were unable calculate the impact of tax. Since the conclusion of a Share Purchase Agreement (SPA) for the sale of all shares of TMC to Bain capital they have been able to calculate its annual tax impact. The sales price will be two trillion yen. Toshiba have not included any profit from the sale of TMC in its revision as the share transfer has yet to be approved by authorities.

As the alteration to the forecast in only due to this increased tax bill, Toshiba has maintained its revenue forecast of 4,970 billion yen. The company’s forecast for earnings per share was 54.33 yen at the start of the financial year, this has been revised to -25.98 yen.

Toshiba have had a number of difficulties in recent times. In 2015 it was discovered that the company had been inflating their profits over the previous seven years by a total of £780 million. Earlier this year it also became clear that they had been incurring huge losses in their US nuclear facility, Westinghouse, and subsequently filed for bankruptcy. It is due to these losses that the memory business was originally put up for sale.

The share price for Toshiba closed 1.2% lower at 331 yen per share.