Panasonic cleans house with writedowns, sees $9.6 billion loss
Panasonic Corp said it will lose almost $10 billion this business year as it cleans house of poorly performing operations, writing down billions of dollars of goodwill and assets in its mobile and energy units while its new boss readies for a fresh bout of restructuring.
Shares in Panasonic, founded in 1918, plunged by nearly a fifth on Thursday to their lowest in more than three decades.
A day earlier, it forecast a 765 billion yen ($9.6 billion) net loss for the year to March, nearly matching last year's record loss of 772 billion yen. The result would boost its cumulative loss over five years to nearly $25 billion.
Kazuhiro Tsuga, who became Panasonic's president this year, has promised a harsh revamp, to be unveiled by next March, that is expected to beat a path away from money-losing TVs and other consumer electronics.
"It's unfortunate, but we are among the losers in consumer electronics," he told a news conference.
Panasonic's Japanese peers Sharp Corp and Sony Corp have also struggled with heavy losses in TVs and other mainstay electronics goods as more nimble, better-funded rivals - especially South Korea's Samsung Electronics Co - take over turf they once dominated.
Shares in Sharp and Sony, which report quarterly results after the market close on Thursday, also fell.
But Panasonic's multibillion-dollar write offs, including deferred tax assets, are a sign that Tsuga is already scaling back businesses that do not add to the bottom line as a weak global economy takes its toll.
"We believe we have removed everything that posed a writedown risk," Panasonic's Chief Financial Officer Hideaki Kawai said.
Even after a 36,000 reduction in its workforce last year, Panasonic remains Japan's largest corporate employer with 330,000 workers.
The maker of Viera TVs, which had been projecting 50 billion yen in net profit in the year to next March, also cut its annual operating profit target to 140 billion yen from 260 billion yen.
Its projection for annual TV sales was trimmed to 13 million sets from 15.5 million.
MORE CUTS
The size of this year's loss came as a shock to investors. Panasonic's move to suspend its dividend for the first time since 1950 also meant many pension funds could no longer hold the stock, said Chibagin Asset Management adviser Fujio Ando.
"It's going to be hard to see the stock recover unless we see the restructuring completed with Panasonic producing globally competitive products," he said.
Still, analysts praised Tsuga for his plan to overhaul a company long criticised as sprawling and resistant to change.
J.P. Morgan analyst Yoshiharu Izumi said Tsuga's "shock treatment" promised to transform the mammoth corporation into a nimbler set of small and mid-sized units responsible for producing at least a 5-percent operating margin.
"We read these latest writedowns as a message indicating a major shift in corporate mindset," he said in a note.
Since the start of the year, Panasonic's shares have dropped more than 35 percent, compared with a 5 percent gain in Tokyo's benchmark Nikkei 225 stock average. After falling by their 100 yen daily limit in early trade on Thursday, Panasonic steadied around 416 yen, down 98 yen or 19 percent.
Panasonic will write off 238 billion yen in goodwill related to its mobile phone unit and its businesses in solar panels and small lithium batteries, which are used in PCs and smartphones.
The company last year boosted output capacity of solar panels by half, to 900 megawatts, with a new plant in Malaysia, and has been planning to ramp up capacity to 1.5 gigawatts by March 2016. But with weak demand, particularly in Europe, the company said on Wednesday it is reconsidering that expansion.
Tsuga also said he would halt sales of smartphones in Europe after having just returned to the market this year.
Sony's response, in contrast, has been to double down on consumer electronics with a push into smartphones and tablets.
Panasonic's overall restructuring charges in the first half ballooned to 356 billion yen, and it expects such costs to reach 440 billion yen for the year compared with an earlier 41 billion yen estimate. The company also said it incurred a provision of 413 billion yen for income taxes.
"It's highly possible that Panasonic will cut its outlook again later," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment. "It's very difficult for them to judge how much restructuring will cost at this point."
In the three months to September 30, Panasonic posted an operating profit of 48.8 billion yen compared with a profit of 42 billion yen a year ago. The result was lower than the average 55.6 billion yen profit estimated by five analysts surveyed by Thomson Reuters I/B/E/S.
As the company prepares to rejig its business portfolio, Panasonic this month secured $7.6 billion of loan commitments from Sumitomo Mitsui Financial Group, Mitsubishi UFJ Financial Group and other banks, which will allow it to sidestep fund-raising in the credit markets.
Moody's Investors Service in September cut its rating on Panasonic two notches to Baa1, citing a low level of profitability and elevated leverage.
($1 = 79.5800 Japanese yen)
(Additional reporting by Reiji Murai, Hirotoshi Sugiyama, Dominic Lau, Koichi Kawaguchi, Kevin Krolicki and Sophie Knight in Tokyo, and Umeshi Dasai in Hong Kong; Editing by Edmund Klamann)