TOKYO – Toshiba cut its full-year profit forecast and said its chief operating officer has resigned after an investigation into his expenses, a pair of setbacks as the electronics giant tries to extract favourable terms in privatisation talks.

The Japanese conglomerate said it now expects an operating profit of 95 billion yen (S$950 million) in the year until March, down from a previous forecast of 125 billion yen. It reported an operating profit of 5.3 billion yen in the December quarter, while analysts had on average expected 36.6 billion yen. 

Toshiba said COO Goro Yanase stepped down from his position to take responsibility for inappropriate entertainment expense claims while he was a manager at Toshiba Energy Systems in 2019.

Mr Yanase decided to remain as a director of the company this fiscal year, but Toshiba’s board will not nominate him again.

“Yanase’s case made it clear that Toshiba’s troubled compliance attitude hasn’t changed at all,” said Toyo Securities analyst Hideki Yasuda.

Shares slid as much as 2 per cent in Tokyo trading.

Toshiba has lurched from scandal to fiasco since at least 2015, when it had to pay the country’s largest penalty ever for falsifying financial statements.

It then suffered an ill-fated foray into the nuclear business that forced it to take a US$6.3 billion (S$8.4 billion) write-down and sell off its crown jewel memory-chip business, Kioxia.

In 2021, under pressure from activists, Toshiba announced plans to split into three units, only to revise that plan in favour of a two-way split in 2022.

The chief executive at the time resigned to take responsibility for the chaos, after which the company’s board began soliciting bids to take the company private. 

That auction process has dragged on as bidders try to arrange financing and win government approval.

Board chairman Akihiro Watanabe said in a statement with the financial results that there is an urgent need to transform the company. 

“We believe it is important to reach a final conclusion on the strategic alternatives of the company as soon as possible and to start working towards a new stage,” he wrote.

Toshiba is the smallest of the world’s three remaining hard disk drive suppliers in an industry that is getting squeezed by sluggish electronics demand.

Cloud service providers are trimming data centre spending, following years of expansion in magnetic storage. That has been especially tough for Toshiba, which lacks the scale of Seagate Technology and Western Digital.

Toshiba chief financial officer Masayoshi Hirata said on an earnings call after results that data centre demand for hard disk drives was not as strong as the company had hoped.

The disappointing results may further weaken Toshiba’s clout in buyout talks.

The company said last week that it received a buyout offer led by home-grown private equity fund Japan Industrial Partners.

That proposal values the company at about 2 trillion yen, including financing worth about 1.4 trillion yen from banks.

Signs of deterioration in Toshiba’s operations could weaken the company’s ability to push back on demands from banks for asset sales or collateral.

The declining price of memory chips also dented performance at Kioxia and could affect its valuation, not to mention ongoing merger talks with Western Digital. 

It would be best for shareholders if the company comes to a final decision on its strategic direction as soon as possible, Mr Hirata said on the call.

He said he believes that other bidders beyond Japan Industrial Partners still have interest in the company, and he argued that the latest results should not affect its acquisition prospects. 

“We believe a buyout proposal was based upon Toshiba’s long-term value, not the recent quarterly results,” he said.

“However, if asked, we are ready to provide explanations on the latest standing of our businesses.”

BLOOMBERG