Sharp warns on ability to stay afloat after $1.9bn loss

Sharp, a century-old stalwart of corporate Japan, has unveiled an annual loss of $1.9bn and warned of "material uncertainty" about its ability to stay in business, less than three years after facing a similar crisis of survival.

Undeterred, banks are once again pumping money into Sharp, a process analysts have criticised as hindering underperforming companies from implementing bold turnround steps.

The maker of display screens for Apple on Thursday reported a net loss of Y222.35bn ($1.9bn) for the financial year that ended in March. That compares with a profit the previous year of Y11.6bn and an earlier target of a Y30bn loss.

Excluding group companies, liabilities totalling Y1.57tn were more than total assets of Y1.56tn, the company reported.

"There exist events or conditions that may cast a material uncertainty about Sharp's ability to continue as a going concern," it said in its earnings statement.

Founded in 1912, Sharp started out making mechanical pencils, but the later success of its TVs, refrigerators and air purifiers made it a household name, alongside Sony and Panasonic. The $4bn TV display factory it launched in 2009 was once touted as a model of Japan's advanced production techniques.

But in hindsight, its heavy investment in liquid crystal display turned out to be mistimed and it was later overwhelmed by the stronger yen and the rise of cheaper Taiwanese and South Korean producers.

While many of its erstwhile struggling peers have since taken a more aggressive approach to axing laggard business lines, the modest and tardy restructuring pursued by Sharp has failed to stem losses.

Sharp blamed its fall further into the red on heightened price competition from Chinese rivals for smartphone LCD panels, as well as restructuring charges.

The electronics maker's latest woes follow a previous brush with financial oblivion in 2012, which it averted with the help of bank loans and a restructuring that included job and wage cuts, along with the sale of overseas plants.

At the time, Sharp shifted its focus from television and solar panels to small and medium-sized LCD displays, after its first warning of "material doubt" that it could survive.

The turnround plan that Sharp unveiled on Thursday resembled its previous restructuring measures: axing 10 per cent of its global workforce, including 3,500 jobs in Japan, and the sale of its head office in the west of the country.

Mizuho and Bank of Tokyo-Mitsubishi UFJ, Sharp's main lenders, have agreed to inject a total of Y200bn in a debt-for-equity swap. Sharp will also receive an additional assistance of Y25bn from a Japanese fund backed by the banks.

"We aim to create a stable profit structure with drastic structural reforms. We hope to mark a new start for our revival," said Kozo Takahashi, Sharp's president.

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Sharp's difficulties represent a sore spot in Japan's consumer electronics industry, which has shown signs of recovery after companies including Panasonic and Sony have sold off businesses to focus on their more profitable products and services.

Corporate governance experts also say Sharp is symbolic of the hurdles that Japan faces, as Prime Minister Shinzo Abe pushes for a corporate governance overhaul aimed at ending a culture of complacent managers and low returns.

In spite of the fresh restructuring measures, analysts say Sharp should take more radical steps - including the sale of businesses - to ensure its survival.

During its previous crisis, the company received equity investments from Qualcomm and Samsung Electronics. Taiwan's Hon Hai Precision Industry, which already owns a stake in Sharp's TV panel plant, has long expressed interest in helping to rescue the Japanese company.

However, government officials oppose selling off businesses to foreign players due to concerns over the loss of Japanese technology.

"A lot of people will wonder if Sharp should have sold itself earlier," said Nicholas Benes, a Tokyo-based corporate governance and M&A expert who took a lead role in proposing Japan's corporate governance code.

"Four years ago, management should have got Sharp in the hands of a parent that can take better care of the company than the banks," he added.

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