Sharp: die another day

Surely it would be hard to disappoint a market already expecting the worst. And yet, on Thursday, Sharpredefined the worst once again. After the close the company announced its latest full-year results (the company has a March year end). Net losses of Y222bn exceeded losses of Y200bn flagged on Tuesday, and undershot analysts' previous expectations of an already ugly Y29bn loss. Most of this came in the final quarter, and most related to the LCD business and a Y100bn writedown on manufacturing facilities.

The company has a plan to dig itself out of the hole. It will sell preference shares to its lenders, Mizuho and MUFJ - culpable enablers of Sharp's demise. They will pay Y200bn to purchase preference shares, assuming shareholders agree. The proceeds will go towards paying down a gross debt pile of nearly Y1tn. Sharp will also write down its capital to Y500bn. Then, it will focus on growth areas and withdraw from "underperforming" businesses. Sale of a further Y25bn in preference shares will provide funds for future growth in LCDs, Health and Environment and Business Solutions.

There is little indication that the will to change is real. True, Sharp will close down its TV businesses outside of Asia. But the failing display division is earmarked for investment, from funds inadequate for such a capital intensive business. Worryingly, last year the company's inventory in that division increased. Sharp also said it had problems securing components over the course of the year.

The latest fix seems to have little substance, and a quick death for Sharp hastened by the banks might be more merciful. Yet, for the lenders, the deal still makes sense. If the company continues to founder, the debt - which, gross, amounts to 60 per cent of Mizuho and MUFJ's combined profits in the 9 months to 2014, or 70 per cent of their entire loan loss reserves - will never be returned. For anyone not already involved, Sharp's survival is a risky bet.

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