Last updated: May 23, 2011 7:51 pm

Tax charge takes Sony into $3bn loss

Sony has reported a surprise Y260bn ($3.18bn) net loss and said the effects of Japan’s March earthquake and tsunami could do lasting damage to its domestic moneymaking ability.

The full-year loss, revealed in a preliminary earnings report on Monday, was the technology and entertainment group’s third in as many years and its largest under Sir Howard Stringer, chief executive since 2005.

The immediate cause was a Y360bn one-off tax charge, as Sony wrote off deferred tax credits banked during the past two years of deficits. The credits have value only if Sony earns taxable profits in Japan – but it said that confidence had been eroded by the disaster.

Sony was required to book the charge this year under US and Japanese accounting rules. On a tax reporting basis, Sony’s Japan-registered businesses were in loss for a third straight year - a trigger point for auditors, who consider a three-year run of deficits to be long enough that a company may not return to profit in time to collect on the tax credits.

“The earthquake and tsunami did major damage to our supply chain and created the risk of lasting electricity shortages,” said Masaru Kato, chief financial officer. “There is some distortion in our domestic profit structure.”

Sony stressed that it remained in the black at the operating level, and the accounting charge would not drain cash. Still, the results could unnerve investors who had expected Sony to return to net profit this year.

Stock analysts had predicted a lossmaking fourth quarter, in large part as a result of the natural disaster, but they had expected Sony to be profitable for the full year.

Operating income of Y200bn, before taxes and one-off charges, was also short of analysts’ average estimate, by about Y50bn.

Sony had in February forecast a Y70bn net profit. It is not scheduled to announce final earnings until Thursday, but a Tokyo Stock Exchange rule forced it to release preliminary results three days early. Companies are required to inform investors immediately if they conclude that they will miss earnings targets by 30 per cent or more.

The March 11 earthquake and tsunami have pushed the economy into recession and caused losses at many manufacturers with factories and suppliers in the country’s north-east.

Sony has suffered the additional blow of an attack by computer hackers last month on its PlayStation Network video game platform and other internet-based services, in which personal information belonging to 100m users was exposed to theft. Sony said it expected the security breach to cost it Y14bn, a sum that will come out of its earnings in the current year.

But it was the natural disaster that was most damaging. Sony said the effects of the quake and tsunami would cost it Y150bn this year, leaving its operating profit roughly at the level of last year after anticipated gains from the restructuring.

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