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Toshiba nuclear write-off. BBC interview about Toshiba’s latest nuclear industry write-offs

Toshiba is expected to announce write-off provisions on the order of US$ 6 billion today

Toshiba is on Tokyo Stock Exchange warning list for possible delisting in March 2017

by Gerhard Fasol

Toshiba crisis
Toshiba crisis

This morning 7:30am I was interviewed on BBC TV Asia Business Report about an update of Toshiba’s ongoing crisis, which has been 20 years in the making.

Here some notes in preparation for my interview.

What is Toshiba’s situation now?

Toshiba’s market cap today is YEN 1024 billion = US$ 9.6 billion.
Toshiba is expected today to announce write-off provisions on the order of US$ 6 billion.
Toshiba owes about US$ 5 billion to main banks as follows:

Mizuho YEN 183.4 billion
SMBC YEN 176.8 billion
Sumitomo Mitsui Trust Holdings YEN 131.0 billion
BTMU YEN 111.2 billion
Total YEN 602.4 billion = US$ 5.3 billion

Toshiba is on notice for delisting by the Tokyo and Nagoya Stock Exchanges, and faces the risk of being delisted by March 15, 2017, i.e. in about 4 weeks from now.

Toshiba is trying to raise capital e.g. by seeking investment in the IC/flash memory division, however, Toshiba seeks to keep control, so Toshiba is trying to raise a minority share, or non-voting shares or similar, in order not to lose control.

How did Toshiba get into a situation to potentially need to write off US$ 6 billion?

Toshiba acquired 87% of the US nuclear equipment manufacturer Westinghouse.

While Westinghouse is a famous name, what Toshiba actually acquired seems to have gone through a period of restructuring.

For an analysis see “Westinghouse: Origins and Effects of the Downfall of a Nuclear Giant”, in the World Nuclear Industry Status Report: https://www.worldnuclearreport.org/Westinghouse-Origins-and-Effects-of-the-Downfall-of-a-Nuclear-Giant.html

In 2015 Toshiba acquired the construction company SHAW’s assets from the Chicago Bridge & Iron Company CB&I for US$ 229 million plus assumed liabilities. CB&I had acquired SHAW for US$ 3.3 billion in July 2012, and SHAW has on the order of US$ 2 billion annual sales.

Why did Toshiba acquire a company for US$229 million, which has US$ 2 billion annual sales, and which was in 2012 acquired for US$ 3.3 billion? Which factors reduced the value of this company from US$ 3.3 billion to US$ 229 million within the 3 years from 2012 to 2015?
Presumably because there are large liabilities arising from nuclear construction, which Toshiba now seems to have to assume.

Cost overruns and delays are not uncommon in the nuclear industry. Similar issues happened with a Finnish nuclear reactor recently, see: https://en.wikipedia.org/wiki/Olkiluoto_Nuclear_Power_Plant

What is likely to happen now with Toshiba? Is Toshiba too big to fail?

Difficult to say what will happen. Toshiba is a huge corporate group with about 200,000 employees and many factories in many countries, so clearly Toshiba is not going to disappear without trace.

The immediate risk is that Tokyo Stock Exchange carries out its warning, and delists Toshiba, which will further increase Toshiba’s ability to raise capital. In the case of a delisting, private equity, and/or government might invest and restructure, and Toshiba might be split up. For example, Toshiba’s nuclear Westinghouse division is totally separate from its very successful flash memory division, there is not much business logic in having both under one holding company.

Impact on UK

Toshiba acquired 60% of UK based NuGeneration with the view to build nuclear power stations in the UK. This project requires Toshiba to contribute to the funding of the nuclear project, for which Toshiba would probably need a financially healthy partner.

What is the big picture? How did Toshiba get into this crisis?

Toshiba’s crisis has been building up for 20 years, and is in my view a consequence of corporate governance issues over a long time.

Essentially, Toshiba should have been reformed 20 years ago from the top down.

Japan’s 8 electronics giants have had essentially no growth and no profits for 20 years. This tragedy has been obvious for many years now, and was a big contributing factor for Japan’s government to reform Japan’s corporate governance laws and regulations, see:

Toshiba’s Board of Directors was exchanged in September 2015, and now includes several very capable and experienced Japanese independent Board Directors, but unlike Hitachi, even today neither Toshiba’s Board of Directors, nor Toshiba’s Executive Board include one single foreigner. 

One might think that a huge global group like Toshiba with complex businesses around the globe might benefit from a variety of view points and experiences from different countries at Supervisory Board and Executive Board level – not all just from one single country. Japanese corporations including Hitachi, SoftBank, Nissan and a small number of others are now recognizing the benefits of diversity of experience and viewpoints at Supervisory Board and Executive Board level.

We can only hope that Toshiba’s executives and Board Directors have the experience and ability to solve the extremely complex issues deep inside the bowels of the US nuclear construction industry – far away on the other side of the world.

Japan electronics industries – mono zukuri

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Japan's energy sector Leadership Ludwig Boltzmann Symposia

Ludwig Boltzmann – Energy, Entropy, Leadership by Gerhard Fasol (6th Ludwig Boltzmann Symposium)

Ludwig Boltzmann as leader

(Gerhard Fasol, CEO of Eurotechnology Japan KK. Served as Associate Professor of Tokyo University, Lecturer at Cambridge University, and Manger of Hitachi Cambridge R&D Lab.)

Keynote presented at the 6th Ludwig Boltzmann Symposium on February 20, 2014 at the Embassy of Austria in Tokyo.

Ludwig Boltzmann, the scientist

Ludwig Boltzmann’s greatest contribution to science is that he linked the macroscopic definition of Entropy which came from optimizing steam engines at the source of the first industrial revolution to the microscopic motion of atoms or molecules in gases, this achievement is summarized by the equation S = k log W, linking entropy S with the probability W. k is the Boltzmann constant, one of the most important constants in nature, linked directly to temperature in the SI system of physical units. This monumental work is maybe Boltzmann’s most important creation but by far not the only one. He discovered many laws, and created many mathematical tools, for example Boltzmann’s Equations, which are used today as tools for numerical simulations of gas flow for the construction of jet engines, airplanes, automobiles, in semiconductor physics, information technology and many other areas. Although independently discovered, Shannon’s theory of noise in communication networks, and Shannon’s entropy in IT is also directly related to Boltzmann’s entropy work.

Ludwig Boltzmann, the leader

Ludwig Boltzmann was not only a monumental scientist, but also an exceptional leader, teacher, educator and promoter of exceptional talent, and he promoted many women.

One of the women Ludwig Boltzmann promoted was Henriette von Aigentler, who was refused permission to unofficially audit lectures at Graz University. Ludwig Boltzmann advised and helped her to appeal this decision, in 1874, Henriette von Aigentler passed her exams as a high-school teacher, and on July 17, 1876, Ludwig Boltzmann married Henriette von Aigentler, my great-grand mother.

Another woman Ludwig Boltzmann promoted was his student Lise Meitner (Nov 1878 – Oct 27, 1968), who later was part of the team that discovered nuclear fission, work for which Otto Hahn was awarded the Nobel Prize. Lise Meitner was also the second woman to earn a Doctorate degree in Physics from the University of Vienna. Element 109, Meitnerium, is named after Lise Meitner.

Nagaoka Hantaro, First President of the University of Osaka – Ludwig Boltzmann’s pupil

The first President of Osaka University (1931-1934), Nagaoka Hantaro (1865 – 1950) was Ludwig Boltzmann’s pupil around 1892 – 1893 at Muenchen University.

Ludwig Boltzmann, a leader of science

Ludwig Boltzmann was connected in intense discussions with all major scientists of his time, he travelled extensively including three trips to the USA in 1899, 1904 and 1905, about which he wrote the article “Die Reise eines deutschen Professors ins El Dorado”, published in the book “Populäre Schriften”.

Ludwig Boltzmann published his first scientific publication at the age of 21 years in 1865. He was appointed Full Professor of Mathematical Physics at the University of Graz in 1869 at the age of 25 years, later in 1887-1888 he was Rektor (President) of the University of Graz at the age of 43 years.

He spent periods of his professional work in Vienna, at Graz University (1869-1873 and 1876-1890), at Muenchen University (1890-1894). When working at Muenchen University, he discovered that neither he nor his family would not receive any pension from his employment at Muenchen University after an eventual retirement or in case he dies before retirement, and therefore decided to return to Vienna University in 1894, where he and his family were assured of an appropriate pension. During 1900-1902 he spent two years working in Leipzig, where he cooperated with the Nobel Prize winner Friedrich Wilhelm Ostwald.

Ludwig Boltzmann did not shy away from forceful arguments to argue for his thoughts and conclusions, even if his conclusions were opposite to the views of established colleagues, or when he felt that philosophers intruded into the field of physics, i.e. used methods of philosophy to attempt solving questions which needed to be solved with physics measurements, e.g. to determine whether our space is curved or not. Later in his life he was therefore also appointed to a parallel Chair in Philosophy of Science, and Ludwig Boltzmann’s work in Philosophy of Science is also very fundamentally important.

I discovered the unpublished manuscripts of Boltzmann’s lectures on the Philosophy of Science, stimulated and encouraged by myself, and with painstaking work my mother transcribed these and other unpublished manuscripts, and prepared them for publication, to make these works finally accessible to the world, many years after Ludwig Boltzmann’s death.

Ludwig Boltzmann was a down to earth man. He rejected the offer of Nobility by His Majesty, The Emperor of Austria, i.e. the privilege to be named Ludwig von Boltzmann (or a higher title) instead of commoner Ludwig Boltzmann. Ludwig Boltzmann said: “if our common name was good enough for my parents and ancestors, it will be good enough for my children and grand children…”

Summary: understanding Ludwig Boltzmann.

Boltzmann’s thoughts and ideas are a big part of our understanding of the world and the universe.

His mathematical tools are used every day by today’s engineers, bankers, IT people, physicists, chemists… and even may contribute to solve the world’s energy problems.

Ludwig Boltzmann stood up for his ideas and conclusions and did not give in to authority. He rejected authority for authority’s sake, and strongly pushed his convictions forward.

What can we learn from Ludwig Boltzmann?

  • empower young people, recognize and support talent early.
  • exceptional talent is not linear but exponential.
  • move around the world. Connect. Interact.
  • empower women.
  • don’t accept authority for authority’s sake.
  • science/physics/nature need to be treated with the methods of physics/science.
  • no dogmas.
  • support entrepreneurs, Ludwig Boltzmann did.
Gerhard Fasol
Gerhard Fasol

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