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Moody's revises outlook on Toshiba to negative

Moody's affirmed Toshiba Corp.'s B1 senior unsecured debt ratings and revised the outlook to negative from stable, citing the company's falling cash balance and increasing uncertainty about its profitability.

While Toshiba can still cover its negative free cash flow and planned share buybacks at least over the next 12 months, it will have to secure external funding to supplement its cash balance afterward, the rating agency said. Toshiba's cash on hand is expected to fall to ¥300 billion by March 2020 from ¥1.1 trillion as of June 2019.

Toshiba expects to post negative free cash flow of ¥410 billion for the fiscal year ending March 2020 as a result of weak earnings from diminished operations and sizable spending from its ongoing restructuring. The company is aiming to rack up ¥140 billion in operating profit and a 4.1% profit margin, up from ¥35.4 billion and 1.0%, respectively, in the previous fiscal year, targets that Moody's says will be hard to reach.

"Although Toshiba is restructuring to cut costs and optimize its operations, these efforts will likely only have a marginal impact on profit in the near term," Moody's said, adding that difficult conditions in core businesses like thermal generation and system LSI will make it difficult for the Japanese company to hit even modest profit targets.

Toshiba's credit outlook could return to stable if the company secures external sources of funding over the next few quarters, Moody's said.

As of Sept. 6, US$1 was equivalent to ¥106.80.