$5.5b tax charge sinks Sony's profit

By Nick Clark

Electronics giant Sony is set to slump to full-year losses of 269 billion ($4.1 billion), its second-worst performance ever, after a tax charge forced the group to slash its forecasts.

The losses will heap further pressure on its embattled chief executive, Sir Howard Stringer, in a year when the group has suffered from the devastating earthquake in Japan and a cyber attack on its network.

Its share price has tumbled a quarter since the turn of the year.

Sony is set to release its full-year numbers tomorrow but was forced to issue a revised forecast to the one it released in February after it became clear the group would not post the 70 billion profit it had predicted three months ago.

The company has been dragged into a full-year loss by a charge of 360 billion ($5.5 billion) related to rules around deferred tax assets in its home country. While the charge is not in cash it will force a "substantial decrease from the February forecast", chief financial officer Masaru Kato said. The loss a year earlier was 40.8 billion.

The reversal will see Sony post its third consecutive year of losses, although Kato said: "The establishment of this valuation allowance does not reflect a change in Sony's view of its long-term corporate strategy."

The company said sales would remain in line with its previous expectations, despite the slump to a full-year loss. It reported yesterday that sales were likely to be down from 7.2 trillion 12 months ago to 7.1 trillion.

This comes despite the impact of the earthquake in Japan just weeks before the end of the company's financial year, which Kato said had significantly damaged Sony's supply chain. It had also been forced to close nine manufacturing plants.

The earthquake's impact drove sales down 22 billion. The disaster means the company will also be hit with a charge of 12 billion over the costs of closing manufacturing sites as well as for life-insurance policy reserves in its financial services business.

It also expects expenses of 11 billion related to repair, removal and cleaning costs to its buildings and machinery. However, Sony said almost all of the losses would be offset by insurance payments.

The real damage from the quake will come in the current financial year, with Sony predicting that supply-chain disruptions will see sales fall 440 billion and profits down 150 billion. Still, Sony officials predicted that the company would return to profit for the full year to the end of next March with sales expected to grow year on year.

Sony was also hit by a cyber attack on its online PlayStation Network, leaving millions of users details exposed. The company said yesterday the hack is likely to cost 14 billion.

This is made up of the theft-protection programme for its customers as well as the cost of the incentives to bring disgruntled customers back into the fold. It will also face payouts to upgrade its network security, as well as legal costs.

Yet the company warned that costs relating to the hack could spiral. Yesterday Kato revealed that should there be confirmed reports of identity theft or misuse of credit cards following the cyber-attack it could face rising costs.

The company also faces a series of class action lawsuits.

- Independent

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