Jul 29, 2016
Executives
Kenichiro Yoshida - Executive Deputy President and Chief Financial Officer Kazuhiko Takeda - the Corporate Executive, Corporate Planning, Control and Accounting
Analysts
Junya Ayada - Daiwa Securities Co. Ltd.
Hiroyuki Miyamoto - Mitsubishi UFJ Morgan Stanley Securities Masahiro Ono - Morgan Stanley Hiroshi Taguchi - Deutsche Securities Inc.
Operator
Ladies and gentlemen, we’d like to have the presentation on Q1 Fiscal Year 2016 Consolidate Results of Sony Corporation. We like to thank for your attendance despite your busy schedule.
Let me introduce the representatives who are seated on the stage. First, Kenichiro Yoshida, the Executive Deputy President and CFO, the Representative Corporate Executive Officer.
Next to him is, Kazuhiko Takeda, the Corporate Executive, Corporate Planning and Control and Accounting. And also we have Ms.
Atsuko Murakami, the Corporate Executive, Finance Department. First Mr.
Yoshida will give the initial presentation and in the remainder of the time, we would accommodate your question. Overall, we intend to spend 45 minutes.
So to you Ms. Yoshida.
Kenichiro Yoshida
I am CFO, Kenichiro Yoshida. Today I would like to explain two topics in the next 15 minutes.
Consolidated sales for the first quarter of fiscal 2016 decreased 11% year-on-year to 1,613.2 billion yen. Consolidated operating income decreased 42% year-on-year to 56.2 billion yen.
We estimate that the negative impact of April Kumamoto earthquakes on the operating income of the first quarter was approximately 34.2 billion yen including opportunity losses. Net income attributable to Sony Corporations stockholders decreased 74% year-on-year to 21.2 billion yen.
In the same quarter of the previous fiscal year, we recorded several onetime items such as asset sales gains. Specific examples are shown here, a total of 35.1 billion yen in onetime profit was included in operating income and a total of 49.5 billion yen in onetime profit was included in other income of the first quarter of the previous fiscal year.
Next, I will turn to the result by segment. From this fiscal year, we have separated the Devices segment into two segments, a Semiconductor segment which was recently made into to a separate subsidiary and a Component segment, compared with same quarter of the previous year, and the improvement in the profitability of the Game and Network Services segment and the Mobile Communications segment contributed significantly to the result.
On the other hand the profitability of the Semiconductors segment deteriorated significantly year-on-year. Next is a consolidated result forecast for the current fiscal year.
Consolidated sales forecast has been revised downward by 400 billion yen mainly due to the impact of the appreciation of the yen. Profit forecast remains unchanged for our May forecast.
Foreign rate assumption has been changed to 103 yen to U.S. dollars and 114 yen to the euro.
As they show in here, the negative impact of the change in the ForEx assumption from May forecast on the operating income of the six electronic segment is estimated to be approximately 48 billion yen including the impact which was realized during the first quarter. This negative impact takes into account not only U.S.
dollar and the euro but also the impact of the immerging market currencies. For your reference, a negative ForEx impact on the operating income the six electronic segments compared with the previous fiscal year is estimated to be about 59 billion yen.
As we will be showing later, the negative impact of the earthquakes for the current fiscal year is expected to decrease by about 35 billion yen from May forecast. Moreover, there is a possibility that we might record a loss in connection with a transfer of our battery business to Murata Manufacturing Co., Ltd.
regarding which we announce the execution of the memorandum of understanding yesterday. Such loss is not including in the July consolidated result forecast for fiscal ‘16.
Here you see the forecast for the fiscal year by segment. Here you can see the impact on operating income for full year of the earthquakes.
Although this impact has been estimated based on the certain assumptions, the impact is expected to decrease by approximately 80 billion yen from the 115 billion yen we announced in May, thanks to the restoration of production at the Kumamoto factory which is preceding ahead of May forecast. We had previously said, the full utilization on the wafer input basis was expected to be reached by the end of August but the timing has been advanced by one month to the end of July.
Now I will turn to the region of each of our businesses, first Mobile Communications segment. Due to a reduction in mid-range smartphone unit sales and downsizing of the business of profitable geographical areas, sales for the quarter decreased 34% year-on-year.
Operating profitability improved by 23.3 billion yen and a 400 million yen operating profit was recorded. Despite the significant decrease in the sales, the earnings structure is improving because of improved profitability due to improved product mix reduction in operating cost and a decrease in restructuring charges.
While the sales in Japan are strong, we have reduced our smartphone unit sales forecast by 1million units mainly due to a lower than expected performance especially in Europe. We have revised downward a forecast for full year sales to 840 billion yen due to this reduction and the impact of the appreciation of the yen.
Cost reduction has been progressing but the severe competitive environment in the smartphone space continues. We have made no change to our goal of achieving profit in this fiscal year by continuing to improve our earnings structures.
Next, I would like to explain the Game & Network Services segment. Sales for the quarter increased 14% primarily due to the strong performance of uncharted for first title that went on sales in May.
Operating income increased 24.6 billion yen to 44 billion yen. Network revenue increased 38% year-on-year and accounts for 46% of the sales of the segment.
Our operating income forecast for this fiscal year remains unchanged. Next going to the Imaging Products & Solutions segment, sales for the quarter decreased 26% year-on-year due to the impact of the earthquakes, although the impact of the decrease in sales was partially offset by the improvement in product mix, cost reduction and other factors.
Operating income decreased 10.2 billion yen year-on-year to 7.5 billion yen. The impact on operating income from the earthquakes is estimated to have been approximately 7 billion yen for this quarter.
We expect to be able to reduce the amount of the fiscal year impact of the earthquakes from the 45 billion yen forecasted in May to approximately 26 billion yen primarily because recovery at Kumamoto factory is progressing ahead of schedule. We made an upward revision to the operating income forecast by 6 billion yen to 22 billion yen primarily because of the reduced impact of the earthquake, additional cost reduction and increase in sale of interchangeable days was - such effect was partially offset by the negative impact of depreciation of yen.
Next, I would like to explain the Home Entertainment & Sound segment. Although the sales decreased 7% year-on-year, operating income increased 9.3 billion yen to 20.2 billion yen.
Despite the decrease in sales from the negative impact of the foreign exchange rates, we were able to achieve an increasing operating income due to cost reduction and the shift to higher value added products. The fiscal year operating income forecast have been revised upward by 5 billion yen to 41 billion yen primarily due to the strong performance of televisions.
Next, I would like to explain the Semiconductors segment. Sales for the quarter decreased 23% year-on-year and an operating loss of 43.5 billion yen was recorded, a deterioration of 76.3 billion yen year-on-year.
This decrease in sales was primarily due to the impact of the earthquake and decrease in demand for image sensors for mobile. The deterioration in operating profitability was primarily due to approximately 24.7 billion yen an impact from the earthquakes including opportunity rose 20.3 billion yen impairment against camera modules long-lived assets and 8.2 billion yen negative impact from the stronger yen.
Although we expect to be able to reduce the amount of fiscal year impact of the earthquakes from 60 billion yen forecasted in May to approximately 48 billion yen, we have downwardly revised our operating income forecast by 27 billion yen to a loss of 64 billion yen primarily due to the negative impact of the appreciation of the yen against the U.S. dollar.
Now, I will like to speak briefly about the current situations and the issues in the semiconductor business from the perspective of the - those listed on the slide. First is the unit sales of image sensors for mobile use, which account for large portion of our revenue.
These sales are begun to trend upward after hitting the bottom in the fourth quarter of the previous fiscal year. And we expect them to exceed the level of the same period of the previous year from the second quarter of the current fiscal year.
The expansion of sales to the smartphone manufactures is progressing reasonably; some areas are stronger than the others. Next is the impact of foreign exchange rates.
Although yen denominated cost is quite large in the image sensor business, most sales are denominated in U.S. dollars which causes the business to endure a negative impact from the appreciation of yen.
As I mentioned earlier, sales volume expected to increase significantly due to some expansion efforts that started last year. And even thought we anticipate on relatively small decline in average selling price on a U.S.
dollar basis, a decrease in sales from the appreciation on the yen is having a large negative impact on operating income. We estimate that the foreign exchange rate specifically in the Semiconductor segment to be an approximately 3.5 billion yen negative impact on operating income for the year from a one yen appreciation against the U.S.
dollar. Next the production capital we have installed as of today including a portion which is outsourced has decreased from the 87,000 wafer per month we previous announced to 85,000 wafer per month.
This decrease is due to a shift in production of certain image sensors for mobile use that were previously manufactured at our Kumamoto factory to our Yamagata factory in an effort to respond to the earthquakes. Since we allocated equipment at our Kumamoto facility to the production of AV and surveillance camera sensors, our production capacity has decreased.
Our current production footprint including orders to our outsourcing partner is 73,000 wafers per month. Our President Hirai said at the corporate strategy meeting last month, we have not changed our view that the imaging sensor business is one with growth potential over the medium to long term.
Going forward, we aim to improve profitability by increasing the ratio of customized products for mobile use via efforts to increase the adoption rate among our expanded customer base of higher value added image sensors including those for dual lens cameras into next fiscal y year. We also aim to improve profitability by improving our cost structure via efforts such as starting to internally produce logic.
Moreover, over the medium term, we believe that it is important to improve the business scale and profitability of image sensors other than for mobile such as for surveillance, factory automation and mobile. Next I will explain the Components segments.
These main products of the segment include batteries and recording media. Sales decreases and operating results deteriorated year-on-year and we recorded an operating loss of 4.7 billion yen.
The fiscal year forecast for operating results has been revised downward by 9 billion yen to an operating loss of 12 billion yen mainly due to a downward revisions and projected sales of the battery business partially resulting from the stronger yen. As I mentioned before, we announced the signing of a memorandum of understanding of Murata Manufacturing Co., Ltd.
relating to the transfer of the battery business which is included in the segment. We reached the conclusion that transferring the business to Murata Manufacturing Co., Ltd.
would enable the human resource and technological assets that we have accumulated in this business to be better utilized given the competitive environment of the battery business and our business portfolio strategy for the Sony Group as a whole. We are aiming to complete this transaction by the end of March 2017.
Next, I will explain the Pictures segment. Sales for the quarter increased 7% year-on-year and 10.6 billion yen in operating loss was recorded an improvement of 1.0 billion yen year-on-year.
The main reason for the operating results improvement was a decrease in the Japanese yen based operating loss amount resulting from the stronger yen against the U.S. dollar.
The fiscal year forecast for sales and operating income have been revised downward due to stronger yen against U.S. dollar and operating income of 38 billion yen is expected to be recorded.
Next I will explain the Music segment. Sales for the quarter increased 9% year-on-year but operating income decreased 15.8 billion yen year-on-year to 15.9 billion yen.
As was shown in the previous slide, the same quarter of the previous fiscal year included an 18.1 billion yen gain from the measurement of our stack in Orchard Media, Inc., excluding this impact, operating income increased year-on-year. Like the Picture segment, this segment is negatively impacted by stronger yen against the U.S.
dollar but this negative impact is expected to be offset by the profitability of hit titles in recorded music and the continued strong performance of our mobile game application. As a result there is no change to our sales and operating income forecast for the fiscal year.
Lastly, I will explain the Financial Services segment. Revenues decreased 17% year-on-year but operating income increased 2.6 billion yen year-on-year to 48.5 billion yen.
Revenue decreased due to the deterioration of investment performance in the separate account at our primary business Sony Life, mainly reflecting a decline of the Japanese stock market in the current quarter. However the impact of the investment performance has a limited negative impact on operating income because the investment performance is attributed to policy holders.
Operating income increased year-on-year due to the recording of foreign exchange gains on foreign currency denominated customer deposit at Sony Bank resulting from stronger yen. Our revenue and operating income focused for the year remain unchanged.
This concludes my explanation. Thank you.
Operator
Now the floor is open to your question. Those of you with question please wait for the microphone and please identify yourself by stating your name and affiliation before asking question.
And please confirm the number of question to two per person. Anyone with questions please raise your hand.
The person at the front row at the block there.
Operator
And we take the next question and please raise your hand if you do.
Operator
Yes, the person sitting next to the previous one.
Operator
Anyone? Yes, the next one please.
Operator
This is going to be one last question because of time constraint. The person in the middle of the room.
Operator
Thank you. And with this we like to conclude the earnings announcement session.
Thank you very much for coming.