Aug 1, 2017
Executives
Unverified Participant Kenichiro Yoshida - Sony Corp. Kazuhiko Takeda - Sony Corp.
Analysts
Mika Nishimura - Credit Suisse Securities Japan Ltd. Junya Ayada - Daiwa Securities Co.
Ltd. Mikio Hirakawa - Merrill Lynch Japan Securities Co., Ltd.
Kota Ezawa - Citigroup Global Markets Japan, Inc. Masahiro Ono - Morgan Stanley MUFG Securities Co., Ltd.
Masaru Sugiyama - Goldman Sachs Japan Co., Ltd. Yu Okazaki - Nomura Securities Co., Ltd.
Ryosuke Katsura - SMBC Nikko Securities Inc.
Unverified Participant
Thank you for waiting. Ladies and gentlemen, this is the Earnings Announcement of the Consolidated Results for the First Quarter of the 2017.
And thank you very much for being with us despite surely busy schedules. And our speakers here today, first of all we have Kenichiro Yoshida, Executive Deputy President and CFO; and Corporate Executive, Corporate Planning & Control and Accounting, Kazuhiko Takeda, and Corporate Exec responsible for Finance and Corporate Development is Atsuko Murakami.
Today, Mr. Yoshida will give you a presentation on the first quarter results for 2017, as well as a full-year forecast for the year.
And then we have some time for questions and answers. All together, we plan to spend 40 minutes.
Now, Mr. Yoshida, would you please start?
Kenichiro Yoshida - Sony Corp.
I'm CFO, Kenichiro Yoshida. Today I would like to explain these two topics in the next 15 minutes.
Consolidated sales for the first quarter of fiscal 2017 increased 15% year-on-year to ¥1,858.1 billion. Consolidated operating income was ¥157.6 billion, approximately 2.8 times as high as the same quarter of the previous fiscal year.
Net income attributable to Sony Corporation's stockholders was ¥80.9 billion, about 3.8 times that of the same quarter previous year. As is shown in this slide, the operating income in the first quarter of fiscal 2017 and the fiscal 2016 include many onetime gains and losses.
In the first quarter of fiscal 2016, a negative impact from the Kumamoto earthquake and the impairment against the camera module long-lived assets were recorded. In the first quarter of fiscal 2017, gain from the sales of the manufacturing subsidiary of camera module business and insurance recoveries related to the earthquakes were recorded.
Excluding these onetime items, operating income would have increased ¥11.4 billion, or slightly more than 10% year-on-year. This chart shows the result of each segment.
From the first quarter, we eliminated from Corporate -- Components segment and the business previously within the Components segment now included in All Other. The transfer of the battery business, which accounts for approximately 60% of the sales of the former Components segment, the Murata Manufacturing Company Limited is expected to be completed on September 1 of this year.
Business that will remain in All Other includes Storage Media business. Next is consolidated results forecast for the current fiscal year.
Our consolidated sales forecast has been upwardly revised by ¥300 billion, primarily due to the impact of foreign exchange rate. The forecast for operating income, income before income taxes, and net income remain unchanged from the April forecast.
Our foreign exchange assumptions have been changed to ¥110 to the U.S. dollar and ¥120 to the euro, as is shown here.
And as for the interim dividend for fiscal 2017, we plan to pay ¥12.50 per share. Next, you can see the forecast for the fiscal year by segment.
As is shown here, we have changed the operating income forecast for the Imaging Products & Solutions, Game & Network Services, and Semiconductors segments. As is shown in the upper-right, we used ¥112 to the U.S.
dollar and ¥120 (sic) [¥128] to the euro when formulating the forecast for each segment. There is an approximately ¥40 billion negative impact on operating income, which is included in the Corporate and elimination, resulting from the difference caused by our using the rates for the consolidated forecast, ¥110 to the U.S.
dollars and ¥120 to the euro, as well as the impact of the emerging market currencies. Now, I will turn to the situation in each of our businesses, and first I will explain Mobile Communications segment.
Mainly due to a change in the product mix of smartphones, sales for the quarter decreased 3% year-on-year. Operating income increased year-on-year to ¥3.6 billion, primarily due to reduction in operating costs and research and development expenses.
Our sales and operating income forecasts for the fiscal year remains unchanged. We have maintained our ¥5 billion operating income forecast despite further increase in the prices of memory and other smartphone components above what we expected in April, because we expected to offset negative impact of these increases with cost reductions.
Next, talking about the Game & Network Services segment. Sales for the quarter increased 5% year-on-year.
Operating income declined ¥26.3 billion year-on-year to ¥17.7 billion, because of the absence of a significant contribution from Uncharted 4, the first-party title that we had in the previous year the same quarter, and also from the impact of the price reduction on PS4 hardware. So Network revenue increased 34% year-on-year.
And forecast for full year, operating income was revised upward by ¥10 billion to ¥180 billion due to the appreciation of euro against the dollar. The ForwardWorks, which distributes game applications for mobile products, started to distribute its first game Everybody's Golf on July 4.
It has been downloaded more than 2 million times, and we look forward to expanding the business going forward as we plan to distribute our first original content called Sora to Umi no Aida from the beginning of October. Next, touch upon the Imaging Products & Solutions business.
Sales for the quarter increased 27% year-on-year, mainly due to the absence of the negative impact that we experienced last year of the component shortages resulting from the earthquakes in Kumamoto. The increase in sales helped the operating income to increase by ¥15.7 billion year-on-year to ¥23.2 billion.
Excluding the impact of the Kumamoto earthquakes, the underlying year-on-year increase in operating income would have been ¥6.1 billion, as shown on this slide. In the digital imaging business, we launched the α9 in May, a full-frame mirrorless interchangeable single-lens camera, which has a high-rate burst capture feature.
And this camera is being received very well not only by professional sports photographers, but also by news photographers. And our operating income forecast has been here revised upward by ¥12 billion to ¥72 billion, mainly due to the impact of the yen's depreciation.
Next, explaining about the Home Entertainment & Sound segment. Sales for the quarter grew 9% year-on-year and operating income increased ¥2.3 billion up to ¥22.6 billion.
And we continue to improve the product mix, reflecting a shift to high value-added models such as 4K TVs. Sony's OLED TVs, which we launched in June, have superior picture and sound quality, as well as an excellent design, and their sales continue to be strong.
Our operating income here, the forecast for the fiscal year remains unchanged. Next a few words about Semiconductors segment.
Sales for the quarter rose 41% and operating income of ¥55.4 billion was recorded, which is an improvement of ¥99 billion year-on-year. This increase in sales were primarily due to the increase in unit sales of image sensors for mobile products and the absence of the negative impact of the earthquakes that we had in the same quarter the previous year.
As I mentioned at the beginning of my remarks, there were onetime items including earthquakes – impact of the earthquakes and the camera modules. And excluding these onetime items, as is shown on this slide, underlying operating income would have increased ¥21 billion year-on-year.
The main reason for the increase in underlying operating income was increase in unit sales of image sensors for mobile products that I mentioned before. Our sales forecast has been revised down by ¥20 billion to reflect image sensor unit sales for mobile products, which are expected to be lower than the April forecast.
The operating income forecast has been revised upward by ¥10 billion to ¥130 billion, benefiting from cost reductions previously undertaken, but partially offset by the negative impact of the decrease in sales. Next I will explain the Pictures segment.
Sales for the quarter increased 12% year-on-year and a ¥9.5 billion operating loss was recorded, an improvement of ¥1.1 billion year-on-year. The main reason for the operating results improvement was a contribution from the Television Productions business.
There is no change to the forecast for the fiscal year. As we announced this morning, we have decided to acquire Funimation, a distributor of anime content in the U.S.
We plan to acquire 95% of the equity of the company for USD 143 million. As we also announced previously, Tony Vinciquerra became CEO of Sony Pictures on June 1.
Tony has experience managing a variety of entertainment business and has accomplished much in his career. He is currently working with the management of each business to quickly assess the status and issues facing their businesses.
Spider-Man: Homecoming was released on July 7 and is recording a high level of box office revenue, mainly in the U.S. The movie will be released in Japan on August 11.
We plan to release Venom, an offshoot of Spider-Man, in the fall of 2018. Like Spider-Man and Venom, there are hundreds of Marvel characters for which we have the filmmaking rights and we plan to proactively leverage that IP going forward.
Next I will explain the Music segment. Sales for the quarter increased 19% year-on-year, and operating income increased ¥9.5 billion year-on-year to ¥25 billion.
Fate/Grand Order, a mobile game application, continues to contribute to financial performance. There is no change to the forecast for the fiscal year.
Lastly, I will explain the Financial Services segment. Revenues increased 30% year-on-year, but operating income decreased year-on-year to ¥46.2 billion.
Revenue increased due to the improvement of investment performance in the separate account at our primary business, Sony Life, primarily reflecting a rise in the Japanese stock market in the current quarter. However, the impact of the improved investment performance had a limited positive impact on the operating income, because the improvement in investment performance is ultimately attributed to policyholders.
The year-on-year decrease in operating income was mainly due to the deterioration in net gains and losses from hedging of equity securities, which are classified as other securities for accounting purposes and a decrease of net gains on sales of securities compared with the same quarter of the previous fiscal year. There is no change to the forecast for the fiscal year.
Finally, I will again show the forecast by segment. So compared to the previous years, cash flow analysis and other data are in page 18 and 19 of the handout documents.
As for the first quarter, there's a description on that as well. So please refer to that section on the first quarter as well.
Thank you very much. This concludes my explanation.
Unverified Participant
And with this, we would like to conclude the session for today. I appreciate your participation today.