Sony Corporation (NYSE:SNE)
F4Q11 Earnings Call
May 10, 2012 4:30 am ET
Masaru Kato – Corporate Executive Officer, Executive Vice President and Chief Financial Officer
Yoshinori Hashitani – Vice President, Investor Relations Division
Yasuo Nakane – Deutsche Securities
Kota Ezawa – Citigroup Securities
Yuji Fujimori – Barclays Capital
Shiro Mikoshiba – Nomura Securities Co., Ltd.
Takashi Watanabe – Goldman Sachs Japan Co.
Hideki Yasuda – Ace Research Institute Co., Ltd
Now we would like to start the announcement of Sony Corporation’s Fiscal Year 2011 Consolidated Financial Results. Let me introduce the presenters, to your right, Corporate Executive Officers, EVP and CFO, Masaru Kato; Head of the IR, Yoshinori Hashitani. First about on the consolidated financial results, Kato will give a presentation.
Well, first I’d like to explain the consolidated results for fiscal 2011. Sales decreased year-on-year due to negative foreign exchange, the impact of the earthquake and the flood in Thailand and deterioration in market conditions in developed countries.
Operating loss was recorded due to the lower sales factors and significant deterioration in equity – net income of our affiliated companies. A large net loss attributable to Sony Corporation’s shareholders was recorded due to establishment of a valuation allowance against deferred tax assets, mainly in the U.S. This valuation allowance was a non-cash charge and there’s no impact on cash flow.
On April 10, we announced a dollar revision in our financial results forecast for fiscal 2011 due to a significant increase in capital expense including the establishment of valuation allowance against these deferred tax assets in the U.S. At that time, we explained that we were keeping our forecast of ¥95 billion operating allowance, announced at the third quarter earnings announcement on February 2.
However, thanks to the improvement in fourth quarter operational results, higher operating results of ¥67.3 billion. We also [incurred] a net loss – was expected to be ¥520 billion, I’d only say a decrease in tax expense below April 10 forecast, net loss was ¥456.7 billion.
Operating income of ¥180 billion in forecast for fiscal 2012 due to a significant improvement in operating results in the Consumer Products & Services and Professional, Device & Solutions segment that are expected to recover from the earthquake and flood. We also expect to record ¥30 billion in net income attributable to Sony Corporation’s second quarter.
Now I’ll explain the income statement, consolidated sales decreased 9.6% year-on-year due to relative impact of foreign exchange rates and the impact of the earthquake and flood deterioration in the market environment in developed countries.
On A local currency basis, sales decreased 5%. On a signal basis, sales of primarily the CPS and PDS segment decreased. Consolidated operating loss was ¥67.2 million compared to the profit of ¥199.8 billion in the previous fiscal year. This deterioration in operating results is primarily due to the lower sales as I just explained, and due to the results in deterioration in equity, net income of affiliated companies was zero. A ¥102.3 billion, re-measurement gain was recorded due to 100% ownership of Sony Ericsson.
Equity in net loss of affiliated companies recorded within operating loss was ¥121.7 billion compared to profit of ¥14.1 billion in the previous fiscal year. Equity in net loss of S-LCD, our joint venture with Samsung was ¥64.1 billion due to the recording of a ¥60 billion loss on the sales of our shares in S-LCD.
Equity in net loss of Sony Ericsson was ¥57.7 billion. This was due to the recording of a ¥33 billion valuation allowance on certain deferred tax assets of Sony Ericsson, a decrease in units shipped, the negative impact of intense smartphone price competition, and higher restructuring charges.
The net effect of other income and expenses was an expense of ¥15.9 billion compared to a profit of ¥5.2 billion in the previous fiscal year due to the recording of foreign exchange loss compared to foreign exchange gain in the previous fiscal year.
Loss before income taxes was ¥83.2 billion, compared to a profit of ¥205 billion in the previous fiscal year. Income taxes of ¥315.2 billion was recorded due to the recording of a non-cash charge to ¥260.3 billion for valuation allowance against DTA in the U.S.
Net loss attributable to Sony Corporation stockholders was ¥456.7 billion compared to net loss of ¥259.6 billion in the previous fiscal year.
Now Hashitani will explain the segment results.
Our fiscal ’11 sales and operating income by segment (inaudible). First, let me explain the results of Consumer Products & Services segment. CPS segment sales decreased 19% due to the impact of the earthquake and the flood in Thailand.
On a product category basis, decreased sales of LCD televisions are a major factor where our operations [earn] that improving profitability rather than pursuing (inaudible). There also was the impact of a price drop and exchange rate, and the operating loss was ¥239.8 billion, potential the income of ¥10.8 billion at end of this year.
This decrease is due to large decrease on gross profit and also deteriorating cost of sales ratio and a deterioration of operating income, and the broader factors behind change as you see.
And the positive factor is ¥30.4 billion decrease in SG&A; and ¥19.2 billion decrease in restructuring charges. And the negative factor is ¥97.4 billion decrease in gross profit and ¥82 billion deterioration in the cost of sales ratio, ¥31.2 billion deterioration in equity and net income.
Excluding restructuring charges and one time charges for that category that led to the deterioration in operating results include LCD, (inaudible) includes the LCD panel related expenses due to lower capacity utilization at S-LCD and the current sales on game business.
Let’s talk about TV business. Sales in TV business increased 28% year-on-year to ¥840 billion and to explain to our earnings announcement in November last year, it’s basically just do to scaling back operation not pursuing volume in order to secure stable profit foundation and it was also due to price decline and severe depletion. And the unit sales increased by 13% and to 19.6 million unit and the operating loss was ¥148 billion and this will be lowest than the previous fiscal year, but compared to ¥155 billion last forecast in November, where we announced the profit improvement plan, this is an improvement of ¥27 billion already showing the benefit of S-LCD dissolution.
We recorded ¥60 billion in losses associated with the sales of our equity in stake in S-LCD this fiscal year, including this loss operating loss was ¥208 billion. The profitability of the TV business improved faster than we expected and we are making steady headway towards a EBITDA profitability structure to end of the turn around.
The Digital Imaging business suffered a decrease in sales and profit due to the impact of the earthquake and Thai floods. Sales and profit of video camera decrease due to the natural disaster, the decrease in unit sales resulting from the contraction of the market in the west and price declines. However we continue to maintain a stable level of profitability to cost reduction.
Compact digital camera experienced a decline in sales and profits due to the natural disaster, the decreasing unit sales resulting from the deterioration in market conditions in the west and the FOREX impact. We have been now producing some of the models we used to produce in Thailand in China and Japan. The impact of the Thai floods on our interchangeable lens SLR was extremely severe. As sales decreased significantly due to unit sales declined from delays in new product launches and Forex impact, but was less than the previous fiscal year. Next is the game business, our flagship product PS3 continues to maintain around 40 million unit level sales and is selling well with software. At the end of March, we achieved a unit sales of 1.8 million of PS3 that we launched.
As for the network service business, the amount of content, the number of countries we are active, the number of compatible devices are expanding. However, overall game sales decreased due to Forex impact and the strategic price reduction of PS3 hardware.
Operating income decreased, due to the impact of the sales decline and asset impairment in the network service business. PDS sales decreased 13%, due to the impact of the earthquake on batteries and storage media and the Forex impact.
An operating loss of ¥20.2 billion was recorded compared to the operating income of ¥27.7 billion in the previous year. This was primarily due to the deterioration in the cost of sales ratio, the Forex impact, and a decrease in gross profit resulting from lower sales partially offset by a decrease in SG&A.
Now, a positive factor for PDS segment were ¥29.5 billion decrease in SG&A, ¥11.4 billion gain on the sale of asset impairment and other negative factors, ¥42.4 billion, deviation in cost of sales ratio. ¥27.5 billion negative impact Forex, ¥12.5 billion decrease in gross profit. Excluding restructuring charges, the principal product category that contributed the most through the decline in operating result was component.
Sales in semi-conductor business decreased due to the impact of the earthquake and Thai flood. Operating income was essentially unchanged because the continuation of increased image sensor sales and expanded image sensor production capacity was offset by the sale, sales decrease of the category and an increase in fixed cost from products and capacity increase. The floods caused risk damage to our manufacturing facilities affecting the supply of our image sensors.
However, we have invested in Kumamoto and Nagasaki plant and as we planned we have been able to increase our production capacity two-fold. Inventory for CPS and PDS segment at the end of March decreased 7% to ¥564.3 billion.
Picture segment sales increased 10% and operating income of ¥34.1 billion was recorded, a decrease of ¥4.5 billion. The sales increase was due to higher television revenues in the U.S. revenue recognized from the consolidation of the game show network, which was accounted for under the equity method in the previous year and the sale of participation interest in Spider-Man merchandizing rank.
Operating income decreased, the decrease was due to a combined ¥30.3 billion gain recognized in the previous year consisting of remeasurement gains on the acquisition of controlling interest in GSM and a gain on the sale of remaining equity in Latin America premium pay television business, as well as the depreciation of yen partially offset by ¥21.4 billion operating income from the sale of the interest Spider-Man right.
Sales in music decreased 6% and OI decreased ¥2 billion to ¥36.9 billion. Sales decreased primarily due to the impact of the Forex and the continued contraction on the physical music market although Adele’s 21 was the number one.
Now even though the aggressive restructuring by the new management of Sony Music Entertainment resulted in a reduction of overhead cost, the operating income decreased.
Next is the financial service. Our revenue increased 8% and OI increased ¥12.6 billion to ¥131.4 billion. Revenue increased mainly due to an increase in insurance premium revenue, reflecting a higher policy amounting for Sony Life.
Operating income increased due to a greater profit from the higher insurance premium revenue at Sony Life and a partial reversal of result taken in previous year for the earthquake related insurance ground payment.
As we may explain the results of Sony Mobile Communications, which we refer to as Sony Mobile, Sony Ericsson became a fully consolidated subsidiary of Sony on February 15, 2012. The results of Sony Mobile included in Sony consolidated results have comprised of equity in net loss of Sony Ericsson through February 15, 2012.
Sales and operating results of Sony Mobile from February 16 to March 31 and remeasurement gain recorded due to our taking control of that company. Sales of the segment was ¥77.7 billion, this is the amount of sales from February 16 to March 31, a period of time after which Sony Ericsson was consolidated.
¥31.4 billion in operating income recorded at Sony Mobile. This amount was the results of following three factors. First, Sony recorded equity in net loss from Sony Ericsson of ¥57.7 billion, compared to equity in net income of ¥4.2 billion in the previous year for the periods through February 15, 2012.
Included in this loss was 50% or ¥33 billion of the valuation allowance, against deferred tax assets, Sony Ericsson recorded under U.S. GAAP in the quarter ended December 31, 2011.
Second, Sony recorded a non-cash valuation gain of ¥102.3 billion at the time of the consolidation of Sony Ericsson as a result of our remeasurement of the fair value of the 50% state of Sony Ericsson we owned, prior to the consolidation to it. Sony recorded ¥13.2 billion operating loss from Sony Mobile for the period from February 16, 2012 to March 31, 2012.
And next, I would like to explain our forecast for the fiscal year ending March 31, 2013. Assumed foreign currency exchange rates for the fiscal year are approximately ¥80 to the U.S. dollar, approximately ¥105 to the Euro, ¥2 lower from the previous year for the dollar, ¥3 higher for the Euro.
Consolidated sales for the FY12 are expected to increase 14% year-on-year to ¥7.4 trillion due to an expected recovery from the impact of earthquake and floods and consolidated Sony mobile for the full fiscal year.
Operating results are expected to improve from the previous fiscal year, loss of ¥67.3 billion to profit ¥180 billion. Improvement is expected to be seen in the PDS segment and in the CPS segment in which sales are expected to increase and LCD TV loss is expected to shrink significantly.
equity net loss within operating results for FY12 is expected to be approximately ¥5 billion, significantly less than ¥121.7 billion of the previous year. The lower loss is due to no longer having S-LCD and Sony Ericsson included in the results.
Income before income tax is expected to be ¥190 billion compared to the loss of ¥83.2 billion in the previous year, due to significant improvement in operating results. Due to the establishment of valuation allowance against deferred tax assets, net loss attributable to Sony’s stockholders in the previous year was ¥456.7 billion. FY12, we expect to improve this significantly to a ¥30 billion profit.
Next, I would like to explain each business segment. First are the CPS and PDS electronics segment. Rebuilding these businesses is an urgent matter for the Sony Group and FY12 is extremely important year for [revising] electronics.
First is CPS, we expect LCD television sales to decrease due to our intention not to pursue volume and to run the business with an emphasis and improving the profitability. On the other hand, we expect our segment sales to increase significantly, due to an expected recovery, primarily in additional imaging and digital business from earthquake and the Thai flood.
We expect to record a significant decrease in operating loss for the overall segment, primarily due to recovery from the earthquake and floods and expected significant decrease in LCD television losses.
When we announced our profitability improvement plan for the TV business in November last year, we said that the expected loss in television to be around ¥75 billion for FY11 and we were aiming to reduce the loss in FY12 (Inaudible) ¥1.75 billion and that we were aiming to turn a profit FY13.
As I said earlier, compared to original projection loss, excluding the impairment of S-LCD in the FY11 improved ¥27 billion to ¥138 billion due to the benefits of the dissolution of S-LCD. Loss in FY12 is expected be around ¥80 billion less than the half of the ¥175 billion.
Our TV profitability improvement plan is progressing according to the plan. We expect sales in the PDS segment to increase year-on-year because although sales of the semiconductor category is expected to decrease due to the sale of small and medium size display business. A significant recovery is expected from the earthquake and flood primarily in the component category. We expect overall segment operating results to improve significantly from the loss of previous year and for the profit to be recorded due to significant improvements from recovery from earthquake and flood primarily in the component category.
New expenses which are receiving a great deal of attention are expected to continue to maintain high level of profitability and lead this segment in FY12. Picture segment sale is expected to increase year-on-year due to greater number of major releases including the Amazing Spiderman, Men in Black III and 007s Skyfall compared to the previous year and increasing television revenue and increasing advertising revenue from television network. Operating income is expected to increase primarily due to an increase in sales.
Music segment sales is expected to be essentially unchanged year-on-year because of expected expansion of digital revenue were likely to be offset by expected continued decline in the [physical] market for music. Operating income is expected to be essentially unchanged primarily due to higher digital revenue and decrease in restructuring charges being offset primarily by one-time profit recorded in the prior year relating to the recognition of digital license revenues.
We will accelerate the utilization of the rich entertainment asset within the Sony Group as the current CEO of Sony Pictures, Michael Lynton takes on the leadership role of both Pictures and Music businesses in June.
The next is the financial services segment. We expect financial services revenue to increase in the FY12 due to continued expansion of the business which has a stable operational foundation. We expect operating income to decrease year-on-year without any gains on the sale of securities investment similar to those recorded in the previous year for the FY12. But we are expecting this segment to continue to contribute a high level of profit.
As was explained at our corporate strategy meeting, mobile along with digital imaging and game is one of our core businesses in which we are concentrating management resources. We expect sales of Sony Mobile to increase significantly due to a full consolidation of that business. If sales of Sony Ericsson have been consolidated for the full year in FY11, sales would have been expected to increase significantly year-on-year due to an increase in smartphone unit sales.
Despite continued – variety of competition in the smartphone market on a performance basis, we expect a significant increase in operating losses primarily due to improvement in the product mix and cost reduction.
However, for the overall segment due to the recording of the large remeasurement gain in the previous year, we expect operating results to deteriorate significantly due to the previous year.
But as a forecast for each segment, by further strengthening picture, music and financial services, which really consistently contribute the profitability, and by improving the profitability of the electronics business, we aim to improve the profitability of the entire Sony Group.
In the FY12, we aim to turn three things to the black, the first electronics business, and our net profit and our cash flow. And by achieving those three our areas into (inaudible) we’d like to improve our business performance. Thank you.
On the breakdown of Sony Mobile area, the same table is included in the earnings release. The floor is up into your questions. So please wait for the microphone and state your name and affiliations. In view of time constraint, please confine to one question per person for the first round if you have any questions?
In the third row from the front.
Nakane from Deutsche.
Yasuo Nakane – Deutsche Securities
One point about the cash financing plan for the current fiscal year, for the P&L and announced number, the cash flow and also the year-end BS picture, and also whether that be, the asset in the liability at the year-end.
About the cash position, and every time we talk about this, we talk in terms of excluding financial services business. But at the year-end, the cash and deposit at hand; it will be in excess of ¥700 billion. And as usual, towards the year-end, the production is increased, so the investment in inventory have a needful fund is associated. And also we have some investment projects.
So about funding, we will conduct that as usual, especially towards the summer, there will be a redemption of debt. So including that, starting this year, we have taken various ways for funding, result of various means of funding, including the borrowing from financial institutions and dislocation of straight bond.
So along the line of your question, you might be asking about the equity financing possibility, that’s one of the options indeed, but at this point in time, we do not have any specific plan to say at the moment. Next question?
Kota Ezawa – Citigroup Securities
Citigroup Securities, Ezawa is my name. This is the major point in (inaudible) Corporate Strategy Meeting because of the announcement, stock price came down significantly. So do you have any summary and reflection of this Corporate Strategy Meeting, and its impact? And there wasn’t any additional negative factor about the focus of the performance but the stock price came down anyhow, so maybe the Corporate Strategy Meeting itself with (inaudible) well appreciated by the participants. What I wanted to ask was that, when you look at this meeting what factors were negative, what didn’t go well and what are you going to do from now on?
Now about this Corporate Strategy Meeting.
Kota Ezawa – Citigroup Securities
Well, of course it’s up to you to really judge whether that was such good or bad from your point of view, but from our point of view, about how it was received I would say as follows. Hello, there is a new management structure, Nobuyuki Idei and he express a indomitable result to very change, and I think this determination to change was well communicated and understood by you.
But on the other hand, as our concrete corporate measures or business strategy, we explain the medium term measures and the focus focal point, but maybe you received that you listen to those truly plan, but you will not really persuaded fully because maybe there were not the sufficient concrete measures to really change the performance. So if we reflect that sort of meeting may be the timing of that sort of meeting might have to be reconsidered.
We did not have that sort of corporate strategy meeting and because of the new management, we did it, but that was before the announcement of the results of FY11, of course because the management structure changed on the 1st of April. We organized that meeting, but it might have been better, if we had organized that after when we could announce the results of FY11 because we could have cited the more numbers. Maybe the explanation was not well supported by specific numbers and in the future Hirai has an intention to organize this sort of meeting every year, so we’ll think about the timing of holding corporate strategy meeting based on our reflection on that.
But the stock price change from my perspective, I cannot say whether the stock price is high or low in my publishing. However, as the yen appreciated a bit and situations in Europe and the future, negative news about the U.S. economy because of all these factors the entire market actually a decline and we are sensitive to European situation and maybe – Europe, and may be that is why our stock price came down. And we expect we’re anything in the current period we did not actually issue any specific major announcements, but maybe because of the market conditions the stock price came down.
Next question please?
On the right hand side of the room (inaudible).
Yeah, SMBC Nikko Securities, my question goes on Sony Mobile. Well in the past, it was Sony Ericsson, and you announced the sales unit and you have that and what was the unit sales of the cellphones in the fiscal ’11, by supply for fiscal ’12 and also what’s the smart phone situation for fiscal ’11 and fiscal ’12. And for fiscal ’11 how much restructuring to place, whether (inaudible) especially the performance and results abbreviated and we like to know the improvement in fiscal ’12 which I consider is questionable.
About the specific number of units (inaudible) In the past, we disclosed it, let’s say for smartphone, we intend to expand the sales volumes and I think there is specific number of units of sales from 22.5 million up to 33.7 million units about (inaudible).
In overall sales, as I explained, fiscal ’11, we recorded the measurement gain in excess ¥100 billion and for fiscal ’12, we don’t have that and therefore, compared to previous year decline, however, if you look at the actual operation, we aim at the major compression or the margin of loss. And last year we established a evaluation allowance against DTA to ¥33 billion, we don’t have that DTA and excluding that in actual operation, we will strive to compress the margin of loss. And to that end restructuring efforts have already started and we recorded a restricting charges and that’s one of the factors behind the aggravation of the profit picture lost year, but we will see positive effect in the course of this fiscal year and for manufacturing, and unit smartphone where now we have 100% control of the entity.
And in the past because of it’s (inaudible) some of the majors we could not take timely or the product lining, but we have free hand here and we can inject all the assets and technology we have in Sony Group. And also we’re deeply involved in network businesses, and we have contents including game and other aspects. Therefore we can combine such attractive asset to make the smartphone or the more enticing and attracted to the users. So with all these measures we will make a steady headway towards improvement of profitability.
One point, for fiscal 2011 what is the total number of cellphone sales and for current year they are the smartphones.
In terms of explanation of our trend, we only disclose the numbers for smartphones. But feature phones where we place emphasis on smartphone and feature phone units. We will know this net impact on the actual operation of the results. Thank you.
Yuji Fujimori – Barclays Capital
Barclays, Fujimori. In your plan for this fiscal year, you have a specific factored net income seems to be quite low. What is the background behind the low level of net income and operating profit or you sold the Sony Chemical, impact included in the operating profits and if it is to what extent, in the ¥75 billion restructuring charge, is it net of the insurance premium received is my understanding correct or not? And the impact of the flood, I think there might some more relaying on the impact from the flood for this fiscal year? I would like to know a bit more about the actual profits you made.
¥30 billion profit that would be the net income. The management has indomitable results to achieve because we have been actually making lots of high periods in the last. And tax expense and how we look at tax expense has some impact on this – in operating loss and actually it’s ¥180 billion operating profit, but it’s going to come down to ¥30 billion in net income.
In Sony Financial, we have 60% equity, we’re a minority – there is a minority shareholder and they have interest. And we have a provision for (inaudible) evaluation other one and this last year we did it in Japan, and this year we did it in the USA. And so, even though there is a profit, there is no tax expense posted in those areas, and if it’s the other way around there is no reversal of tax – deferred tax asset by region in emerging market. Where entities in the emerging markets are making profits, so they will pay tax. So there are ins and outs and quite complicated by region and if we had all the ups those are the numbers we announce.
Now but the sale of chemical product, it is incorporated in our business line, I cannot disclose the exact amount exact value, but we have filed MoU and we are negotiating towards the definitive agreement. So we have some solid prospects, so it is incorporated in our forecast.
Now restructuring charge and insurance payment, well flood related insurance and the restructuring charge are two different things, but out of ¥75 billion, the breakdown of ¥75 billion. As I mentioned beforehand, we try to compress our fixed cost and we will do it with the vengeance for this fiscal year. So our personal cost account for 70%, 80% of the restructuring charge and CPS, PDS in other words electronics. And in headquarters and overseas sale of companies, we will do restructuring, but mainly it's going to be done in electronics.
Now about the insurance related to the flooding, floods in Thailand I cannot say an exact number, but the timing of receiving insurance payment, it depends on negotiations and submission of data. So we have received, we will receive some insurance payment in this fiscal year. So ¥30 billion incorporating all these factors, it's based on our business plan, where we can actually achieve the business plan, I believe we can achieve ¥30 billion. Thank you.
Yuji Fujimori – Barclays Capital
The gain of the sales from the chemical business, is it a large one or not large enough to change your business profit the prospect.
We are still in the midst of inflation and how we look at the gains, I’m not able to disclose.
Yuji Fujimori – Barclays Capital
I’m sorry. I understand thank you and ¥30 billion that you talked about. What is ¥80 billion net OP is generated; we believe that the bottom line will be higher. and but ¥180 billion OP leased to the ¥30 billion, the net income. Is that right?
Yes, structurally, you’re right, yes.
Gentlemen, in the first row please. Mikoshiba from Nomura Securities.
Shiro Mikoshiba – Nomura Securities Co., Ltd.
The unit sales of TV and price that I would like to ask you. And I thought the unit sales of TV. you may still have a feeling to stick to ¥20 million, but do you advice downward. and so by the regions geographically what is the difference of the unit sales in your forecast and price better price is assumed to be flat or is there any chance that price increases?
Well, for the low end?
Shiro Mikoshiba – Nomura Securities Co., Ltd.
You stop the low end or do you still have a feeling to stick to the 20 million and is there any timing that you try to achieve the 20 million units?
Last year 90.6 million units and this year 17.5 million units that’s what we have been describing to you. But if you look at the details of on one hand market has become quite mature. And particularly in Japan and U.S., our tax become mature, but in other areas like emerging countries, market is still growing. And so in mature developed market, we have no intention to pursue the volume even engaging in the competition of the prices, but in the emerging market, still the market is growing and therefore we advance to actively compete in the emerging market.
And therefore, the matured the market, we will have to change the product mix. In other words, the area that we are very strong at, the larger screen, that have to be so simply be shifted in the developed market. And so how we look at the price trends? I’m not able to talk about that, but the trend that we look at is drop of the price. How far we do not know, and average price because of the model mix change, we’ll like to have optimum the regional balance.
And our interpretation or focus of the next fiscal year onward and when Mr. Hirai explained the TV business in the corporate strategy meeting and/or the earning release even the sales does not increase. We would like to change into the structure the continued profitability and of course the progress has not reduced the sales or not to reduce our volume.
And so for next year, even if the volume is flat, we’ve like to achieve the break even and that’s not aimed at the balance based on reduction of the sales. It’s not our ultimate (inaudible) that what I like you to understand.
In that sense even if a flat – the sales is flat, no growth and if the price erosion continues and with that assumption the volume is expected to grow and under such condition in next fiscal year the unit – the price drops and volume increases even though the sales would decrease, but even under such condition we can secure the profits. Next please.
Shiro Mikoshiba – Nomura Securities Co., Ltd.
In the last ¥27 billion less than the expected loss and I invite you to explain the break down, you overestimated the loss or to by extend deduct or treasury things are improving. So may be in one quarter 100 billion improvements might be achieved, but I think it’s not likely part of 27 billion in certain quarters, how much improvement do you expect because of structure improvement by quarter?
Can I go one-by-one; first of all I will not be able to explain in detail, but when I say ¥175 billion, we were actually in the midst of taking various measures. S-LCD joint venture was dissolved, but at that time we were studying the possibility of the solution, and partially we were negotiating with the counter party, but minus ¥175 billion of that number was actually explained at the beginning of December after the second quarter was completed, and it was explained by Idei, but we were not sure that the S-LCD would be dissolved because we were still negotiating.
So the benefits from that was not actually explained because when we operating plan there is un-utilized capacity and because of joint venture we have to compensate for the un-utilized capacity portion and in terms of panel, right now it’s going to be switch to the market based price procuring panels. And because we did solve that joint venture ever since fourth quarter, we could see the improvement and benefit amounting to ¥27 billion. In fiscal 2012, we’re going to continue to enjoy this benefit here in fiscal – when we compared 2012 to fiscal 2011, the cost of panels will come down on a structural basis and that was already – that benefit was enjoyed in the fourth quarter of 2011 and from this fiscal year onwards of this benefit will continue.
But in your explanation, you said ¥87.5 billion was the loss you expected, but now Hashitani tells that the loss would be ¥80 billion. So, ¥27 billion of reduction or [2.7] – I talked about the unit numbers and this will continue to the deterioration and including that impact, I said ¥80 billion. Last year, first of all, ¥175 billion that was the loss figure, but because of deterioration of S-LCD, there has been an improvement in the fiscal year 2011. And this will continue and it will have a full impact in fiscal 2012.
And there are reduction of operations related to this plus (inaudible) focus of deterioration because of the reduction of the volume. And so including all these I said ¥80 billion.
In fiscal 2012, we will not reach the breakeven point, so there is a long way to go, but we will towards the breakeven achievement in fiscal ’13, I think we have made progress and the measures we have taken are showing good results and based on progress is faster than we expected. And based on that, now we have profitability forecast for fiscal ’12, it’s not that we just have the loss, but we kind of see good results of the measures we have taken in the past six months and based on that we came up with this figure.
The gentleman from the third row, please.
(Inaudible) from Morgan Stately. Thank you for this opportunity. And with regard to the insurance revenue and the operating profit was purely based on operation, what would the level? And when you announced the forecast the Thai flood, the claim, the revenue, insurance claim revenue seems to be included in FY12. If I may misunderstand please correct me and on page four and page five of your report and expenses related to that is about ¥37 billion that is recorded and that is already offset by insurance payment that is returned, and is it a change from your previous statement or that has been already incorporated into account, and the insurance claim payment additionally would be given during the FY12, is that what you mean?
And about FY11, during the early releases, we mentioned that, and the payment is conducted as such. Then therefore the insurance payment claims will be carried forward to FY12, and that's how we look at the payment, but how much exactly that we are not able to disclose.
But in terms of just range, the three digit or the lower range of three-digit number, billion. And so the actual loss is recovered in terms of accounting. And so the actual, the profit itself, I think there is no change in terms of the loss, the lost profit.
Takashi Watanabe – Goldman Sachs Japan Co.
Watanabe of Goldman, and my question on Sony Mobile, and just in case of TV, this time while you are increasing the number of units shipped, what is the breakdown higher, lower end and medium and also the regional breakdown, when do you expect to see the increase. And also the fourth quarter this is a mixture of income and equity, and also the full consolidation, added in 25 billion, but going forward in the first quarter what would be the likely timing of improvement for each quarter?
About the product model mix and composition, it is related to the product strategy, so I cannot go into details. But in terms of profit and loss for fiscal 2012, I mentioned we have the major compression of the margin of loss, but we still seeing some red ink.
And in fiscal 2013, we are making sure – so that this business will contribute to the profit that’s our plan. With the change of the management, and with the 100% control of Sony Mobile Communications and starting from next week, the Corporate Executive Officer, SVP, Kunimasa Suzuki will assume the position of President of Sony Mobile Communications.
They already have started activities themselves, but we will making all our efforts to improve the business at Sony Group, and that’s what I said during the Corporate Strategy meeting, therefore we will inject a both Human Resources and other resources to achieve the expenditures, the turnaround.
So in terms of the timing of black ink, it will be fiscal 2013. The specific numbers of site, there will be recovery in Europe and expansion in Japan, and plan to increase the market share in the United States.
And for the fourth quarter, with the 100% consolidation of the company planned, we provided reserve for inventories during the fourth quarter. So that aggravated the numbers, so to some extent and therefore, it’s not a simple matter to be PlayStation or what happened in during the last fall’s quarter. If you have a time constraint, it is going to be one last question, the person in the first row.
Hideki Yasuda – Ace Research Institute Co., Ltd
Thank you very much, Yasuda from Ace Research Institute. and the logical data that’s what I would like to know. in the PSP, track record is the 6.7 million units and PSP and the Vita, and 6 million in PSP is normally declining. So the 10 million unit is what we project at this moment and with this into the account after the corporate strategy meeting. and there is a lack of motivation for development of Vita is in, and have you taken any measures in which the conclusion of these speakers? and portable, the ¥60 million, the breakdown is not given. About Vita, last year the 1.8 million units for Japan and Asia and Europe and as the starting phase, I think it was a good start and the game platform like Vita. the software is a key to success how good the software is, and that is a key to the success in business.
So we have to reinforce the software area in order to improve the business that is the basic line and with every Vita at this moment, but there is no decline or a lack of motivation and as a portable platform and also in order to connect with the network. I think it’s a very important product indeed for us. and therefore we still have a very high motivation to develop this product. there is no change. And software and services must be [transcend]. And so in other words, our collaborative approach is very important with the third party and from first party studio. There are tablets – will be presented one after the other, as you all please look at film and TV evaluation based on them. And the volume is as you imagine.
And since time went out, we’d like to conclude our earnings release presentation meeting. Thank you very much to take time out of your very busy schedule to attend this session. Thank you.
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