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Q1-2016: Sony income triples despite poor performance of mobile & movies

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BENGALURU: Despite operating losses reported by Sony Corporation’s (Sony) mobile communications, pictures and all other segments, the company’s net attributable to its shareholders more than tripled (up 3.07 times) to ?82.4 billion in the quarter ended 30 June, 2015 (Q1-2016) as compared to the ?26.8 billion in Q1-2015. 

Sony’s Mobile Communications (MC) segment reported a higher operating loss in the current quarter of ?22.9 billion as compared to the ?1.6 billion in the corresponding year ago quarter. Sony Pictures segment reported an operating loss in Q1-2016 of ?11.7 billion as compared to an operating profit of ?7.8 billion in Q1-2015. All others segment reported a lower operating loss in Q1-2016 of ?5 billion as compared to the ?20 billion in Q1-2015. However, Sony’s other segments- Games and Network Services (G&NS), Imaging Products & Solutions (IP&S), Home Entertainment & Sound (HE&S), Devices, Music, and Financial services reported growth in YoY operating income.

Sony’s sales and operating revenue (Sales) decreased by 0.1 per cent in Q1-2016 to ?1808.1 billion compared to ?1,809.9 billion in the corresponding quarter of last year. Sales were essentially flat YoY mainly due to a decrease in Mobile Communications segment sales reflecting a significant decrease in smartphone unit sales and a decrease in Home Entertainment & Sound (HE&S) segment sales reflecting a decrease in unit sales of mid-range LCD televisions, substantially offset by the impact of foreign exchange rates and a significant increase in Devices segment sales reflecting the strong performance of image sensors. On a constant currency basis, sales decreased seven per cent YoY.

Operating income increased ?27.1 billion YoY to ?96.9 billion). This increase was primarily due to an increase in operating income in the Music segment, reflecting the recording of a re-measurement gain, described below, and the impact of the increase in sales in the Devices segment. This increase was partially offset by the negative impact of foreign exchange rates in the MC segment and lower sales in the Pictures segment due to a decrease in theatrical and television licensing revenues for Motion Pictures.

Segment performance

Mobile Communications

Sony’s MC segment sales decreased 16.3 per cent YoY (an 18 per cent decrease on a constant currency basis) to ?280.5 billion in the current quarter as compared to the ?335 billion in Q1-2015. This decrease was due to a significant decrease in smartphone unit sales resulting from a strategic decision not to pursue scale in order to improve profitability.

The above mentioned operating loss increased because of the decrease in smartphone unit sales and an increase in restructuring charges were offset primarily by reductions in marketing and other expenses as well as an improvement in product mix. However, operating loss increased mainly due to the negative impact of the appreciation of the US dollar, reflecting the high ratio of US dollar-denominated costs. During the current quarter there was a ?25.4 billion negative impact from foreign exchange rate fluctuations.

Game & Network Services (G&NS)

G&NS sales increased 12.1 per cent YoY (a seven per cent increase on a constant currency basis) to ?288.6 billion. This significant increase was primarily due to increases in PlayStation4 (PS4) software sales and PS4 peripheral device unit sales as well as the impact of foreign exchange rates, partially offset by a decrease in PlayStation3 (PS3) hardware and software devices.

Operating income increased ?15.1 billion YoY to ?19.5 billion in Q1-2016 as compared to the ?4.1 billion in Q1-2015. This increase was primarily due to PS4 hardware cost reductions, the above-mentioned increases in PS4 software sales and PS4 peripheral device unit sales, partially offset by the negative impact of the appreciation of the US dollar, reflecting the high ratio of US dollar-denominated costs and the decrease in PS3 software sales.

Sony says that operating income in the current quarter also includes ?4.7 billion of insurance recoveries related to losses incurred from the cyberattack on Sony’s network services including the PlayStation Network in the fiscal year ended 31 March, 2012. During the current quarter there was a ?15.6 billion negative impact from foreign exchange rate fluctuations.

Imaging Products & Solutions (IP&S)

IP&S sales increased 3.5 per cent YoY (a five per cent decrease on a constant currency basis) to ?170.4 billion in Q1-2016 as compared to the ?164.6 billion in Q1-2015, primarily due to the impact of foreign exchange rates and an improvement in the product mix of digital cameras reflecting a shift to high value-added models, partially offset by a decrease in unit sales of digital cameras reflecting a contraction of the market.

Operating income increased ?3.9 billion YoY to ?21.3 billion. This increase was mainly due to the improvement in digital camera product mix reflecting a shift to high value-added models, a YoY increase in insurance recoveries related to damages and losses incurred from the floods in Thailand in the fiscal year ended 31 March, 2012, and the positive impact of foreign exchange rates, partially by the impact of the decrease in unit sales of digital cameras. During the current quarter there was a ?2 billion positive impact from foreign exchange rate fluctuations.

Home Entertainment & Sound (HE&S)

Sony’s HE&S sales decreased 13.8 per cent YoY (a 21 per cent decrease on a constant currency basis) to ?253.1 billion yen ($2,075 million). This decrease was primarily due to a decrease in unit sales of LCD televisions, mainly in the mid-range, as well as a decrease in home audio and video unit sales reflecting a contraction of the market.

Operating income increased ?2.1 billion YoY to ?10.9 billion. This increase was primarily due to cost reductions and an improvement in product mix reflecting a shift to high value-added models, partially offset by the above-mentioned decrease in LCD televisions and home audio and video unit sales, as well as the negative impact of the appreciation of the US dollar, reflecting the high ratio of US dollar-denominated costs. During the current quarter there was a ?7.7 billion negative impact from foreign exchange rate fluctuations.

In Televisions, sales decreased 17.6 percent YoY to ?168.9 billion. This decrease was primarily due to a decrease in unit sales. LCD television unit sales decreased YoY in all areas other than North America mainly due to a strategic decision not to pursue scale in order to improve profitability. Operating income decreased ?0.9 billion YoY to ?7 billion. This decrease was primarily due to the impact of the decrease in unit sales and the negative impact of the appreciation of the US dollar, reflecting the high ratio of US dollar-denominated costs, partially offset by an improvement in product mix reflecting a shift to high value-added models and cost reductions.

Devices

Sony’s Devices segment sales increased 35.1 per cent YoY (an 18 per cent increase on a constant currency basis) to ?237.9 billion. This increase was primarily due to a significant increase in sales of image sensors reflecting higher demand for image sensors for mobile products, the impact of foreign exchange rates, as well as a significant increase in sales of camera modules. Sales to external customers increased 41.2 per cent YoY.

Operating income increased ?18.8 billion YoY to ?30.3 billion. This significant increase was primarily due to the impact of the above-mentioned increase in sales of image sensors and the positive impact of foreign exchange rates. During the current quarter there was an ?11 billion positive impact from foreign exchange rate fluctuations.

Pictures

Sales decreased 11.9 per cent YoY (a 26 per cent decrease on a US dollar basis) to ?171.5 billion. The decrease in sales on a US dollar basis was primarily due to significantly lower sales for Motion Pictures reflecting a decrease in theatrical and television licensing revenues. Theatrical revenues decreased due to the stronger worldwide theatrical performance of films released in the same quarter of the previous fiscal year which benefitted from the performances of The Amazing Spider-Man 2 and 22 Jump Street. Television licensing revenues were lower in the current quarter as the same quarter of the previous fiscal year benefitted from sales ofCloudy With A Chance of Meatballs 2 and Captain Phillips.

Sony's deterioration in operating results was primarily due to the impact of the decrease in theatrical and television licensing revenues noted above.

Music 

Sony’s Music segment comprised the Recorded Music, Music Publishing and Visual Media and Platform categories. Recorded Music includes the distribution of physical and digital recorded music and revenue derived from artists’ live performances; Music Publishing includes the management and licensing of the words and music of songs; Visual Media and Platform includes various service offerings for music and visual products and the production and distribution of animation titles.

Sales increased 8.5 per cent YoY (a three per cent decrease on a constant currency basis) to ?130.2 billion primarily due to the impact of the depreciation of the yen against the US dollar. The decrease in sales on a constant currency basis was primarily due to lower Recorded Music sales. Recorded Music sales decreased primarily due to the continued worldwide contraction of the physical music market. Best-selling titles included Meghan Trainor’s Title, Shogo Hamada’s Journey of a Songwriter and Francis Cabrel’s In Extremis. 

Operating income increased ?20.1 billion YoY to ?31.8 billion. This increase was primarily due to the $151 million (?18.1 billion) gain on the re-measurement to fair value of SME’s 51 per cent equity interest in The Orchard, which had previously been accounted for under the equity method, as a result of SME increasing its ownership interest to 100 per cent and the positive impact of foreign exchange rates.

Financial Services

The segment results include Sony Financial Holdings Inc. (SFH) and SFH’s consolidated subsidiaries such as Sony Life Insurance Co., Ltd. (Sony Life), Sony Assurance Inc. and Sony Bank Inc. (Sony Bank). The results of Sony Life discussed in the Financial Services segment differ from the results that SFH and Sony Life disclose separately on a Japanese statutory basis.

Financial services revenue increased 13.1 per cent YoY to ?279.4 billion primarily due to an increase in revenue at Sony Life. Revenue at Sony Life increased 15.7 per cent YoY to ?250.9 billion mainly due to an increase in insurance premium revenue reflecting an increase in policy amount in force, as well as an improvement in investment performance in the separate account resulting mainly from a larger rise in the Japanese stock market during the current quarter than in the same quarter of the previous fiscal year.

Operating income increased ?2.2 billion yen YoY to ?46.0 billion. This increase was mainly due to an increase in operating income at Sony Life. Operating income at Sony Life increased ?3.7 billion YoY to ?40.9 billion primarily due to an improvement in investment performance in the general account.

All Other

All Other included the PC business in the previous fiscal year. Due to certain changes in Sony’s organizational structure, sales and operating revenue and operating loss of All Other of the comparable prior period have been reclassified to conform to the current presentation.

Sales decreased 22.9 per cent YoY to ?79.3 billion. This significant decrease in sales was primarily due to the recording of sales in the same quarter of the previous fiscal year from the PC business which was sold in July, 2014.

Operating loss decreased ?15 billion YoY to ?5 billion. This decrease was primarily due to the absence of the operating loss from the PC business in Q1-2015.

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