Letter to Stakeholders
Fiscal year 2012, ended March 31, 2013, was my first year as President and CEO of Sony. It was a year full of change that enabled us to build positive momentum across the Sony Group.
Since becoming President, I visited 45 different Sony Group sites in 16 countries, ranging from electronics sales offices to manufacturing facilities, R&D labs, and entertainment and financial services locations. This enabled me to interact with a wide range of employees, as well as with local management. I also spent as much time as possible speaking directly with our retail partners, our suppliers and, most importantly, with our customers.
Interacting with so many people gave me greater insight into the impact of the initiatives we have undertaken, as well as the issues that we must still address. It also reaffirmed my belief that the Sony Group has the potential to transform its businesses and position itself for future growth, and that we will do so as long as we maintain momentum and continue working as "One Sony." Working as "One Sony" involves collaborating when appropriate and sharing our collective assets such as technologies, services, content and business know-how across the Sony Group, to our competitive advantage.
I have been working non-stop with senior management and employees to turn Sony around, making more changes to the Company than in perhaps any other period in our history. Thanks to swift decision making, the effective execution of key initiatives, the commitment and passion of employees across the Sony Group, and the support of our many stakeholders, we were able to significantly improve our operating results and realize full-year profitability* for the first time in five years.
* Recorded positive net income attributable to Sony Corporation's stockholders in fiscal year 2012
After appointing my new management team in April 2012, we began optimizing resources and realigning our business portfolio. We put together a cross-divisional transformation project, which I led personally, the goal of which is to accelerate decision making and execution while we create a foundation for revitalizing the electronics* business and repositioning it for growth.
My management team and I made key decisions aimed at creating new businesses while strengthening core businesses. Among these were decisions on investments to expand our CMOS image sensor manufacturing capacity; the acquisition of Gaikai, Inc., a U.S.-based developer that provides interactive cloud-based gaming services; and the establishment of Sony Olympus Medical Solutions Inc., a joint venture with Olympus Corporation that plans to deliver new innovative medical products, such as surgical endoscopes, and a new medical and imaging systems solutions business.
At the same time, we realigned our business and asset portfolio and strengthened our financial position. Some of the decisions made include the sale of the chemical products-related business, as well as the sale of assets including our U.S. headquarters building in New York City. Furthermore, in order to increase efficiency and reinforce our business infrastructure, we implemented structural reforms including optimizing resources and streamlining our marketing organization in developed markets, consolidating certain manufacturing operations in Japan, and expediting measures to reduce headquarters headcount.
We also executed various initiatives to turn around the electronics business by working to strengthen our mobile, imaging and game businesses (our three core electronics businesses), turning around the television business, and expanding our business in emerging markets.
* The term "electronics" refers to the sum of the Imaging Products & Solutions, Game, Mobile Products & Communications, Home Entertainment & Sound, Devices segments and medical and network businesses.
Strategic Investments for New Business Creation and Strengthening Core Businesses, and Initiatives to Enhance Sony's Financial Foundations and Management Structure
|Announcement Date||Closing Date||Activity|
|2011.11.11*||2012.6.29*||Acquired EMI Music Publishing|
|2012.5.24||2012.6.20||Terminated joint venture with Sharp Corporation to produce and sell large-sized LCD panels and modules|
|2012.6.14||2013.3.20||Increased stake in Multi Screen Media, a company operating television networks in India|
|2012.6.22||2013 First half||Increased production capacity for stacked CMOS image sensors|
|2012.6.25||Within 2013||Announced collaboration with Panasonic Corp. for joint development of next-generation OLED panels|
|2012.6.28||2012.9.28||Sold the chemical products-related business|
|2012.7.2||2012.8.10||Acquired U.S.-based Gaikai, Inc.|
|2012.8.9||2013.1.1||Made So-net Entertainment into a wholly-owned subsidiary|
|2012.9.28||2013.2.22||Olympus Corp. issued new shares to Sony through a third-party allotment under a capital alliance agreement|
|2012.9.28||2013.4.16||Established a medical business venture with Olympus under a business alliance agreement|
|2012.10.19||2013.3.31||Accelerated restructuring initiatives for Headquarters and domestic Electronics businesses|
|2012.11.14||2012.11.30||Issued yen-denominated convertible bonds due in 2017|
|2013.1.17*||2013.3.15*||Sold Sony Corporation of America's U.S. headquarters building|
|2013.2.20||2013.2.25||Sold a portion of Sony's holdings of M3, Inc.|
|2013.2.28||2013.2.28||Sold the Sony City Osaki office building and premises|
|2013.3.4||2013.3.7||Sold Sony's entire stake in DeNA Co. Ltd.|
* U.S. EST
We also improved profitability in our entertainment and financial services businesses, both of which already contribute stable profit. Profitability in our pictures' businesses grew through the successful release of several global hit movie titles, including The Amazing Spider-Man, and the latest James Bond film, Skyfall, and the expansion of its television networks, production and its distribution businesses. Market share and profitability in the recorded music business similarly benefited from our efforts to discover, nurture and develop new artistic talent such as One Direction, who achieved significant global success in fiscal year 2012. Our financial services business also grew its revenue and operating profit by delivering financial products and services, primarily life and non-life insurance, with high customer satisfaction.
Consolidated sales and operating revenue in fiscal year 2012 rose 4.7%, to 6,800.9 billion yen, reflecting the positive impact of the consolidation of Sony Mobile Communications** as a wholly-owned subsidiary, favorable foreign exchange rates and the above-mentioned increase in financial services revenue. Combined, these factors more than offset the negative impact of decreased unit sales of many key electronics products, as well as divested businesses.
Operating income amounted to 230.1 billion yen, a significant improvement over the operating loss of 67.3 billion yen recorded in the prior fiscal year. The overall operating income improvement was primarily due to the recording of sales and remeasurement gains associated with the asset sales mentioned earlier, as well as improved results in the television business, Devices, Financial Services and Pictures segments.
Driven by the above operating income improvement and other factors, net income attributable to Sony Corporation's stockholders was 43.0 billion yen, compared with a net loss of 456.7 billion yen in the previous fiscal year, bringing us to full-year profitability for the first time in five years.
** On February 15, 2012, Sony acquired Telefonaktiebolaget LM Ericsson's 50% equity interest in Sony Ericsson Mobile Communications AB, which changed its corporate name to Sony Mobile Communications AB upon becoming a wholly-owned subsidiary of Sony.
While we were able to achieve profitability on a consolidated, net income basis, unfortunately we were not able to return the electronics business to profitability on an operating profit basis in fiscal year 2012. Therefore, in fiscal year 2013 (ending March 31, 2014), we will continue to take aggressive measures to transform our businesses, turn around the electronics business and position Sony for growth.
At our Corporate Strategy Meeting on May 22, 2013, we announced the three key initiatives for fiscal year 2013, which are to reinforce our electronics business, further strengthen profitability in the entertainment and financial services businesses and continue to reinforce our financial foundations.
Key Strategies for FY2013
Reinforce the Electronics Business
Efforts here will focus on strengthening Sony's three core electronics businesses – Mobile, Imaging, and Game – while restoring the television business to profitability.
MobileOur Mobile business is comprised of our smartphone and tablet businesses, the markets for which are expected to undergo continued growth. We will work to expand this business and enhance profitability by accelerating the development and delivery of products that incorporate Sony's best and unique technologies and user experiences. Recent examples of such products are the highly acclaimed Xperia™ Z smartphone and Xperia™ Tablet Z. We will work to secure leading positions in our principal geographic markets by strengthening relations with major operators around the world and expanding sales channels.
ImagingSony's Imaging business encompasses products for both professionals and consumers, as well as our cutting-edge and market-leading image sensor business.
GameNow in its 7th year, PlayStation®3 continues to deliver stable hardware and software sales, and we will continue to reinforce this business's position as a stable source of profit. In particular, sales of digital content and network services revenue are increasing, thanks in part to last year's renewal of the PlayStation®Store, and the recently enhanced PlayStation®Plus subscription service. For PlayStation®Vita, we aim to secure sales and profit growth through various hardware sales initiatives and the release of compelling software titles.
TelevisionIn fiscal year 2012, we made substantial progress toward our goal of returning the television business to profitability in fiscal year 2013. While continuing our cost reduction initiatives from fiscal year 2012, in 2013 we plan to aggressively drive sales growth by enhancing the value and appeal of our product lineup. Specifically, we will bolster both our 4K and Full HD LCD television lineup by releasing models that deliver enhanced video and audio quality through our proprietary technology, such as the X-Reality™ PRO Picture Engine and TRILUMINOS™ wide-spectrum LED display.
MedicalWe view the medical business as an area of growth for the mid- to long-term, and, in addition to the April 2013 establishment of Sony Olympus Medical Solutions Inc., our joint venture with Olympus, we plan to strengthen and grow our life electronics and medical key devices businesses. We also plan to grow our overall medical business into a core business, with a long-term annual revenue target of 200 billion yen in fiscal year 2020 (ending March 31, 2021).
In the pictures businesses, we are focusing on the production and acquisition of a diversified portfolio of motion picture and television product with worldwide appeal and are targeting expansion of our worldwide television networks in rapidly growing markets such as India. Sony is also exploring new digital distribution methods for its product, while optimizing existing distribution methods.
Our Music segment, which comprises both recorded music and music publishing businesses, will strive to increase market share and achieve further growth by nurturing and developing new talent, as well as by exploring other growth opportunities, including leveraging music content for use with increasingly popular digital music service platforms.
Our music publishing joint venture, Sony/ATV Music Publishing, began administering EMI Music Publishing's world-class music catalog following the latter's acquisition in June 2012. Now managing the rights to more than two million songs, Sony/ATV — the largest music publishing company in the world — will continue to reinforce its position through efficient management and strong creative decisions, and is expected to generate steady profit.
The financial services business will continue working to deliver highly dependable financial products and services, thereby maintaining its high customer satisfaction ratings. Through these efforts, the business will strive to achieve steady profit growth.
I believe that the continued, steady execution of the initiatives described above will allow us to achieve the financial targets we set at the beginning of fiscal year 2012. Specifically, for fiscal year 2014 (ending March 31, 2015), we are targeting consolidated sales and operating revenue of 8.5 trillion yen, an operating margin in excess of 5% and a return on equity (ROE) of 10%. For the electronics business, for fiscal year 2014 we continue to target sales and operating revenue of 6.0 trillion yen and an operating margin of 5%.
|Sales||8.5 trillion yen|
|Operating profit margin||5%+|
|Sales||6 trillion yen|
|Operating profit margin||5%|
To me, the four letters—S-O-N-Y—that we proudly stamp on our products, content and services represent the commitment we make to our customers to exceed their expectations and create some of the most iconic products and content of all time.
That commitment applies not only to our customers, but also extends to all of our stakeholders, including shareholders, business partners, employees and local communities, as we seek to enhance our corporate value through sound, ethical and responsible business practices. Fulfilling our responsibilities as a corporate citizen is fundamental to the success of our business activities, which can directly and indirectly affect the communities in which we operate.
Taking that impact into consideration while addressing social and environmental issues and contributing to the community is fundamental to the integrity with which we both operate our businesses and approach the Corporate Social Responsibility roadmap we have adopted for the Sony Group.
As CEO, I see my role as bringing out the full potential of the assets of the Sony Group, from the unique capabilities of our Group companies and business units, to the talents and passion of our employees around the world, to what I call Sony's DNA—the distinctive will and drive we have to generate new value—that has been cultivated since Sony's founding and passed down from one generation of Sony employees to the next.
Our people, imbued with Sony's DNA and possessing diverse talents and backgrounds, are the key to Sony's continued success. As we go forward, we will continue to strengthen our culture of respecting and understanding diversity.
While we made great strides in fiscal year 2012, our challenges remain, including, most importantly, restoring our electronics business to profitability. However, with the bold strategies we have in place, our unrivaled collective ability to create attractive products, services and content, a fully aligned management team and employees worldwide who are committed to change for the future of Sony, I'm confident that we are on the right track to drive growth and create corporate value, as well as to realize our mission of being a company that inspires people and fulfills their curiosity.
On behalf of Sony's management and employees, I thank you, our stakeholders, for your continued support.
June 20, 2013
President and CEO
Representative Corporate Executive Officer
Letter to Stakeholders