Sony Corp Ord (SNE)

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Sony Corp. (SNE)

Q3 2009 Earnings Call

October 30, 2009 09:30 a.m. ET

Executives

Sam Levenson - SVP of IR

Nobuyuki Oneda - Executive Deputy President and CFO Sony Corporation

Robert Wiesenthal - Group Executive, Corporate Development and M&A, Sony and EVP and CFO, Sony Corporation of America

Gen Tsuchikawa - Senior General Manager, Investor Relations Division

Analysts

Kota Ezawa - Citigroup

Evan Wilson - Pacific Crest

Daniel Ernst - Hudson Square Research

Yuji Fujimori - Barclays Capital

Mark Harding - Maxim Group

Jed Latkin - ING

David Leibowitz - Horizon Asset Management

Presentation

Operator

Good day ladies and gentlemen and welcome to Sony Corporation's fiscal year 2009 second quarter earnings announcement. My name is Lacy and I'll be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call Mr. Sam Levenson, Senior Vice President of Investor Relations at Sony Corporation of America. Please proceed.

Sam Levenson

Thank you very much for the introduction Lacy. Thank you all for joining us today October 30, 2009 for the discussion of Sony's second quarter results. I am Sam Levenson, Senior Vice President of Investor Relations at Sony Corporation of America and with me here on the conference call tonight, is Nobuyuki Oneda, Executive Deputy President and CFO Sony Corporation, Robert Wiesenthal, Group Executive, Corporate Development and M&A for Sony and EVP and CFO Sony Corporation of America and Gen Tsuchikawa, Senior General Manager of the Investor Relations Division. Thank you all very much for joining us. In just a few moments, we will review today's announcement, then we'll be available to answer your questions.

Please be aware that statements made during the following remarks in Q&A session with respect to Sony's current plan, estimates, strategies, press release and other statements that are not historical facts are forward-looking statements about the future performance of Sony.

These statements are based on management's assumptions in light of the information currently available to it and therefore, you should not place undue reliance on them. Sony cautions you that a number of important factors could cause actual results to differ materially from those discussed in the forward-looking statements. For additional information, as to risks and uncertainties, as well as other factors that could cause actual results to differ, please refer to today's press release which can be accesses by visiting www.sony.net/ir.

With that, I'm going to turn to today's announcements. I'll begin by briefly summarizing the financial results and other key developments during the past quarter. We will also touch upon the key questions raised earlier today, when we hosted our regular earnings press conference and investor meeting here in Tokyo. Let me remind you that a web cast replay of the investor meeting along with the slides presented at that meeting, as well as our detailed earnings release are available on our website for your access.

During the second quarter end of September 30, we achieved a number of successes despite the ongoing challenges presented by difficult economic environment and the appreciation of the yen. Excluding restructuring charges and equity in affiliates, our operating profit for the quarter was 12.5 billion yen as compared with 10.8 billion yen in the second quarter last year. This was achieved despite the fact, that the appreciation of the yen had a 77 billion yen impact on our operating results in the current year period.

Due to the better than forecasted results and after the review of our outlooks for the balance of the fiscal year, we have upwardly revised our full year outlook for operating loss from a 110 billion yen to 60 billion yen. This 60 billion yen improvement is comprised of 30 billion yen in the Consumer Products and Devices segment net of a 10 billion yen increase in restructuring charges, 15 billion yen in the Financial Services segment, 15 billion yen from other factors including a revision of R&D, improved efficiencies at headquarters and other expense reductions and a 10 billion yen increase in our estimate for losses from equity affiliates including Sony Ericsson.

During the quarter we also made significant progress in substantially reducing inventories in CPD, NPS and B2B and Disc Manufacturing to 60 days on hand from 78 days on hand just six months ago, as well as tightly managing receivables and payables. As a result, our cash flow has substantially improved. While the forecast still anticipates negative cash flow for the year, we continue to strive to bring it to breakeven.

The structural transformation process that we initiated earlier this year is progressing in line with our expectations. We now have targeted 330 billion yen in annual cost savings from the structural transformation, reduced advertising and promotional expenses and the reduction in general expenses. Thus far, we have achieved approximately 80% of the targeted 330 billion yen in savings. Among other activities, we continue to consolidate manufacturing facilities and expect to end the fiscal year with 48 facilities as compared with 57 as of the end of last February. In May 2010, we'll close another facility bringing the number of locations down to 47.

On the procurement side, we continue to target the 50% reduction in the number of suppliers. We are also targeting 20% reduction in procurement cost and at this point in time, we're on track to achieve approximately 90% as a procurement cost reduction. So to put it simply, we are radically transforming the processes, the structure, the cash flow and the earnings of the company.

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