Sony Group Corporation (NYSE:SONY) Q3 2022 Earnings Call Transcript

Sony Group Corporation (NYSE:SONY) Q3 2022 Earnings Call Transcript February 2, 2023

Daisuke Ishii: Ladies and gentlemen, thank you for joining us today, despite short notice. We would like to start the press conference for the announcement of changes to Sony Group’s Management Structure. And today I will be the Master of Ceremony. My name’s Ishii from Corporate Communication Department. Nice to meet you. Now I would like to introduce to you who are on the stage, Mr. Kenichiro Yoshida, currently Director, Representative, Corporate Executive Officer, Chairman, President and Chief Executive Officer; who will assume Director Representative of Corporate Executive Officer, Chairman, CEO as of April 1st this year. And Mr. Hiroki Totoki, Director Representative, Corporate Executive Officer, Executive Deputy President and Chief Financial Officer who become Director Representative, Corporate Executive Officer, present Chief Operating Officer and Chief Financial Officer.

The speeches will be made in the order of Mr. Yoshida and then Mr. Totoki, and we’ll take questions afterwards. After the Q&A session, we will have about five minutes for photo session. Overall, we plan to have about 40 minutes for this press conference, and then followed by the briefing on the Q3 result. Mr. Yoshida, please take the podium.

Kenichiro Yoshida: Thank you all for coming today, despite the short notice. I would like to explain the executive changes announced today. Effective on April 1st, Hiroki Totoki, currently Executive Deputy President and CFO will be appointed, President, COO and CFO, and I will become Chairman and CEO. These changes are intended to strengthen our Group Management Structure. From April onwards, we will describe for the further evolution and growth of Sony and this new management structure. First, I’d like to touch on the background of these management changes. Sony is engaged in the diverse businesses based on our purpose to fill the world with emotion through the power of creativity and technology. Furthermore, in April 2021, we transitioned to a new group architecture and established Sony Group Corporation, which is aligned with all our businesses in an equidistant manner.

Our approach to business management is one where the vectors of each business are connected by the social significance of creating and delivering of candor, but also emphasizes the autonomy of individual businesses, organizations, and employees. On the other hand, in order to enhance the group’s overall values over long-term perspectives, it’s vital, thoroughly implement capital allocation, collaboration between businesses and business portfolio management. And to do this, I concluded that we should strengthen our management structure and proposed to the nominating committee and the Board of Directors to promote Mr. Totoki, who has deep understanding of each business operation to President and appoint him as COO. This proposal was approved today.

He will also continue as CFO. This is because the CFO also needs to have a deep understanding of the business, and we believe that this role is closely related to the duties of the COO. For approximately five years since I became CEO in April 2018, he has been driving force in the implementation of growth strategy for the group, particularly from a financial perspectives in his role as CFO. His greatest contribution has been in supporting our investment for growth, primarily in two major areas. One is content IP. While we have made acquisitions in the DTC domains such as anime distribution company Crunchyroll, we have focused particularly on strengthening content IP. This started from the acquisition of EMI Music Publication in May 2018, just after I was appointed CEO, he led this acquisition including the negotiation of terms.

Photo by James Feaver on Unsplash

The other is semiconductors. I regard CMOS image sensors as creation semiconductors that generate Kando. He supported our investment in this area, while managing risks through in-depth discussions, with the business side regarding demand, the competitive environment, and the development roadmaps. His other contributions included setting the ¥2 trillion framework for strategic investment in the current mid-range plan. This investment framework established by him has led to an improvement in the growth mindset of the entire group. Furthermore, there is also the repurchase of our shares, which we have positioned as a part of our strategic investment, while constantly taking investment opportunities and financial conditions into account, he had supported the repurchase of approximately ¥500 billion of Sony shares since fiscal 2018.

I have worked with Mr. Totoki since 2005, when I became President of Sony. I have also learned quite a lot from him with his strategic perspectives encompassing the broader external environment. Furthermore, he has the experience of planning and founding Sony Bank himself and operating it as a Representative Director. He has accumulated a wide range of experience including directory leading a large organization as the Head of Sony Mobile for more than three years, starting in 2014. Going forward, I’m confident that he will make an even greater contribution to enhancing our corporate values as President, COO and CFO. As part of a full strengthen our management structure. We have also decided to appoint Toshimoto Mitomo as the Executive Deputy President and CSO.

Mr. Mitomo possesses extensive experience in the intellectual property field, technological expertise, and strategic perspectives. Most recently, he has areas including a new business development and corporate venture capital, and his leading discussions across the group in areas such as virtual production and the metaverse. At Sony, we applied our business in the Kando value chain of creating and delivering Kando, and he helps an important role in expanding and deepening the scope of this business. I look forward to Mr. Mitomo in collaboration with the Hiroaki Kitano, who was appointed CTO last year farther contributing to Sony’s evolution as a creative entertainment company with the solid foundation of technologies. Sony’s purpose is to fill world with a motion and its corporate direction of getting closer to people will remain unchanged.

Approximately 110,000 employees who share this purpose, driving force of the Sony Group’s diverse businesses. The management team will work together as one along with our employees to create values from a long-term perspectives are based on our purpose. That is all for me. Thank you.

Daisuke Ishii: Next, I’d like to invite Mr. Totoki.

Hiroki Totoki: I’m Hiroki Totoki, and will be assuming the role of President, COO and CFO of Sony Group. Thank you for your attendance. I’m grateful to Mr. Yoshida and the Board of Directors for their trust in recommending and appointing me, and at the same time feel a great sense of responsibility. To introduce myself, I joined Sony in 1987, and after working in finance, including an overseas assignment in London, I left Sony in 2002 to take on the role of Representative Director of Sony Bank, a company that I led in establishing. While it was on a small scale, the experience of launching and managing a new business with a spirit of startup formed the foundations of my current value perspectives in management. Then in 2005, I moved to our ISP business Sonnet, where I took on a wide range of roles including CFO under Mr. Yoshida’s leadership.

In December 2013, I returned to Sony and following roles including CEO of Sony Mobile and Corporate Executive Officer and CSO of Sony. I was appointed to my current position of CFO in 2018 when Mr. Yoshida became CEO of Sony. Since then, as a member of the management team led by Mr. Yoshida, I have dedicated myself to enhancing the corporate value of the Sony group. This fiscal year is the second year of our current fourth mid-range plan. Thanks to the effort of management at each of our businesses and from each and every employee, we are focusing strong results this fiscal year, including record sales and more than ¥1 trillion in operating income. On the other hand, looking at our current business environment, there is increasing instability due to factors such as the uncertain global economic outlook, geopolitical risks, energy issues, and the natural environment.

In addition, I feel an acute sense of urgency that there is a fine line between whether we can channel the rapid evolution of technology with AI as a leading example into further business growth, or conversely, whether our business will be disrupted by it. As a business environment and technology continues to undergo great change, I believe the key to increasing the resilience of the overall Sony Group is evolving our diversity. Diversity in our business and talent is part of Sony’s DNA, but we must further evolve this diversity goal is to bring together people with various attributes, experience, and expertise from inside and outside the company to co-create the future by unleashing their ideas and creativity, and to continue to grow both as individuals and as a company.

By leveraging the Sony Group’s diversity and continuing to evolve and grow, I would like to create a positive spiral that begins with Sony being chosen by customers, which then energize our employees, enables us to attract more new talent, increases our corporate value, and ultimately enable us to give back to society. Working together with Mr. Yoshida, the Sony Group’s management team, and our employees around the world, I intend to continue to develop through my efforts to the further evolution growth of our business based upon our purpose. I look forward to your continued support.

A – Daisuke Ishii: From now, we would like to take questions. And time for questions and answer is about 25 minutes. And due to time constraint, we will not separate the sessions. We would like to take questions from the investors and analysts. And those who are asking questions online, please connect your phone to our branch officers. And those who have questions in this venue, please raise your hand. And those who have questions online please press one after the asterisk key on the phone. And in this venue our staff will bring you the microphone. And due to time restriction, we would like to limit your question to one question per person. So please raise your hand should you have a question. Then the far right, the second row from the front on the right Shimai Kenta from NHK.

See also 12 Top Performing Dividend Stocks in January and Best Dating Apps of 2023.

Q&A Session

Shimai Kenta: I have a question to Mr. Totoki, the new CEO. In your self-introduction, you were talking about the Sony bank, and talked about the ventures Spirit. And so will be continuing your position as a CFO and you become CEO this time, and as a CFO you have — and so in your position as the President, what business would you like to develop and what is your wish for your new position?

Hiroki Totoki: Thank you for the question. And so the management and also the group business will be continued and with the current mid-range plan, we have some plans for the actions. We will thoroughly, put those actions into place. And basically we would like to strengthen all aspects of our business. That’s my basic thinking.

Daisuke Ishii: Thank you. Next question, please. Person in the middle row, the third row from the front, on the right side from the side.

Unidentified Analyst: Honda. I’m a Freelance Journalist. I have two questions, and to Mr. Yoshida. As Mr. Yoshida presented in, it is great to have the support by person who is quite knowledgeable about the finance. And at the same time, I recognize that the CFO has certain unique authority and do you think that there are any conflicts or problems for CEO is also a CFO? And it appears to me that this is rather sudden that this announcement was made. So why now? That’s my second question.

Kenichiro Yoshida: Let me then answer to your question. About the first question, whether the double hating of a CEO and CFO would be a problem. Well, this COO of Mr. Totoki especially is going to be a group COO not the CEO. COO and so it’ll be a little bit different from a giving the direct instruction to the front-line. So this is the COO position who understands the operation very well to double hat as a CFO. When we think about the group structure of our company, I think this is reasonable and efficient. And in this group, in each part of the group, we’re going to confirm the standing of each part of the business to lead the way for further growth. I think it make sense. And the second question was why now? And Sony, is now practicing this mid-range business plan or the plan.

And we are right in the middle of the force, mid-range plan, and we have business planning people, but the actual management itself is being done with the long-term perspective. At the moment when we look at the external landscape the changes are accelerating. As Mr. Totoki also mentioned, the technology is changing rapidly. And also there’s heightened geopolitical risks. And so, as I mentioned, capital allocation and also the business collaboration. And also the portfolio management of the businesses need to be strengthened. That’s all.

Kenichiro Yoshida: And we’d like to move on to the next question on the second row from the front on this side.

Unidentified Analyst: My name is Tokyo. I have a question to ask Yoshida and this management changes will lead to a two top lectures, Yoshida and Totoki, and both of you are former financial sectors, financial areas. So, what’s going to be the impact and the two top structures of the management.

Kenichiro Yoshida: And the purpose of this management changes is just to strengthen our management structure and architecture. So, we assign a new COO and the capital allocation and business portfolio management and the business structure management is to be operated for sure. That’s the purpose. And as CFO experience, that’s quite right. And I myself has been serving for So-net, the Internet provider, serving as the supply center for nine years. So I think that the variety of experience is quite important for us to serve for the company. And he has ever worked for the start of the Sony Bank, and he has been serving as the President of Sony Mobile as well. So I do believe that he can take the privilege of his experience.