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Fitch: Sony Commits to Struggling, Non-Core TV Business
May 23, 2014 / 2:40 AM / 3 years ago

Fitch: Sony Commits to Struggling, Non-Core TV Business

(The following statement was released by the rating agency) SYDNEY, May 22 (Fitch) Fitch Ratings said that although Sony Corporation (Sony, BB-/Negative) is currently planning to retain full ownership of its struggling TV business, the company has not ruled out bringing in an equity partner in the future. Sony's TV business has made a loss for ten straight years. In its corporate strategy presentation on 22 May 2014, Sony again excluded TVs from its definition of core electronics businesses which are games and network services, mobile and imaging operations. Fitch believes that the initiatives that Sony is taking in the TV business are positive and that cost-cutting and increased accountability should improve financial performance. Sales forecast of 16 million units is an aggressive target, given the strength of competition from Samsung Electronics Co Ltd (A+/Stable), LG Electronics Inc (BBB-/Stable) and Chinese manufacturers. Fitch anticipates the chance of Sony meeting its break-even target for TVs in the year ending March 2015 (FYE15) is no greater than 50:50. The company appears committed to turning around its business and plans to hive down all TV operations into a separate subsidiary called Sony Visual Products Inc, by 1 July 2014. Sony hopes cost-cutting and a shift to high-value added models will enable it to avoid an operating loss this year. Fitch believes that it will be a challenge for the company to meet its operating profit forecast of JPY400bn for FYE16. Should this be achieved, its credit rating would probably stabilise in the 'BB' category. To return to an investment grade rating, Fitch expects that, excluding Sony Financial Holdings (SFH), operating margins would have to be greater than 3.5% (FYE14: loss) and FFO adjusted leverage would have to be less than 3.0-3.5x (FYE13: 5.0x). Sony's strategy presentation played up the growth prospects of game and network services and imaging businesses. These are the two remaining operations where the company has market-leading electronics products. Fitch expects that the company will need to successfully develop further growth products as cost-cutting alone is unlikely to lead to a return to investment grade. Fitch may downgrade the rating if Sony's EBIT loss continues and funds flow from operations (FFO)-adjusted leverage rises above 5.0x (both excluding SFH) on a sustained basis. Fitch may revise the Outlook to Stable if positive EBIT margins are sustained and FFO-adjusted leverage falls below 5.0x (both excluding SFH). Contact: Kelvin Ho Director +852 2263 9940 Fitch (Hong Kong) Limited 2801, Tower Two, Lippo Centre 89 Queensway, Hong Kong Steve Durose Senior Director Deputy Head Asia-Pacific Corporate Ratings Group +61 2 8256 0307 Media Relations: Leni Vu, Sydney, Tel: +61 2 8256 0325, Email: Leni.Vu@fitchratings.com. Additional information is available on www.fitchratings.com ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S FREE WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Fitch Australia Pty Ltd holds an Australian financial services licence (AFS licence no. 337123) which authorises it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001.

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