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Sony makes a case for a finance division spin-off as part of its latest corporate transformation

Sony makes a case for a finance division spin-off as part of its latest corporate transformation

Sony will host an investor day Thursday to set out its financial business strategy

Four years ago, the company took control of its financial unit.

Investors have praised the focus on entertainment

By Sam Nussey

TOKYO (May 27) - Sony is preparing to unveil its growth strategy on Thursday for the financial division of the company, which will be spun off. Investors have welcomed this as the latest chapter in Sony's transformation.

Japanese conglomerate once known for its household electronics has been praised for shifting their focus to entertainment. This now accounts for more than 60% sales.

This financial spin-off shows the complicated path Sony has followed, just four years after it acquired full control of its business through a $3.7billion deal.

Sony executives will discuss the spin-off as well as the growth strategy of the financial unit at an Investor Day on Thursday.

The company intends to distribute to its shareholders, through dividends-in-kind, just over 80% (of its shares) in Sony Financial Group. This includes both banking and insurance.

This is the first partial Japanese spin-off to take advantage of the 2023 tax changes and the first direct listing in over two decades.

A direct listing is when a company goes public on the stock exchange without an IPO.

Sony responded to a question from an investor by saying that the spin-off would separate the balance sheets between the non-financial business which seeks capital and asset efficiency and the financial company which expands through accumulating capital. This will help investors understand the aims of both businesses.

Sony stated that the spin-off is a safer alternative to an IPO because it allows a large scale separation within a short period of time.

Hideki Manymiya is the chief financial officer at materials maker Resonac, which plans to spin off its petrochemicals division in two years.

Sony will retain just under 20% of the financial business that licenses its brand.

That's Entertainment

The Japanese company wants to expand into entertainment from movies to games and music and to maintain its leading position in image sensors (a type of semiconductor) for smartphones.

Hiroki Totok, CEO of Sony's chips business, said this month that it was necessary to invest in manufacturing processes.

He said that there were a variety of options, including bringing in investment partners, or adopting a fab light strategy.

Sony, in addition to manufacturing image sensor, has partnered up with Taiwan Semiconductor Co Ltd for the contract chipmaker’s Japan venture.

David Dai is an analyst with Bernstein. He said: "Outsourcing production to TSMC will be the best way to reduce costs and increase efficiency."

Sony announced this month that it expects its operating profit to remain flat this year, after factoring in the 100 billion yen ($701.16 millions) hit caused by President Donald Trump's U.S. trade war.

The conglomerate has committed 1.8 trillion yen in strategic investments, and 1.7 trillion yen for capital investments, over the next three years.

Sony has been widely reported to be looking for deals to expand its intellectual property access in order to fuel its entertainment businesses, and Japan is one of its main targets.

Reports have stated that it bought a stake of Kadokawa, after considering acquiring the media giant. It also considered bidding on Paramount Global in last year.

Sony has a growing presence in anime, with its planning company Aniplex (under its Japan music division) and Crunchyroll, a streaming service that is part of Sony's pictures segment.

Crunchyroll CEO Rahul purini stated that "it is still early for us, and the opportunity is huge both because of the size of the current market and...the audience continues to grow."

Although anime is growing quickly, it still does not rival the size of Sony's music, games and movies businesses. The company does, however, break down the earnings.

Dai from Bernstein estimates that anime will account for between 35 and 40% of the profits in the picture business within two to three year. (1 dollar = 142.6200 Japanese yen)

(source: Reuters)