Non-financial savvy reporting of financial news : Sony City Osaki edition

A colleague of mine sent the below post to our mailing group as breaking news.

Sony unloads ‘Sony City Osaki’ building for $1.2 billion, will remain as lessee

In a bid to bolster its bottom line, Sony’s been selling properties like a desperate monopoly player, and the latest space on the board to go is the Sony City Osaki building for 111.1 billion yen ($1.2 billion). That follows the sale of its NY headquarters for a similar sum, and the move of its mobile HQ from Sweden to Tokyo. The Osaki building has been purchased by a Japanese holding company who will lease the building back to Sony for a period of at least five years, which seems to be the trend for electronics companies lately. The Japanese conglomerate said all the property deals are being made to “transform its business portfolio and reorganize its assets.” Translation? Sony needs the cash, natch.

There is so much wrong in this small news item. As I didn’t have much time, so I sent him a short reply within five minutes highlighting what is wrong here in first read. Obviously if one does some research online, one can refute the above with links to actual numbers

Firstly, for a company that is engaged in a business of selling consumer electronics, bottom-line will not be bolstered by selling a building. Analysts will discount the profit if any from this transaction as one-off extraordinary income from an unrelated business segment (I don’t know what is the actual accounting term to describe such a profit/loss in income statement). Moreover, the article doesn’t even tell us if they sold the property for a profit or a loss.

Secondly, against a one time profit if any, the company will regularly be lease payments to the lessor for next many years thus reducing the income of Sony for subsequent years.

Thirdly, the article says Sony needs the cash. I don’t think so as all these electronic giants are hoarding cash. I don’t think they will pay down debt as no corporate entity is stupid nowadays to return money when you don’t know if you can access it again.

I can put forward two guesses and they are just guesses at the moment till I have reviewed the accounts of statements of Sony.

One, they want to reduce the size of their balance sheet to show better return on assets.

Two, they fear that BoJ may weaken the yen to stimulate Japanese exports/economy and Sony thinks its better to liquidate dead assets and invest in USD/commodities/other foreign assets (my suggestion would be to stand clear of Silver). Even if foreign asset returns are nominal, they’ll at least gain from yen weakening if and when that happens which will translate into foreign currency translation gains. But I consider this as a weaker of the two reasons.

It took me five minutes to draft the above email without doing any research. I wish the author of the above piece or the editor could have spent more time thinking before giving their opinion on the reason behind the news.


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