Sony Group Corp

Ladies and gentlemen, it's now time to start this Sony Group Corporation's financial results briefing for the fiscal year ended March 31st, 2021. I'm Ida as the emcee for this session. Thank you very much for coming. And today, as we have announced beforehand, we have invited media members and analysts and institutional investors. And This conference will be streamed through the Internet from our site. Executive Deputy President and CFO, Mr. Totoki, will present this financial result of the fiscal year ended March 31, 2021. And later we have a Q&A session. And the total program is about 70 minutes. Thank you very much. We now like to turn to Mr. Totoki. Thank you very much. So this is the topic that I would like to cover today. The consolidated results for the fiscal year ended March 31st, 2021 and so forth. And the consolidated sales increased 9% compared to the previous fiscal year. to 8,999.4 billion yen, and consolidated corporate income increased 126.4 billion yen to 971.9 billion yen, both record highs, primarily due to the improvement of valuation gains and losses on investment securities in other income and preferences. Income before income taxes increased 392.9 billion yen year-on-year to 1,192.4 billion yen, and net income attributed to Sony Corporation stockholders increased 589.6 billion yen year-on-year to 171.8 billion yen adjusted to operating income before income taxes and net income attributable to Sonya Group Corporation stockholders which includes extraordinary items can be found on page 4 through chain of the materials. FY20 concluded operating cash flow excluding the financial services segment was 1,122.2 billion yen, approximately 2.63 yen cumulative for the last three fiscal years, a level that significantly exceeds the target we established for the third mid-range plan. The cash flow of each of our business segments in FY20 is shown on this slide. This slide shows the results by segment. Next, I will show the consolidated results forecast for FY21. Sales are expected to be 9,700 billion yen, and operating income is expected to be 930 billion yen. We have changed our accounting standards to international financial reporting standards IFRS from FY21. Therefore, the FY20 results I will explain today are based on the U.S. gap, while our FY21 forecast is based on IFRS. As a result of the adoption of IFRS, the impact of the fluctuations in the market for financial instruments is expected to result in variances with the U.S. GAP in the results of our financial services segment and in consolidated other income and expenses. However, since we do not incorporate into our forecast any impact from the fluctuations in the market conditions, we believe that the variance in our forecast resulting from the difference in accounting standards are limited. This slide shows our forecast by segment for FY21. I will now explain the situation in each of our business segments. First is the game and network services segment. Sales in FY20 increased a significant 34% year-on-year to 2,656.3 billion yen. Operating income increased a significant 103.8 billion yen year-on-year to 342.2 billion yen, a record high for the segment. The increase in operating income was primarily due to the increase in sales of same-game software network services partially offset by an increase in selling general and administrative expenses associated with the launch of the PlayStation 5. FY21 sales are expected to increase 9% year-on-year to 2,900,000,000,000 yen, and operating income is expected to decrease 17.2 billion yen to 325 billion yen. Now, I will explain in a little more detail the assumptions we made in the fiscal year forecast. As for hardware, supply has not been able to keep up with the extremely strong demand for PS5, although constraints on the supply of components Especially semiconductors are expected to continue this fiscal year. Our current target is to exceed the 14.8 million units we sold in the second year after the launch of the PlayStation 4. In order to meet a strong demand from our customers, we will continue to work to secure components and strive to do our utmost. to produce and sell more units than target. Primarily, due to improvements in the profitability of the PS5, we expect hardware and peripherals together to contribute to the same level of profit for the full year as they did in the previous fiscal year. Next, I will talk about software. Total gameplay time of PlayStation users in March 2021 continued to be quite high. at approximately 20% above March 2019, which had no impact on COVID-19. We believe that this level of strong user engagement will continue in FY21. Software sales in the first quarter ending June 30, 2021, are expected to be below the same period of the previous fiscal year when lockdowns were widespread worldwide. But we expect the same or greater revenue year-on-year from the second quarter ending September 30, 2021 onwards. Regarding network services, we do not anticipate a significant increase in subscribers, as was the case in the previous fiscal year, resulting from stay-at-home demand, but we do aim to maintain and expand the number of subscribers to PlayStation Plus. which increased throughout the previous fiscal year. In terms of cost, we plan to increase development personnel and other costs in our in-house studios by approximately 20 billion yen year-on-year as we further strengthen our in-house product-produced software. On the other hand, we plan to keep costs in all other areas at a level similar to the previous fiscal year despite the increase in sales. To enhance our software offering, we intend to continue investing in our partnering with external studios in addition to aggressively investing in our in-house studios. As I just mentioned, we aim to strengthen the PlayStation platform through actions such as the recently announced partnership with the Heaven Entertainment Studios, which was established by Jade Raymond, the creator of the famous game Assassin's Creed, and our additional investment in Epic Games. Along with the rest of the Sony group, we will also work to enhance the social and platform capabilities of games.

Next is the music segment. FY20 sales increased 11% year-on-year to 939.9 billion yen, mainly due to the growth of streaming revenue and Demon Slayer Kimetsu no Yaiba, the movie The Mugen Train, which was a blockbuster hit. Operating income increased a significant 45.7 billion yen year-on-year to 188.1 billion yen, chiefly due to the impact of the increased sales and recording of one-time gains of 11.9 billion yen from the transfer of businesses. In recorded music, streaming revenue for the fiscal year continued to grow at the high rate of approximately 22% year-on-year. The profit contribution from visual media and platform, which includes mobile game applications and anime, mainly in Japan, accounted for a little less than 30% of the operating income of the entire segment. FY21 sales are expected to increase 5% year-on-year to 990 billion yen. and operating income is expected to decrease 26.1 billion yen to 162 billion yen. The decrease in operating income is mainly due to a conservative view as to the profit contribution of mobile game applications this fiscal year, while the previous fiscal year had one-time gains and historic blockbuster hit Demon Slayer that I mentioned earlier. On the other hand, in the recorded music and music publishing businesses, We expect continued profit growth as we capitalize on the growth of streaming revenue. We are steadily improving our ability to discover and nurture artists and continuously create hits, and we aim to continue to increase our profitability going forward. Opportunities for investment in the music segment are steadily increasing, and we are aggressively pursuing them. To capture more of the growth in emerging markets, we recently announced the acquisition of Som Libre, an independent music label in Brazil. Like the acquisition of AWOL, an artist services business in the independent space that we announced in February, regular free approval is necessary, but we believe both these transactions will contribute to the further growth of the music segment. Next is the picture segment. FY20 sales decreased a significant 25% year-on-year to 758.8 billion yen, chiefly due to a significant decrease in theatrical releases and delays in TV show productions and deliveries resulting from the impact of COVID-19. Despite the impact of the lower sales, Operating income increased 12.3 billion yen year-on-year to 80.5 billion yen, mainly due to a significant decrease in marketing costs and strong home entertainment and television licensing revenues in motion pictures, as well as a decrease in portfolio review costs in media networks. FY21 sales are expected to increase a significant 50% year-on-year to 1,140,000,000 yen. This increase is mainly due to a resumption of theatrical releases in motion pictures and a recovery in TV productions and media networks. Operating income is expected to increase 2.5 billion yen year-on-year to 83 billion yen, chiefly due to the impact of the increase in sales for the entire segment, including licensed revenue for the popular U.S. TV series Seinfeld, partially offset by an increase in marketing costs associated with the reopening of theaters. In motion pictures, theaters in major U.S. cities are reopening, and from June, we plan to release into U.S. theaters sequels for hit films like Peter Rabbit and Hotel Transylvania. Theater releases remain important to Sony, but taking into account the crowded schedule of release post-theater reopening, We will be flexible when selecting the channel through which we will sell our product, depending on the content, scale, and timing of the works so as to maximize the long-term value of each work. In addition, license agreement negotiations for films and TV shows are proceeding smoothly against the backdrop of increasing demand for content. As we announced the other day, we have signed long-term license agreements on good terms with Netflix and Disney for US distribution of theatrical releases from 2022. Next is the electronics products and solutions segment. FY20 sales decreased 4% year-on-year to $1 trillion. 920.7 billion yen mainly due to a decrease in unit sales, especially of digital cameras, and the impact of foreign exchange rates. Operating income increased a significant 51.9 billion yen year-in-year to 139.2 billion yen mainly due to a reduction of operating costs, mainly in mobile communications. and an improvement in the product mix for TVs and other products, partially offset by the impact of the decrease in sales. FY21 sales are expected to be 2,260,000,000 yen, and operating income is expected to be 148,000,000,000 yen. Excluding the impact of the change in segmentation resulting from the recent organizational change, we expect that sales will increase 9% year-on-year, and operating income will increase 13.9 billion yen year-on-year. Throughout FY20, this segment was significantly impacted by intermittent disruptions in the supply chain of components caused by the various factors such as COVID-19. However, we were able to respond swiftly to these changes and secure a high level of profit. Moreover, the mobile communications industry Business, which had been an issue for us, was able to record a large profit which exceeded our initial expectations. From this April, the businesses within EPNS have been combined into the new Sony Corporation. The operating environment remains unpredictable, but the new management team, which is comprised of people who helped manage through the difficult operating environment of the previous fiscal year, are expected to continue to manage this business with a high degree of resiliency to change.

Next is the imaging and sensing solution segment. Fiscal year 20 sales decreased 5% year-on-year to 1 trillion, 12.5 billion yen, primarily due to lower sales of image sensors for mobile. Operating income decreased a significant 89.7 billion yen year-on-year to 145.9 billion yen, primarily due to an increase in research and development expenses and depreciation as well as the impact of the decrease in sales. Fiscal year 21 sales are expected to increase 12% year-on-year to 1 trillion 133 billion yen and operating income is expected to decrease 5.9 billion yen to 140 billion yen. In fiscal year 21, we expect that our market share on a volume basis will return to a similar level as it was in the fiscal year ended March 31, 2020 Thanks to our efforts to expand our customer base in the mobile sensor business, we will manage the business in a more proactive manner while keeping an eye on risk. We plan to increase research expenses in fiscal year 2021 by approximately 15% or 25 billion yen year-on-year to expand the type of products we sell and to shift to higher value-added models from the fiscal year ending March 31, 2023. We expect image sensor capture expenditures to be 285 billion yen, part of which was postponed from the previous fiscal year. We plan to shift to higher value-added products that leverage Sony's stack technology in preparation for an improvement in the product mix from fiscal year 2022 and will concentrate our investment on production capacity necessary to produce them. The other day, we held a completion ceremony for our new Fab 5 building at our Nagasaki factory. Expansion of production capacity is progressing according to plan, and we'll build, expand, and equip facilities in line with the pace of expansion of our business going forward. Shortages of semiconductors have become an issue recently, but with the cooperation of our partners, we have already secured enough supply of logic semiconductors used in our image sensors to cover our production plan for this fiscal year. However, there is a possibility that the semiconductor shortage will be prolonged, so we are accelerating the shift to higher value-added products that we have been advancing here before. We are also continuing to proactively pursue mid- to long-term initiatives in the automotive and 3D sensing areas, and will explain more details at the IR day scheduled for next month. Last is the financial services segment. This year, 20 financial services revenue increased a significant 28% year-on-year to 1,668.9 billion yen, primarily due to an increase in net gains on investments, in the separate accounts at Sony Life Insurance, partially offset by a decrease in single premium insurance. Operating income increased significant 35 billion yen year-on-year to 164.6 billion yen primarily due to an improvement in valuation gains and losses on securities at Sony Bank and a decline in the loss ratio for automobile insurance at Sony Assurance, partially offset by an impairment charged against long-lived assets in the nursing care business. New policy amount in force at Sony Life in fiscal 2020 was below that of the previous fiscal year due to the impact of COVID-19, but it has trended higher year-on-year from the second quarter ended March to September 30, 2020. Fiscal 2021 financial services revenue is expected to decrease 16% to 1 trillion 400 billion yen primarily because we do not incorporate into our forecast an increase in net gains and investments in the separate accounts at Sony Life resulting from strong market conditions as was the case in the previous fiscal year. Over-earning income is expected to increase 5.4 billion yen to 170 billion yen primarily due to an increase in policy amounting force at Sony Life. Now I would like to discuss the financial directions of fourth mid-range plan which starts this fiscal year. In previous mid-range plans, we have prioritized improvement and enhancement of the profitability of each business But in the fourth mid-range plan, we aim to grow both sales and profit. We will adopt adjusted EBITDA as the group key performance indicator for the fourth mid-range plan. EBITDA is a metric that enables us to confirm that all of the businesses in the Sony group including financial services, which is now a wholly-owned subsidiary, are expanding over the mid- to long-term through cycles of investment and return, and it is often used to calculate corporate value. Our target for the cumulative total of the next three fiscal years is 4.3 trillion yen. For more details, including the definition of the adjusted EBITDA, please refer to page 23 of the presentation materials. Now I will update you on our capital allocation plan. During the third mid-range plan, we used the consolidated operating cash flow excluding the financial services segment and the cash we generated from asset sales to invest 1.2 trillion yen in capital expenditures, to invest 1.4 trillion yen in strategic investments including share repurchases, and issue 170 billion yen in dividends. In the new mid-range plan, we have established a capital expenditure target of 1.5 trillion yen and a strategic investment target of 2 trillion yen or more, as we aim to grow our business over the long term beyond the duration of the plan. Regarding dividends, our policy is to increase dividends in a stable manner over the long term. We expect to fund our allocation of capital through consolidated operating cash flow excluding the financial services segment, including cash left over from before. If additional funds become necessary, we might also sell assets and borrow with a strict eye on financial discipline. Operating cash flow includes dividends from the financial services business, and we expect that the financial services business will contribute to the growth investment capability of the Sony Group through a stable increase in its dividends as its own profit grows over the mid to long term. Lastly, I would like to touch upon share repurchases. Today, we announced the establishment of a facility to repurchase up to 200 billion yen of the shares of Sony Group Corporation over the period of one year. In the previous fiscal year, we did not avail ourselves of the share repurchase facility we had in place because of a steady increase in growth investment opportunities and the price of our shares. But we continue to view share repurchases as a part of the strategic investment and will implement them in an opportune manner. This concludes my remarks.

Thank you very much. It was Mr. Sotoki, the Executive Deputy President. And at 16.25, we would like to start this media question and answer. At 16.50, we'll have a Q&A session for the analysts and the investors. And then about 20 minutes each allocated to each Q&A session. And then, so those media members and investors and analysts who have already registered to ask questions, You have a designated phone number, and then please link to that number. If you have not made any prior registration, through the international streaming, you can listen to the Q&A session. So please wait a moment while we get ready for the Q&A session. Thank you. We will soon start the question and answer session for the media. Please wait for a few minutes. Thank you very much for waiting. Now we'd like to entertain questions from the media. The responder is Mr. Totoki, the Executive Deputy President, CFO, and also Mr. Naomi Matsuoka, Senior Vice President in charge of Corporate Planning, Control, Finance, and IARC. And Mami Imada, the VP, Senior General Manager at the Corporate Communications Department. If you have a question, please push the asterisk and then push number one. And then next time, we will name your name. And please identify the media and your name before you ask a question. There are two questions for each person. Thank you for cooperation. To prevent howling. please turn your device to off, especially the volume for the peripheral devices. And then if the connection stops the voice, well, if that happens, we have to turn to the next person to ask questions because time is so limited. But if you like to... stop your question and then cancel your question. Please push two after the asterisk. So, if you have a question, please push the asterisk and then number one. One. After the asterisk. Thank you. The first question from Toyo Keizai, Mr. Takahashi. Please. Now, the floor is yours. Thank you very much. I hope you can hear my voice. Yes, we can. Thank you very much for this opportunity. I have two questions. First of all, the gains. This year, the PS5, the units and volume was presented. But in this number, for example, within this year, at a certain time, there could be maybe the solution of a problem of a semiconductor. And then maybe the number might be different and maybe increased in conjunction to the EPNF. You also talked about the possible impact by the semiconductor shortage. So is that the likely scenario of the shortage of semiconductor? That's the first question. The second one is capital allocation. Your outlook. Maybe on the IRJ you might give us more details. Capital investment in the facility equipment. In the previous MRP that the semiconductor was a major focus of investment, but in the fourth MRP, where do you give emphasis? In your capital investment, do you have any change in your policy? Strategic investment, some of the acquisition candidates were mentioned. What's your philosophy, and would that be different compared to MRP3 versus new MRP4? Thank you very much for your questions. You gave us two questions, and then after the first question, gaming network service and PS5, the launch and sales units. And EPS might be impacted by the shortage of semiconductor supply. The second question is about capital allocation and our capital investment in equipment. In the third MRP, semiconductor was the focus. But what about the MRP4 in that investment strategy? That was my understanding of your question. So let me respond to this question by myself. As for the PS5, the sales scenario estimate, of course, as I said earlier, the PS4, And there should be more than the PS4 sales volume. That's what we aim at. But can we drastically increase the supply? No, that's not likely. So the shortage of semiconductor is one factor, but there are other factors which will impact on the production volume. So that's at present. We like to aim at the second year sales. That is our 14.8 million units. That is the second year of the PS4 sales. As to the EPNS, the semiconductor shortage might have some impact. Well, within this fiscal year, there are different devices, and the supply was rather limited, constrained. For example, we could find maybe secondary source, or by changing a design, we could cope with that. In EPNS, we took a flexible maneuver. So in the fiscal 2021, that we like to flexibly adapt to the situation. To the second, the question about the capital allocation, capital investment. Capital allocation, as I explained to you in the MRP4 in the upcoming two years, 1.53 yen of capital investment is scheduled. In that time, about 700 billion will be dedicated to semiconductors. So when you think of the percentage, compared to the MRP3, there's not a major change in this next MRP4. Thank you.

Next question, please. From Asahi newspaper, Suzuki-san, please. Suzuki of Asahi newspaper, can you hear me? Yes, we hear you. Thank you for your presentation. I have two questions as well. One, EPNS, the image sensor, the semiconductor, a certain customer of China, because of its influence or impact, do you get enough inquiries from other manufacturers to compensate for the particular Chinese customer? In INSS segment, certain Chinese customers, are we getting enough inquiries to offset that portion? Last year, What we try to achieve is that by FY21, we try to recover the market share in volume and the profitability should be recovered in 2022. But FY21, recovery of market share in volume, as far as this is concerned, we are getting a very good feel about it. So in FY21, To a certain extent, we will strengthen CAPEX. Thank you. Thank you. One more question about the electronics products. The improvement of the product mix, in what way are you going to shift toward the high-value added products? If you could elaborate more on this shift, I would appreciate it. EP and S, product mix improvement, what is it specifically? I think that's the question. As you rightly said, basically TV, getting larger screens and the shift towards high-end products, those were most conspicuous examples or achievements. Thank you. Thank you.

Thank you. Next question, please. Nishida-san, please. Thank you. Do you hear me? Yes, we do. Freelancer Nishida, two questions. One, about game business, particularly in this fiscal year, Download business revenue will grow because mainly of, well, PlayStation 5 or a stay-at-home demand. In fiscal 20 and thereafter, what is the impact? What's happening to maintain the download revenue? And number two, electronics business, mobile. Profitability is improving. Could you elaborate on the reasons for the profitability improve? And is there a possibility of product mix? And others, if you can talk about something around this area. Thank you. Game and network service in fiscal 20 download ratio, you said. We call it a digital ratio. in our explanation, so let me, well, regard that as a digital ratio to explain this. Now, here, stay-at-home demand was not small, and particularly in Q4, please take a look at the materials externally announced. It appears that the digital ratio is increasing, and partially because of the titles. At the beginning, stay-at-home demand, well, there was a lot of contribution from the older titles in Q1. But at that time, well, there were not many new releases. That was a big impact. And to answer your second question about the mobile profitability improvement, why did it happen? Well, broadly, I think there are three reasons. The first is we have narrowed down on the areas for business. Well, broadly, it's now concentrating in Japan. With this, we saw an improvement of the profitability, and secondly, the high value-added products have been focused. In terms of volume, it's not so large, but again, high value-added products do have high profitability. And also another reason is the huge reduction of expenses. On this point, design, efficiency, improvement, with that we have reduced the expenses quite dramatically. And so these are mainly the three reasons that drove the improvement of the mobile possibility. Thank you.

Any other questions? After pushing the asterisk, please enter 1. If you have any questions, please. From Nikkei, Mr. Bang, please. Thank you. I hope you can hear me. Yes. The first question is maybe abstract question. The net profit of 1 trillion yen Because of different factors, maybe it is an important epoch-making stage for your company compared to over 10 years ago. Your sales mix has changed as a funny group. Mr. Totoki became the leader, but what changed? Why your profitability has become so much better compared to a dozen years ago? The second point is the strategic investment of capital allocation, as you mentioned. The content IT investment and some of the projects were announced. So high value added one through the net streaming. So acquisition, the value or valuation might have increased because of that. So of course when you consider that you will choose the appropriate candidate at the proper pricing and valuation. So So you have actually acquired at a good timing. Is that maybe some beneficial effects upon your good performance? Thank you for your question. As to the net profits of 1 trillion yen was achieved on behalf of Sony Group, what kind of changes made it possible for you to achieve such a good result? Well, it didn't happen overnight. We have accumulated the steady steps, and that outcome turned out to be this 1 trillion yen. So maybe that one figure just stood out there. But these changes take place every 10 years. Every year you make some progress, every year, and then accumulate. So when we reflect upon the last 10 years, of course, at the policy meeting, the C.O. will present to you, Mr. Yoshida will give you more details. So maybe he will explain at the corporate meeting. the strategic investment focused on IT. Well, attractive IP, there are some merchandising chance and opportunities and scale will increase and that reflects this valuation and that's something you have to keep up with. It's inevitable, but on the other hand, a lot of attractive products and candidates might appear. So in terms of M&A and IP and other things, this market, I think, has become quite activated or vigorous. So we like to find a good candidate, and we like to take an active stance to try to continue investment. As for the past investment, well, the time is still premature to evaluate how we did it But after the past investment projects, the estimation or the quotation, or they were deviated from the strategy, we didn't have such a case. So that was a reflection.

Well, time is running out. So the next question will be the last one for this Q&A session from Newsweek's Hiraoka-san. Thank you. My name is from Newspix. Do you hear me? Yes, we hear you. My first question, as a mid-term forecast, in the past operating cash flow and ROE were disclosed as an indicator, but now you are talking about just EBITDA as a KPI. Operating cash flow and EBITDA are closer in concept What's the difference between these two? Now, what's the background of adopting EBITDA this time? Now, at Sony, there are many businesses with creativity. Those investments not included in the investment cash flow seems to be increasing, for example, recruiting talents with creativity. is one such example, that can push up the personnel cost. And this is not exactly investment. From us, an investor's viewpoint, as an advanced investment that may have the impact on your balance sheet or financial statements, where should we focus? At Sony, what's your idea on the investment? Second question, Abbas. It's about your game business, at least from PlayStation 2 to 3, and from PlayStation 3 to PlayStation 4. As the generation is upgraded, the level, profit level, declined. Probably the hardware sales towards the end of its life cycle goes down. And in the beginning, the cost was higher. Now, from PlayStation 4 to PlayStation 5, I think the level of profit remained at a high level. What's the difference from the past practice? Probably network service may be the main driver, but as you look back on this PlayStation's history, could you comment on this? Thank you. I think you gave me two or three questions. First about KPI. from operating cash flow to ROE to adjust the EBITDA. Why did we change? In concept, they are very similar to each other. However, it can be used in a different way. The operating cash flow, for example, in a certain period of time, you have to look at tax and working capital. These two may affect the cash flow, so there's a lag here. of time period so on a long-term basis we can have a good view but if you look at a certain period of time these two factors affect too much and too difficult to use another thing is that because financial services is now wholly owned and they don't have the operating cash flow idea so the financial services is consolidated now and then Because of this, adjusted EBITDA would be easier to use and give a clearer view. That's why we chose EBITDA. Now, ROE, when probability was low and the capital efficiency had difficulties, then we had to look at ROE and use it as KPI. our profitability has improved and the balance sheet has improved. Therefore, ROE itself is now, rather than calling it KPI, we just recognize the cost of capital as a hurdle rate to look at each one of the businesses. I think that's more important for us. Now, about acquiring talents. excellent human resources. In order to attract them, we need investment. But for this, where do we look on our financial statements or balance sheet? There's the cash compensation and there's the stock equity-based awards or in order to attract good talents, we need to launch appealing projects or programs There are various things, but for us, we want talented people to come, and we want to be such a company which attracts those talented people. The investment in human resources focuses not on the number of people. We want to target people with high talents in recruitment. I think going forward, that's the direction we are going. Now, the past PlayStation, when there was a change of generation, the level of profit declined oftentimes. As you rightly said, because of the increase in network service, and we carry on the customer base from the older generation to the new generation, the In case of PS4 and PS5, we secured compatibility so the users can enjoy seamlessly. So this is what we intended to achieve. Now, hardware's profitability, we take that into consideration so that we shouldn't have a very drastic negative margin And that's why this segment contributes to the group's overall profitability. Thank you.

Thank you. Now it is time to conclude the Q&A session with the media people. To change the responders, the Q&A session with analysts will start at 4.50 p.m. Thank you. Thank you. We will begin a Q&A session with analysts and investors shortly. Please wait just for a few minutes until resumption. Thank you for waiting. We would like to answer questions from investors and analysts. I will serve as a moderator. My name is Hayakawa with finance and IR. The responders are executive director, president, chief financial officer, senior vice president, Toto Chi, senior vice president in charge of corporate planning and control and finance and IR, Naomi Matsuoka, Senior Vice President, Senior General Manager, Global Accounting Division, Hirotoshi Korenaga. If you have a question, please press the asterisk and 1, the number 1. We're going to call the questioner, and when your name is called, please start speaking. We'd like to confine the number of questions to 2 per person. In order to avoid feedback, Should you ask a question, please turn down the volume of your peripheral equipment to zero. We'd like to have your cooperation. If your voice is severed because of the environment, in the interest of time, we'd like to move on to the next person who would like to ask your question. We'd like to have your understanding. If you'd like to cancel your request for question, please press the asterisk and then number two. So we'd like to begin a curious session. If you have a question, please press the asterisk and then number one. JP Morgan Securities, Ayada-san, please. Thank you. Ayada with JP Morgan. I have two questions, if I may. Question one about INSS. Well, way for the input and capacity, what's the track record and also outlook about capacity at the end of the year, if you have the number, I would appreciate that. And relatedly, Totochi-san earlier on said fiscal 21, you have a good outlook, a prospect for recovery, for volume, but with respect to improvement of a product mix, What is your view? In the second half, are you going to have larger well products qualitatively? So if you have any prospect. Question two, in the MRP4, the adjusted EBDA, 4.3 trillion yen, the sinking around it, if possible, in this fiscal year, based on the plan, the adjusted EBDA, what is it? And pre-tax profit, that's 900 billion plus. And DNA, that's 450 billion. So that's 1.4 or 1.5 trillion yen. But I would like to ask you about the number. You see, it's 1.4, 1.5 trillion yen. Then in terms of math, in three years, it will be flat, it appears. So in three years, the growth, or beyond that, How do you look at the growth? So in terms of just the DBDA, well, with respect to the balance with the growth, if you have any message to the market, I'd be appreciative to hear that. Thank you for your question. Two questions. The first question is, With respect to INSS, the wafer input and the capacity and product mix improvement prospect, qualitative point in my understanding. And your second question, adjusted EBDA. Based on this fiscal year's plan, what would be the level of EBDA? So first, to answer your first question, Regarding capacity, in fiscal 20, in Q4, at the end of Q4, the master installation needs about 139K. That was the capacity. And the previously was 131K, so it's up. The plan was to start operating it in April, but because of, well, Earlier preparation, we started the operation partially. That's why we have this number. And in fiscal 21, at the end of Q1, it will be 141K in our prospect. So what about the increased capacity? Well, the building floor increase, that's just for some production lines, so it doesn't mean that there's going to be a huge increase in the capacity. With respect to the wafer input for Q, The track record is the, it was 128K. That's average, well, simple math. It was expected, and our in-house capacity is in full operation. And in fiscal 21, in Q1, the wafer input, the three-month average is 138K. in-house capacity is expected in full production. We have a lot of inquiries these days. In addition, in fiscal 21, in preparation for the shipment of new models of smartphones, we are increasing our production. With respect to the prospect of product mix improvement, in fiscal 21, in the second half of this fiscal year, 0.7, a small product will pick up. And so when it picks up in fiscal 22, higher value added types will be launched. That is the prospect at this moment. So with respect to product mix improvement, that is the idea that we have. Also about adjusted EBDA, this is just a ballpark. please understand just the approximation, but in fiscal 21, it should be 1.3 trillion yen in fiscal 21. But in a single year, we, well, evaluation of that in a single year, given our, well, mid- and long-term plan, well, we should look at it, well, we should look at a total So if you just look at a single year, we'll launch something. That kind of a discussion should not be done, in my view. Thank you.

Now we'd like to entertain the next question. SMBC Nico, Mr. Katsura, please. Thank you. I hope you can hear me. Yes. Thank you. Music. Music. It's something I have one question about. And the second one, I have a question on semiconductors. In music, as Mr. Sotoki explained, that the media and platform, the profit, about 30% of that, is related to this Aniplex. But anyway, according to this year's plan, what is the assumption? The They say that the more optimal solution will be chosen. But in this fiscal term, what's your philosophy and idea? That's my idea on this. The second question is related to semiconductor investment philosophy. For this fiscal term, as the upcoming three-year plan of investment, that's what you have given us some ideas. But about six months ago, or maybe three months ago or so, Compared to that timing, more active stance. We have shifted to more active investment. Could you please give us a background for that investment? By that investment, how is the market share or the capacity share that you'd like to achieve? The details will be explained at the IR meeting with regard to the MRP4. Thank you. Thank you for your questions. Music, the percentage of media platform for 2020, about 30%. That's something we have indicated to you. When you break it down to that breakdown, naturally, the theater version of the Demon Slayer is a big hit. So in 2021, it doesn't happen again. And mobile game as well. The contents are very good. So there could be deceleration in that area. And those factors, excluding those factors, and 11.9 billion yen is income from the sales of the business, transfer of business. Taking that into account, year on year, 14 billion yen or so is the reduction. So that is a reduction to be felt. So, anyway, when you compare overall the income, of course, the other part will enjoy the growth. That is thanks to the increase of the revenue from the swimming. And that's how we see the growth of the profit. This is the area last year, 2020, fiscal year 2020. There was original plan, the investment, and I explained to you earlier that some of the investment plan was postponed to the future. As of now, 2022 and afterwards, there is a strong demand we expect. So in that sense, some of the capital investment, 2020 and afterwards, some are to be implemented as well. This is 283 billion, 283 billion. And 2020, the volume share is recovered, and we are almost to achieve it. So 2022, further strength of ours will be achieved. In other words, we will get this profit and then the sales. And we need to have a capacity prepared to produce. So that's why we started to invest for the capacity building and additional facilities. And as of now, in the fourth term, the final capacity and its size, it's not a simple increase of the capacity for investment, but rather we are shifting to the high value added products. The process itself needs to be increased and enhanced. Investment in there is quite voluminous. And then by enlarging the size, it might change. So when we talk about the relation between capacity and an investment, it's not a linear relationship. So we cannot specifically just talk about capacity because of that complexity. Thank you.

Next question, please. From Mizuho Securities, Nakane-san, please. Nakane speaking. Thank you. Two questions. First, in the text about the games, what I wanted to ask, hardware, software, network, if you divide this, what would be the profit for each? And the backdrop The contributing factor is the improvement in hardware. PS5 and peripherals may give this uplift. When the volume is increasing, the gross deficit may increase. That will push down, we thought, the level of profit, but the Network profit is not included. What would you say? Second, R&D is $610 billion, which is a large increase. You talked about IR and SNS, but any other areas that there will be an increase under MRP and the new MRP? Thank you very much for your questions. First about the Cayman Network service. I couldn't really hear you clearly, so let me confirm. We improved the profitability of hardware. When the PS5's unit sales increases, that may lower the profitability. Was that what you were asking? Including the peripherals, probably you could achieve the profitability. That's what I thought. Profitability, the contribution of hardware in FY20 inclusive of the fair for all is positive. That's what we have been saying. The amount of the contribution in this fiscal 21 will be about the same or even above the previous year's level. That's the assumption of the plan. Why is that the case? Compared to last year, PS5's profitability will improve. That's how we forecast. That's why this change will be brought about. Second question about R&D expense. Your question about the R&D cost. On a consolidated basis, as you say, 610 billion yen. Compared to the previous year, it is an increase by more than 80 billion yen. Game network services, the EPNS and SS, every segment increased. Game network services, the development cost increased by 20 billion yen, and that had the impact. Also, INSS, 25 billion yen or so increase is expected, and the remainder will come from EPNS. Thank you.

Now we are running out of time, so the next question will be the last question. Volganstal MFGE, Ono-san. with Morgan. Thank you. First, well, this may overlap somewhat with Nakane-san's question. Game and network, $17.2 billion reduction in profit. The game development expense, that's about $20 billion. I think you said that in your comment. But the positive factors and negative factors in terms of scale, could you give us more hints? add-on content, negative factor game development, the in-house software, and also the hardware as related with Nakano-san's question. So that's my first question. Mono-san, if you could also give us your second question. My second question, EPNS, $13.9 billion reduction in profit. Well, if possible, by product category, the sequence, what are the items, if you could explain that. Thank you. Thank you for your questions. Now, with respect to German network service, fiscal 21 reduction in profit, positive factors, negative factors, that's what you would like to know. Now, we're including some qualitative aspects I would like to give you an answer. Number one, as I have been saying all along, with respect to hardware, basically, we are moving positively, the entire hardware. We ask you to look at it positively, and including investment in studio, the development of games, we're going to increase that. So that's a part of investment that will increase. And third-party software reduction in profit we do anticipate it somewhat but again last fiscal year first quarter I think well it just increased dramatically because of a stay at home demand last year so I think we have to discount it I think that's a reasonable way to look at it so that's the way we should look at it and And the end result of our calculation is that. I think that is one way to look at it. Regarding currency, I think that should work positively. And E, P and S. E, P and S. Increase in profit by product category. Well, it's not all that complex from camera the increased profit and revenue are coming. Well, last year, because of a pandemic, the negative impact was given on the digital camera. And here we are on a path for recovery. And by country, it differs, but the pandemic, as it abates, there are strong products and they will again grow. Thank you. Now, thank you. Now it's time to close it. We'd like to conclude the Sony Group Corporations Financial Results Briefing. Thank you for your participation today.