Sony Group Corp

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 is Ishii from Corporate Communication Department. Nice to meet you. Now I would like to introduce to you who are on the stage. Mr. Keicho Yoshida, currently Director, Representative, Corporate Executive Officer, Chairman, President-in-Chief, Executive Officer, who will assume Director, Representative, 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 will become Director, Representative, Corporate Executive Officer, President, 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.

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 strive for the further evolution and growth of Sony under this new management structure. First, I'd like to touch on the background of these management changes. Sony is engaged in 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 kando, 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 a driving force in the implementation of growth strategy for the group, particularly from a financial perspective 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 domain, such as anime distribution company Crunchyroll, we have focused particularly on strengthening content IP. This started from the acquisition of EMI Music Publications in May 2018, just after I was appointed CEO. He led this acquisition, including the negotiation of terms. The other is semiconductors. I regard CMOS image sensors as creation semiconductors that generate candle. 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, we have supported the repurchase of approximately 500 billion yen of Sony shares since fiscal 2018. I have worked with Mr. Totoki since 2005 when I became president of SONNET. 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 directly leading a large organization as the head of Sony Mobile for more than three years, starting in 2014. Going forward, I am confident that he will make an even greater contribution to enhancing our corporate values as President, COO, and CFO. As part of efforts to 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 overseen areas including new business development and corporate venture capital, and is leading discussions across the group in areas such as virtual production and metaverse. At Sony, we operate 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 Hiroaki Kitano, who was appointed CTO last year, further contributing to Sony's evolution as a creative entertainment company with a solid foundation of technologies. Sony's purpose is to fill the world with emotion, and its corporate direction of getting closer to people will remain unchanged. 110,000 employees who share this purpose are 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 perspective based on our purpose. That is all from me. Thank you.

Next. I'd like to invite Mr. Totoki. I am 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, Sonet, 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 efforts 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 yen 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. Our 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 energizes our employees, enables us to attract more new talent, increases our corporate value, and ultimately enables 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 and growth of our business based upon our purpose. I look forward to your continued support.

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 offices. And those who have questions in this venue, please raise your hands. And those who have have questions online, please press 1 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 from NHK. I have a question to Mr. Totoki, the new CEO. In your self-introduction, you were talking about the Sony Bank, and you talked about the venture spirit. And so we'll be continuing your position as a CFO and you'll become a CEO this time. And as a CFO, you have a – and so in your position as the President, what business would you like to develop and what is your wish for your new position? 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. Thank you. Next question, please. A person in the middle row, the third row from the front on the right side, from this side. Honda, I'm a freelance journalist. I have two questions and to Mr. Yoshida. As Mr. Yoshida has presented in It is great to have the support by a 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 a 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. Let me then answer to your question. But the first question double-hatting of the CEO and CFO would be a problem. Well, this COO, Mr. Totoki's position, is going to be a group COO, not the CEO, a COO. And so it would be a little bit different from 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 a 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 makes 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 fourth mid-range plan. We have business planning people, but the actual management itself is being done with a long-term perspective. At the moment, when we look at the external landscape, the changes are accelerating. As Mr. Todoki 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.

I would like to move on to the next question. And the second row from the front on this side. My name is Nakagaki from TV Tokyo. I have a question to ask over Yoshida-san. And these management changes will lead to two top structures, Yoshida-san and Totoki-san. Both of you are from financial sectors, financial areas, so what's going to be the impact? And the two top structures of the management And the purpose of these 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 a CFO experience, that's quite right. and I myself. has been serving for SONNET, the internet provider, serving as the president for nine years. So I think that the variety of experience is quite important for us to serve for the company. He has worked for the start of the Sony Bank and he has been serving as the president of Sony Mobile as well. I do believe that he can take the literature of his experience.

Now, next question. The person in the middle. Second row from the line from the top from the front. The presidents, each president had a slogan, a mission. Sirai-san is focusing upon manufacturing and Kando Yoshida-san is to become closer to people. Totoki-san, what is the slogan that you have in mind? Thank you for your question. I am focusing upon growth, business and company. If growth is stagnant in various ways, one tends to fall into a negative spiral. Therefore, I am focusing upon growth and realized growth. As I said in my speech, we are to be chosen by customers and energized people, and a positive spiral is to be created. So in short, it is growth. Thank you.

Next question, please. The person in the middle row, second from the front to the left side from this side. Thank you very much for this opportunity. Furuka from Nikkei. And I would like to ask a question about the necessity of COO. As in the comment by Mr. Sumi about the necessity of the COO, there was a discussion in the board. And in the past, in Mr. Ide's era, there was the CEO and the COO separate. And there was the split between the CEO and COO under Mr. the Howard Spring. And whether they functioned or not, that's another question. But so in order to maintain the forces, I think it may be a difficult question to answer. But when you have the CEO and COO, there are some views that it may be better to be separated in terms of the functions. What do you think? Well, our Sony's management, well, myself, it's not so much their one-top management. I am part of their management team, and that's what we have been demonstrating as management of a business. So with that, as I mentioned, external management, landscape, there are major changes happening there due to political risks and also acceleration of technology. And then also these positions, our independent position, while valuing the independence, we together think about the business to business collaboration and also the business portfolio improvement. We all, the management team, needs the deep understanding of the external environment. Of course, Mr. Todoki has a deep understanding of the external landscape, and with this title of COO and CFO, and the He can bring it to the higher level of the understanding and elevate it to the higher level, his understanding of the external landscape. Next question, please.

I would like to take questions in the middle row and the second from the front. My name is Nishida, freelance journalist. I have questions. And the CEO and its positions. So in terms of the strengthening of the product portfolio is quite well understood. But would you please be a bit more specific what we want to do? So Yoshida-san's leadership and Totoki-san's leadership, what they will be and how each of you would like to work for Sony Group. And probably Totoki-san will make another comment. And as for the details, that's subject to the discussions from now on. But as for business structures, we have six segments of businesses, and we have to maintain and let them grow. But as for the discipline of the corporate management, we should regularly check whether or not those portfolios and segments are optimum. That should be the role of the board of directors and the management. That's my ideas. So I'd like to make some additional comments for the questions. As for the business portfolio, it should not be static. That should be dynamic. And the diversified business, means the different harvesting cycles. So we need a cyclical revisiting and reviews of those business portfolios so as to be updated. And we need enormous power to do so. So, as Yoshida-san said, the strengthening, the management structure is quite plausible for us to carry on, and we have to raise the management capabilities, and I have to play my role to do that. Thank you.

Next question. Those of you online, if you have any question, please press one followed by asterisk followed by one. Now the person third row from the front. Nishigori from Nikkan Kogyo Shimbun. I have two questions to Totoki-san. Sony Group. What kind of company would you like to steer the company into your vision? And I think this is a message for the employees as well. What is your vision for the company? And Mr. Totoki, personally, you're credo, something, belief that you think is important. Thank you very much for your question. What kind of company I would like to make Sony into? Yoshida-san and we have defined a purpose and expand the kind of value chain. And we have been sending that message internally and externally. We have to make this more concrete, ideal way would be, without me having to explain, everybody can have an image as to what we have to do. That is the ideal situation, so we are going to bring this into reality. As for my belief or credo, it's not something that big, but from before, the key of management is courage and patience. I like this saying. Many people are saying this. As one is engaged in management of a company, identifying risks and make a judgment, and you have to have the courage to make decisions. Also, at times, you may be faced with headwinds and also contradictions, but you have to persevere and should have patience, and I feel the need of patience. I am telling myself the importance of this always. Thank you.

Let's move on to the next question. So the person in the middle row on the far right, please, on the front row. Yes, please. Thank you very much for this opportunity. Sasaki from Toyo Keizai. And under the new management structure, Yoshida-san is going to be the CFO. And so, Todoki-san, I believe you have exerted your position as a CFO as well. What are the concrete actions and were there any other choices or options? Well, so this changed to Sony Group's management structure. First, we had a discussion with the nominating committee in July last year. And at that time, I, and of course, there were a lot of discussions, but I then talked about Mr. Todoki's strengths and biggest strengths, I think. is the strong willingness for growth. And I think it is a very important key attribute that is required of the management of the company and the company growth. I think it's important for it to result in the growth of the employees as well. So that's my view. strongly stressed that Mr. Totoki is suitable as a new leader of a Sony group, and that's what I've been repeating to the nominating committee as well as in the board meetings as well, at several occasions. Let's go to the next question.

On this role with the white shirt, My name is Asaka of Nikkei Business. I have two questions. You have the experience of CFO. What's your positive effect on your future jobs and how you can take the leverage of your experience as CFO? And as CEO, Mr. Yoshida, what you are going to do as a CEO? Thank you. And the first question is to be answered by Totoki-san and what I'm going to do as a CEO. And there are so many things for me to do. Ultimately, I have to take an ultimate responsibility to serve the Sony Group and CFO experience. how those experiences will serve positively to my jobs. And CFO, And depending on the companies, probably the roles might be different, even though they may carry the same name. And CFO in the Sony Group has a wide range of roles and quite deeply involved in the strategies and the management. And that's been true since Mr. Yoshida as CFO. And those experiences. should be quite positively served to be the president because we can have an overall view and we can read financial figures and we can take leverage of those ideas through interaction with investors and analysts. Thank you.

Let's move on to the next question. Anybody who are connected online, please press asterisk followed by number one. If not, then once again back to this room in the center, in the front line. from Nikkei ESG. I have a question to Mr. Totoki. Mr. Yoshida, after he became president, creativity, he has been saying that he has a purpose of field abroad with emotion through the power of creativity and technology, and he has been working upon this. Satoki-san, after you become president, what would be the priority areas that you would like to address? Thank you for your question. I myself, as Yoshida-san clearly defined the purpose, and disseminated this purpose to the group. As I mentioned earlier, we have to make sure that the purpose takes root in the group, and we have to make the purpose into something concrete. Purpose itself is the Kando value chain, so it is made into something concrete, Kando value chain. We create Kando and deliver Kando And that's where we are doing our business. So we have to make this even stronger and wider in the range as well. That's all. Thank you.

Now we are running out of time, so we would like to take one last question. So from JP Morgan Security, Mr. Ayada, please ask your question. Thank you very much. My name is Ayada from JP Morgan. Now, I have one question. About this management change, Mr. Yoshida from Mr. Totoki Ich, about the group executive officers, what did you tell them or what are you planning to tell them? And also to the employees, what are your messages from each person? I would like to hear. Thank you. Thank you for your question. Well, already the message has been issued. And today, as I mentioned in my speech, there's a change in the external environment and also there are things that we need to tackle internally. I have already conveyed to our employees in the same manner I mentioned in the speech and also the purpose of the company and also we're going to get closer to people that will not change and together we're going to attain further growth. And that was my message. From myself too, basically I delivered the contents of my speech with a little more meat to it, in a sense, to our employees and also to the key team members. individually I had opportunities to speak to them one by one and so I asked them for their cooperation because I'll be assuming this new position and we received a lot of feedback through the email and the messengers. I would like to take my time to read through all the messages. I'm looking forward to doing so. That's all. Thank you very much. It is time. So then this concludes the question and answer session. And next there will be a photo session for the meeting. you you

Ladies and gentlemen, let us start. Sony Group Companies and Consolidated Financial Results Announcement. My name is Shinichi from IA Group of Financial Department. I'm happy to serve as MC. And please let me introduce those who are on the podium, Hiroki Totoki, Executive Deputy President and CFO. And Ms. Naomi Matsuoka, Senior Vice President in charge of Corporate Planning, Control, Support for Financial Business and Entertainment Areas. Sadahiko Hayakawa, Senior Vice President in charge of Finance and IR. Those three are on the podium. First, Totoki-san will have the floor to talk about Q3 FY 2022 consolidated financial results, and then go down to the questions and answers. And as for the questions and answers, we will first entertain questions from investors and analysts, then to the separate sessions from media. And in total, we are planning for 45 minutes. For the related documents we have posted on the IR website, please refer to that. So, Totoki-san, you have the floor.

Today, I will explain the following. Consolidated sales for the quarter increased 13% compared to the same quarter of the previous fiscal year to 3 trillion 412.9 billion yen, and consolidated operating income decreased by 36.4 billion yen to 428.7 billion yen. This operating income result was close to the record high reached in the same quarter of the previous fiscal year, which benefited from the recording of 70.2 billion yen gained on the transfer of a business in the pictures segment. Income before income taxes decreased by 63 billion yen year-on-year to 398.6 billion yen, and net income attributable to Sony Group Corporation stockholders decreased mainly due to the impact of the increased sales of first-party software despite an increase in cost. The forecast for FY22 sales is unchanged from the previous forecast. We have upwardly divided our operating income forecast to 240 billion yen, an increase of 15 billion yen from the previous forecast. Expenses associated with acquisition for the current fiscal year are expected to be approximately 57 billion yen. 7.1 million units of PS5 hardware were sold during the quarter, and the cumulative number of units sold by the end of December exceeded 32 million. Based upon this result, we have set ourselves forecasts for the fiscal year at 19 million units. By optimizing our operations, we are exerting every effort to sell as many units as possible to meet the strong demand. Due to the penetration of PS5, the percentage of PS5 users in the number of monthly active users in December increased to about 30%. Engagement metrics users who transitioned from PS4 to PS5, such as the PS Plus subscription rate, game play time, and average spending amount are significantly higher than those when the they played on PS4, and we will continue to focus on accelerating transition of PS4 users to PS5. In addition, nearly 30% of PS5's MAUs are users who never used PS4, so with the spread of PS5, the acquisition of new users is progressing. Although total gameplay time of all PlayStation users during the quarter was down 3% year-on-year, it was up 6% compared to the prior quarter, and it was up 14% in December compared to the prior month. We believe that user engagement is on a recovery trend due to the penetration of PS5 and the contribution of hit titles. In terms of software for PlayStations, the new title God of War Ragnarok recorded sales of more than 11 million copies in the first 10 weeks after its release on November 9, marking it the fastest-selling first-party title ever. Looking ahead to next fiscal year, we have strong titles planned to be released for both first and third party, including Marvel's Spider-Man 2. The sales contribution of PC software is steadily increasing thanks to the rollout of our popular IP2 PCs, such as Marvel's Spider-Man Miles Morales, which went on sale in November. As for Bungie, pre-orders are steadily increasing for the Destiny 2 Lightfall expansion, which is scheduled to be released this month.

On the 22nd of this month, PSVR 2 will be released worldwide. By maximizing next-generation sensing functionality and performance of PS5, we aim to provide a virtual reality experience like never before. In anticipation of the launch, we are preparing a lineup of more than 30 titles, including Horizon Call of the Mountain, the latest title in our IP, and Glantz Realism 7, which will be upgradable to PSVR 2 for free. In this way, we are seeing steady results from the various measures we have taken in terms of both hardware and software, and we believe that we have created positive momentum to re-accelerate growth and game business centered on the expansion of the penetration of PS5. Next is the music segment. FY22 Q3 sales increased by 23% year-on-year to 367.7 billion yen, mainly due to the impact of falling exchange rate and the increase in streaming sales. Operating income was 63 billion yen and increased over 7.8 billion year-on-year. The contribution operating income from visual media and platform accounted for approximately 10% of the operating income of the segment for the quarter. There is no change from the previous fiscal year forecast. Streaming sales in the quarter continue to grow steadily with the year-on-year increase of 33% of the recorded music and 60% of the music publishing, 7% and 28% respectively on the US dollar basis. In recorded music, following the first half of the fiscal year, during which we had many new album hits by artists such as Harley Stiles and Beyoncé, we continue to generate our hits and with the abolition of 38 songs in Spotify's top 100 weekly global music rankings in the current quarters. And among them, the singer-songwriter Caesar's album, S.O.S., released on December 9th, became a big hit, remaining the number one in the Billboard 200 for the consecutive seven weeks after the release. In music publishing, our affiliated songwriters participated in all of the top five most streamed streamed albums on Spotify in calendar year 2022. And we believe this further solidifies Sony's positions in the Next is the picture segment. FY23Q3 sales were $331.5 billion, a significant decrease of 28% compared to the same quarter of the previous fiscal year, which benefited from the blockbuster release of Spider-Man Norway Home and U.S. television series Seinfeld. Operating income fell by significant ¥123.9 billion to ¥25.4 billion primarily due to the recording of the gain from a transition of GNS Games business in the same quarter of the previous fiscal year and the impact of the decrease in sales. And FY22 focus in sales ¥1,400 billion decrease of ¥40 billion from the previous year there is no change from the previous forecast in populating incomes. Due to the fewer films being released, the results are mainly from the production delays brought by the COVID-19 situations and VoxOps revenue in the U.S. calendar year was about 60% of the calendar year 2019. Next fiscal year, Sony plans to release highly appealing films, including the sequel of the Academy-winning animation film of the Spider-Man, Closed Spider-Verse, and a new film of the Sony Picture Universe of Marvel characters following one's arm, like Venom. Crunchyroll's paid members exceeded 10 million by the end of the next few years, and that's evidenced by the release of a one-piece film. from Uncharted, which recorded box office revenue of more than 400 million U.S. dollars worldwide, with more than 10 projects under the way, converting games' IP to video, including Gran Turismo and God of War. The live-action television drama adaptation of The Last of Us, which began airing HBO, HBO Max, and Max January 15th, began a big hit in the first episode, since its first release with 22 million viewers. Due to this, the game released in 2020 and Amazon sales ranking for PS4 software in the U.S., which has a positive impact on the game's low. More by March, we plan to release the first PC game software by using this IP. In this way, we plan to further increase and strengthen our value's highly appealing IP through a multifaceted exploitation of the IP into the collaboration actors of our business.

Next is the entertainment technology and services segment. FY22 Q3 sales increased 10% year-on-year to 752.8 billion yen due to foreign exchange rates and increased sales of digital cameras. Operating income increased 1.1 billion yen year-on-year to 81.1 billion yen, primarily due to the benefit of the increased sales of digital cameras despite the impact of decreased sales of televisions. FY22 forecast for the sales of 2 trillion 480 billion yen, a decrease of 30 billion yen from the previous forecast. There is no change from the previous forecast for operating income. By responding swiftly to market changes and minimizing the impact of the economic slowdown and deterioration of the market environment in certain categories such as TVs, we secured a profit for the entire segment during the quarter that was the same level as of the same quarter of the previous year. Regarding interchangeable lens cameras, although the pent-up demand due to product shortage in the previous fiscal year is abating, There has been no noticeable negative impact from the economic slowdown so far, and cells are relatively stable. We have been able to control the supply chain disruption caused by the resurgence of COVID-19 in China since the end of last year so that it does not affect cells. We are closely monitoring the situation after the Chinese New Year and are taking necessary action. We anticipate that the business environment will become even more severe over the next fiscal year. Therefore, we will revise our sales plan for the fourth quarter even more conservatively and will proceed with the business operations with the top priorities being prevention, of any negative impact from being carried over into the next fiscal year and acceleration of our efforts to further strengthen our business structure. Next is I and S segment. FY22 Q3 sales increased a significant 28% year-on-year to $480. 17.2 billion yen, mainly due to the impact of foreign exchange rates and increase in sales of image sensors for mobile products. Operating income was 84.9 billion yen, a significant increase of 20.2 billion yen year-on-year, mainly due to a positive impact foreign exchange rates, despite an increase in cost. Both sales and operating income for the current quarter were recorded heights for this segment. The FY22 sales forecast has been decreased 20 billion yen from the previous forecast of 1 trillion 420 billion yen. There's no change from the previous forecast for the operating income. The smartphone market continues to be sluggish, centered to mid-range and low-end products in China. Recently, this trend has become partially conspicuous for high-end products as well, but that is highly within the expectations of our previous forecast. At present, we assume that the smartphone market will recover moderately starting from the second half of this fiscal year, ending on March 31, 2024, and we are proceeding with careful verification and assessment in preparation for formulating a business plan for the next fiscal year. On the other hand, sales of our large format, high definition sensors for flagship models have grown significantly from the previous fiscal year, leading to significant growth in sales for the segment. We believe that the growth in the trend towards larger size, higher image quality, higher performance mobile sensors is a major achievement this quarter. Taking this into account, we will continue to consider medium to long term investments in increased production capacity to further expand our image sensor market share. In the automotive sense of business, we expect to double sales in the current fiscal year compared to the previous fiscal year, and we expect the sales to continue to grow in a high level of the next fiscal year as well. Last is the financial service segment. FY22 Q3 financial service revenue decreased a significant 24% year-on-year to 359%. mainly due to deterioration in the net gains and losses on investments in the separate accounts at Sony Life Insurance. Operating income increased a significant ¥19.1 billion year-on-year to ¥54.3 billion primarily due to a reversal of policy reserves at Sony Life resulting from the rise in interest rates during the quarter. Sony Life's new policy amount in force increased 57% year-on-year due to growth in the corporate business and strong sales mainly of the new individual variable annuity Sovani. There is no change in the previous forecast. Next fiscal year will be the fiscal year of the fourth mid-term range, mid-range plan, and it will be an important fiscal year where we establish the next mid-range plan. I believe that the most important theme in the next mid-range plan is the Sony Group's strategy for the further growth beyond the current tough economic cycle. And our next fiscal year, we anticipate that we will need to operate our business in the face of headwinds. While each business will focus on responding quickly and decisively to the changes it faces, we also will steadily lay the foundation for the future. We plan to further evolve the diversity of our businesses and human resources, which are our strengths, enhance resilience of our business portfolio, and take on the challenges of creating new value in the growth markets. That concludes my remarks.

Mr. Totoki, now we'd like to move on to Q&A session. As we explained at the outset, first we'll be having Q&A session from investors' analysts, and from about a quarter after five, we'll be entertaining questions from the media. Those of you who have registered for asking question in advance, please connect the dial, the designated number, and press asterisk followed by one. Those of you who have questions in the room, please raise your hand and then wait until the microphone is brought to you. Today, because the time is limited, I'd like to ask you to limit your questions to one per person. Now, those of you, if you have any questions, please indicate. Now, online participants, B of A is securities. Shirakawa-san, please. Thank you very much. Hirakawa from B of A is securities. About PS5, I have a question. PS5, 7.1 million units has increased significantly. As a market consensus is about 7.5 million, 7.1 million. If you can produce more, you could have sold more, or the demand was about this level. In the 3Q, you have exceeding PS4. So what is the current situation of PS5? Thank you for your question. I would like to respond to your question. Sales unit of 7.1 million units is not a bad figure at all. However, the production and distribution problem continued. So the products are not delivered to the customers sufficiently. Distribution channel at the shop front, the products are not delivered yet sufficiently. So we need to streamline the operation and so that the units will be delivered to the customers as promptly as possible. Therefore, the momentum of demand We are not concerned. Rather, we have to make sure that we can solidify the operation and we can deliver as many units as possible as quickly as possible. That's all. Thank you.

Thank you. Thank you for your question. Let's go to the next question. And once again, from online, Morgan Stanley, MFU, Ono-san. Thank you. And congratulations, Totoki-san, for assuming a new position. And I have a question concerning games. Three months ago, you talked about some of the focus. And games, KPI, is now gaining momentum, I think, especially MAU. $112 million, and that's quite positive, the ways. And PlayStation is recovering in the quarter. But as for the user compositions, you talk about transition from PS4 to PS5. So how do you focus the transition status from PS4 to PS5? Will it gradually increase? or depending on the new titles to boost the demand for PS5. And as for PS5 and PS Plus, the paid member increase might be one of the main factors. And as for the next quarter, that's almost as planned. And as for PS5, the sales increase and promotional effect should lead to the increase of the sales. And there are some players who are being away from the gaming, and that should be the reason for us to see this current level of the user. and that's for PS5, and there are some reopening purchases are rather high, and that should have a time lag to see the positive effect onto the figures. So that might be because of the time lag for that membership and reflection onto the sales and revenue. and we would like to continue to monitor the business, and we are going to solidify the software deliveries so as to enhance the engagement with users for gaming. Thank you.

Thank you. Then I would like to move on to the next question. Please raise your hand if you have a question. So then from the venue, the person in the middle of this row Thank you very much. Sakai from Daiwa Securities. I have a question about the finance area and financial services area. So the third quarter result of the new contracts, was it as expected? And also the interest transition, how will it affect the performance? And also the MCEV, what was the result? And in addition, for the next term, there will be a plan for the change in accounting system. And at this moment, what is your view on how this may affect the performance? Now, I would like to invite Ms. Matsuoka to answer about the finance services related questions. Thank you very much for the questions. So about the new contract value, the third quarter situation, That's your question, and thankfully, as mentioned in Mr. Todoki's speech, the Sovani is performing quite well, and new contracts is increasing, and therefore the new contract values is also increasing, and that is the trend, and that is to last for some time and also an interest rate shift impact and we do have a hedging so there we don't expect any significant impact and even if there may be some impact it will be very slight but depending on how the interest rates shift We need to look at the different spreads and also in particular the bank spread certainly will be affected. So in that sense, we would like to – we will be increasing the profitability through that. And IFRS number 17, in regards to this accounting system change, there will be another occasion for us to explain in more details about the IFRS, so please wait for that occasion. Thank you.

We'd like to move on to the next question. Anybody? Next, online, participating online, Mizuho Securities, Nakane-san, please. Thank you very much. Nakane from Mizuho Securities. Congratulations for the good results. Now, I have a question regarding game. Recently, US, Europe, and China, macro trend is different. In December, December results and the forecast for March and the forecast for next fiscal year and onwards, business environment, hardware and software network by region, What difference in trend is observed or no difference? Can you give me some hint? That's my question. Thank you. Thank you very much for your question. Game and network globally the deceleration of the economy, there's a difference by regions, but how does that impact our business at this point in time? By regions, there is no significant difference. That's my recognition. Having said that, however, PS5 share compared to PS in Europe, As compared to the United States, our position is higher, so we are maintaining a high position in the United States also. In summer, there was some narrowing of the gap, but more recently, our share has expanded significantly. So there's not much impact of the macroeconomy. Having said that, however, This is something dynamic, so we have to watch carefully the situation from the fourth quarter onwards. Thank you.

Thank you. And we would like to move on to the next question. And the online participant, Ayata-san of JPMorgan Security. Thank you. My name is Ayata of JPMorgan, and I am the SS. I have a question. And based on your documents, for the Q3, sales, and the North American, the smartphone, the production was the constraint. And as for the Q4, wafer input. And that's almost on the same level of the previous fiscal year, but as for the capacity, it seems to be rather smaller compared to the previous year's figures. So that might be decreasing factors over your productions. And so what is your perspective for the North American market and production situations? Thank you very much. for the first part of the questions, based on the customer's production, the changes. And we had quite minor impacts. And as for Q4, we have yet to identify the exact cause, so we need to continue to monitor what's going on. As for capacity and wafer input, And actually, Q4, 90% is for the operating, the utilization rate. That's for image sensor productions related, the changes. And specifically for industrial use in the Kumamoto plant. But as for the others, we are going to maintain the full-fledged productions. And the Q4 capacity seems to be dropping, but because of the plant and the maintenance and the inspection. Thank you.

And time is running out, so we would like to take one last question. And those from SMBC Securities, Mr. Katsura, please ask a question. Hello, I'm Katsura. Congratulations, Mr. Totoki. Now, I have one question about the market landscape, how you interpret the market situation. It's dynamic, and your competitors and other peers say that it's tougher than three months ago, and your semiconductor business is doing quite well. And based on this, towards next year, what is your plan? And also, EDNS, I believe that the forecast is quite tough, and I believe that you would like to take some measures or countermeasures, and so I would like you to explain to us what you will do. Thank you for the question and overall economic landscape. I think that's a question. I believe last year In comparison to end of last year, in particular European-U.S. economy, there is an optimistic view that they may be making a soft landing, and IMF forecast has been revised in an upward manner. And also the equity market, the financial market is the momentum may be recovering in advance to the overall market recovery. And so generally that may be the tendency, but when it comes to the real economy from the finance market, always the changes come in delay. So the fourth quarter and also the early next fiscal year, the real economy and also the consumption trend, we need to be cautious to be prepared for any shifts. And as far as our business is concerned, currently the smartphone and low-end and mid-end are going down and the TV demand is weak. And I mentioned that I can say that. And this is something that was foreseeable to a certain extent. So as far as we are concerned, we think we are prepared. But from the fourth quarter to the first part of next fiscal year, we are going to to the right risk control, and so we will be prepared for the next phase and the next momentum, so we will not be left behind when the next momentum increases. And that is the overall view at this point in time. Thank you. Thank you very much. Now it is time, so we would like to conclude the Q&A session for the investors and analysts.

Right now, we would like to move on to entertaining questions from the media. Those of you who have any question in the hall, please raise your hand. Those of you participating online, if you have question, please press asterisk followed by one. In this hall, microphone will be brought to you if you raise your hand. Because the time is limited, I would like to ask you to limit yourself to one question per person. Now, if you have any question, please raise your question. Now, in the middle, fourth row. is my name. Not directly related to earnings announcement. About semiconductor business, I have a question. You are considering building a new plant in Kumamoto. What is the current situation of considering the plant in Kumamoto? Thank you for your question. It's not something that we have made an announcement of, so this is based upon speculation, and I'd like to refrain from responding to the question, but generally speaking, image sensor markets growth in the mid to long term. And based upon that, consideration for expanding the production capacity is always considered, not limited to specific location, but widely we are considering that. And if there's anything that is decided, then we'd like to inform you immediately. Thank you.

And I would like to move on to the next question. Next question, please. So in the center, two rows are from the front and the second from the left. My name is Tsutsumi of Nihon Keisai Shinbun. And one question, and that's for entertainment. music and pictures. What is your strength as the conglomerate? Centering around entertainment business and the macroeconomic situation has been rather improving. And that should be a driving force for you to maintain the good business performance. For the next fiscal year, you are expecting further more solidifications of the user bases. So what is your strength in that environment? How you can take the leverage of your corporate strength for that environment for the entertainment related to being conglomerate? and you may have a conglomerate discount, and that might be negative factors for you. And if there is any discounting factors, how are you going to minimize those factors and how you should address to those elements? Thank you for your questions. as to the strength being conglomerate. We have the diversified businesses. Diversified businesses, probably they are not so closely related. So all of the sectors do not go along at the same time. So that should be one of the strengths for us to have multiple businesses. That's the same concept of the portfolio management. As for conglomerate discount, there should be many people saying different things, and as I talked in the presentations, as for the entertainment, three businesses, we have the transmedia, and we have a quite strong synergy effect between the different business areas, and that's almost visible in the financial figures. And we can expect some good circulation and benign cycles for the bottom-up effects. So that should be another strength of ours. And in addition to that, we have the technologies. Sony is a technology company. That's one of our uniquenesses. And how we can take the leverage of those technologies to entertainment business. The metaverse should be one of the topics that's represented by the metaverse. So that's our activities. For the new digital experience and entertainment, that should be a core factor of our future business. Thank you.

Okay. Please raise your hand if you have a question in the middle, second row from the front. Nishida, I'm a freelance journalist. About the inventory level, at the moment, for the game and the electronics point of view, and so when we think about the market, I believe you may have to be conservative in planning on the inventory level. So how are we to analyze your inventory level from the perspective? And for the gaming, you have a high level of inventory. And we judge that it can be mobilized. And so what is your view on the inventory? Thank you for the question. So I would like to share add some information statement about the inventory level. And for the game and network service for this third quarter, the sales, production sales is increasing. That is why the inventory is building up significantly. And even if there's the sales and the demand, For a long time, we were not able to deliver products smoothly, so we therefore increased the production capacity significantly and produced the products, and we are in the middle of delivering these products. And in regards to the game and the entertainment service, we are not worried about the inventory level, actually. And the inventory level, when we think about the sales momentum, And also the PS4, so now the seasonality, now that it's in the fourth year in the past with the simulation, the inventory itself. may increase in the monetary value. But in comparison to the PS4, the product unit price is much higher. And at PS4, we decreased the price in the fourth year. And so the monetary value seems to be higher than what actually is. And when it comes to ETS, In the previous briefing, I mentioned that the inventory level at the end of the second quarter was rather high, and we worked on the reduction of the inventory. We managed to achieve a goal to a certain extent, and we are still working on it. But it is, however, slightly higher than what we think is appropriate level. So into this quarter, we would like to reduce the inventory. And for INSS, the CAPEX optimization and also maximizing the business scale. And for that matter, we are taking a policy to have a high level of inventory as part of the investment. And for that, the capex timing can be delayed. That's all. Thank you.

Now, anybody who has a question, please raise your question. Next, participant online, from Reuters. Takenaka from Reuters. Game segment. Totoki-san early made a comment. I'd like to confirm. This fiscal year, PS5 sales target is 18, 19. You have increased to 19. Yes, it is 19 million units. It was 18 million and we raised 19 million. 18.5 million. We say 18 and it is 19. So we have raised the target. Thank you.

The time is running short and we'd like to entertain one last question. And on this row on the right, and the fifth from the plant. My name is Imaida of Diamond. And Totoki-san talked about image sensor business. And you are going to enhance the production capacity. And will it be for the other applications than mobile products? Thank you for your questions. That includes the other products than mobiles. But mobile image sensor products are the driving force for most of the growth. but we have some other segments as well. Thank you. So this is time for us to adjourn the session. This concludes today's consolidated financial result announcement.