Sony Group Corp

We'd now like to begin Sony Group Corporation's earnings announcement. I'll be serving as the MC. My name is Okada from Corporate Communications. Our first Executive Deputy President and CFO, Mr. Totoki, will present the Consolidated Results for FY21 and Consolidated Results Forecast for FY22, followed by Q&A. We are scheduled to end in about 70 minutes. Mr. Totoki, the floor is yours. Today, I will start by talking about the situation in Ukraine and Russia. At first, I want to express my deepest sympathies to the victims of the conflict. I hope that the conflict will be resolved as soon as possible and that peace will be restored. Our business scale in Ukraine and Russia was about 0.7 percent of consolidated sales in the fiscal year ended March 31st, 2022, FY21. And although these regions have minimal impact on our financial performance, we are monitoring the impact of the situation on the global economy going forward. Now I will discuss the following three topics. The consolidated results for FY21 and the consolidated results forecast for fiscal year ending March 31st, 23. FY's consolidated sales increased 10% compared to the previous fiscal year to 9,921,000,000,000 and consolidated operating income increased 247,000,000,000 to 1,202,000,000,000, both of which are record highs. Income before income taxes increased 119,000,000,000 to 1,117,000,000,000 and net income attributable to Sony Group Corporations. shareholders was 882.2 billion yen, a 147.4 billion yen decrease compared to the previous fiscal year, in which 256.8 billion yen in reversals of valuation allowances against deferred tax assets were recorded. Please see pages 4 to 10 of the presentation materials for each profit metrics adjusted to exclude one-time items. Consolidated operating cash flow, excluding the financial services segment, was 813.3 billion yen. The actual cash flow by segment is shown on the slide. This slide shows the results by segment for FY21. And next, I will show the consolidated results forecast for FY22. As sales are expected to be 11 trillion 400 billion yen and operating income expected to be 1 trillion 160 billion yen. This slide shows the factors leading to the change in forecasted operating income compared to the actual operating income of the previous fiscal year. Consolidated operating cash flow, excluding the financial services segment, is expected to be 1 trillion 50 billion yen. The assumed foreign currency exchange rates are 123 yen to the U.S. dollar and 135 yen to the euro. A ¥1 depreciation against the U.S. dollar is estimated to have an approximately ¥1 billion positive impact on operating income for the year, and ¥1 depreciation against euros is estimated to have an approximately ¥7 billion positive impact for the year. Our forecast is based on assumptions such as the projected growth rate of the global economy published by IMF in January, and it incorporates as much as possible recent major risks, such as the direct impact of the situation of Ukraine and Russia and the impact of COVID-19 in China. This slide shows our forecast by segment for FY22. I will now explain the situation in each of our business segments. Game and network services. FY21 results at first is that The FY21 sales increased 3% year-on-year to ¥2,739.8 billion. Operating income increased ¥4.4 billion year-on-year to ¥246.1 billion, primarily due to improvements in the profitability of PlayStation 5 hardware, despite the impact of lower sales of non-first-party software. FY22 sales are expected to increase a significant 34% year-on-year to 3,660,000,000 yen due to an expected increase in sales in all categories. Operating income is expected to decrease 41.1 billion yen year-on-year to 305 billion yen. This forecast is based on the assumption that the acquisition of Bungie Inc., which is currently under review by the relevant authority, will close in the third quarter ending December 31, 2022. Excluding the approximately 44 billion yen in expenses associated with acquisitions including Bungie, operating income is estimated to be essentially flat year-on-year. In addition, we plan to increase software development expenses aimed at strengthening first-party software at our existing studios by approximately 40 billion yen year-on-year, and we have incorporated that impact into this forecast. Our unit sales forecast for PS5 hardware is 18 million units, a number based on our current visibility into parts procurement. In order to strengthen our content development capabilities further, we entered into a definitive agreement this March to acquire Haven Entertainment Studios in addition to acquisition of Bungie. Haven is a studio founded by Jade Raymond, one of the primary creators of the blockbuster Assassin's Creed franchise. The studio has gathered many excellent developers in Montreal, Canada, known as a haven for game development, and it is currently developing a new game title. In addition to acquiring studios such as Bungie and Haven in recent years, we have significantly increased our investment in content development in our existing studios. As a result, our first-party software revenue has grown at a high rate. Going forward, we aim to grow the game business by strengthening our first-party software and deploying that software on multiple platforms.

Next is the music segment. Although sales of visual media platform decreased, fiscal 21 sales increased a significant 19% year-on-year to $1 trillion. 116.9 billion yen, mainly due to an increase in streaming revenue. Operating income increased 26.1 billion yen year-on-year to 210.9 billion yen, mainly due to the impact of the increase in sales. The contribution to operating income from visual media and platform accounted for approximately 20% of the operating income of the segment for the fiscal year. Fiscal 2022 sales are expected to increase 11% year-on-year to 1,240,000,000 yen, and operating income is expected to increase 19.1 billion yen year-on-year to 230 billion yen. In the fourth quarter ended March 31, 2022, streaming revenue increased 32% year-on-year in recorded music and 36% year-on-year in music publishing revenue. continuing to contribute significantly to the growth of the segment. In recorded music, we are strengthening our ability to discover and nurture artists, expanding our roster and acquiring new labels such as Alamo Records. As a result of these efforts, our ability to continuously create hits has steadily increased, with our having an average of 36 songs in Spotify's weekly global top 100 songs in fiscal 21. Moreover, new business opportunities with digital partners such as TikTok, Meta, and Roblox are steadily increasing and are expanding our base load of profitability. Next is the picture segment. With box office revenue in the U.S. recovering to approximately 50% of pre-COVID-19 levels, the operating environment for this segment is starting to return to normal, chiefly in motion pictures. In addition, mainly due to the historic blockbuster hit Spider-Man No Way Home and significant licensing revenue from the popular television series Seinfeld, F521 sales increased a significant 65% year-on-year to 1,238,900,000,000 yen. Operating income increased a significant 137.5 billion yen year-on-year to 217.4 billion yen due to the impact of the increase in sales and recording of a 70 billion yen gain from the transfer of GSN Games. Although motion pictures revenue is expected to decrease due to the lack of major releases on par with the previous fiscal year, fiscal 2022 sales are expected to increase 7% to 1,330,000,000,000 year-on-year, mainly due to the impact of exchange rates and expected increase in media networks revenues. Operating income is expected to decrease a significant 117.4 billion yen year-on-year to 100 billion yen, mainly due to our not forecasting one-time items such as in the previous fiscal year. The focus for fiscal 2022 operating income margin for the segment is 7.5%. a decrease compared to the last two fiscal years, which benefited from lower expenses resulting from fewer releases and the licensing of films to digital distribution services. However, when compared to before the COVID-19 pandemic, the profitability of the segment has steadily improved. In this segment, we see the increase in demand for content, chiefly from video distribution services, as an opportunity, and we are strengthening our content IP as a result. A pillar of our IP strategy is leveraging the Sony Pictures universe of Marvel characters, and we are following up on Venom and Morbius with the production of another Spider-Man character spin-off called Kraven the Hunter. In addition, following the success of the first movie adaptation of the popular PlayStation game title, Uncharted, in motion pictures, we are leveraging our game IP by proceeding with the adaptation of Ghost of Tsushima and The Last of Us into video content. In television production, we are pursuing strategic investments such as the acquisition of industrial media, which has a reputation for producing variety in documentary content such as the popular TV show American Idol, and the acquisition of Bad Wolf, a leading drama production studio in the UK. Next is the electronics products and solutions segment. Fiscal 2021 sales increased 13% year-on-year to $2 trillion, 339.2 billion yen, mainly due to an increase in sales of TVs and digital cameras resulting from an improvement in product mix. Mainly due to the impact of the increase in sales, operating income increased 85.1 billion yen year-on-year to 212.9 billion yen. During the previous fiscal year, We faced various supply constraints, such as continued disruption of manufacturing and logistics resulting from the COVID-19 pandemic and a shortage of components, mainly semiconductors, however. We were able to overcome these issues mainly through close management of a supply chain and achieved operating income margin of over 9%. Fiscal 22 sales are expected to increase 3% year-on-year to 2 trillion 400 billion yen, mainly due to the impact of exchange rates, despite a decrease in unit sales of TVs. Operating income is expected to decrease 32.9 billion yen to 180 billion yen. This forecast incorporates the total of an already observable impact and an estimated additional impact going forward of approximately 30 billion yen on our supply chain due to the spread of COVID-19 in China. Going forward, due to the continued spread of infection, there is a possibility that the operation at factories in Shanghai and the surrounding region, as well as procurement of parts from the region, will be constrained. Thus, we currently expect it will take approximately three months for the situation to normalize. With the situation in Ukraine and Russia and the slowdown of the global economy resulting from rapid inflation, we expect the demand environment this fiscal year to be even more severe than recent years. By quickly responding to the changes in the market going forward and further enhancing our resilience to changes in the environment through digitization and streamlining of our operation, we will aim to maintain and improve our profitability. Now, I'd like to explain the change in the name of this segment. We have been using visual, audio, communication, and other technologies to deliver Kando in the form of entertainment experiences to our customers in this segment for quite some time. Going forward, we will work with creators to create the entertainment of the future by providing technology that enables new visual and audio experiences while also providing new services such as virtual production and sports entertainment. To further clarify the direction of these businesses, we have changed the name of this segment to Entertainment Technology and Services. The details of the change will be explained by Mr. Maki, the head of the business segment briefing to be held this month.

Next is the Imaging and Sensing Solutions segment. FI21 sales increased 6% year-on-year to 1 trillion 76.4 billion yen, primarily due to impact of exchange rates and sales increase of sensors for digital cameras and industrial equipment. Operating income increased 9.7 billion yen year-on-year to 155.6 billion yen, primarily due to the impact of the sales increase. FY22 sales are expected to increase 37% year-on-year to 1 trillion 470 billion yen, and operating income is expected to increase 44.4 billion yen to 200 billion yen. During the previous fiscal year, we achieved a certain level of success, expanding and diversifying our customer base and recovering our unit market share, but the business environment throughout the year was quite severe. due to the stagnation of the smartphone market in China. Recently, however, we are seeing manufacturers refocusing on increasing the size, image quality, and added value of the image sensors they are purchasing for their high-end smartphones scheduled for release in FY22 and beyond. Thus, we expect the growth of the mobile image sensor market to accelerate again going forward. There is also a movement to pursue better image quality even in the mid-range phones, and thus we believe there is room for us to further increase our market share. Due to growth in sensors for mobile devices, stable growth in the market for sensors used in digital cameras and industrial applications, and a significant market expansion for automotive sensors, we have upwarded revised our forecast revenue CAGR for this segment over the course of the current mid-range plan to approximately 20% per year. To respond to this more robust demand and to ensure that we can capture growth opportunities, we plan to increase capital expenditure during this mid-range plan from approximately 700 billion yen to approximately 900 billion yen, primarily due to the capital expenditure increase and an increase in the R&D expenditures to maintain and expand our technological competitiveness. The timeline for improving profitability has been slightly delayed from our initial plan, but we do expect that the profit will continue to grow along with the increase in sales over the medium term. Last is the financial services segment. FY21 financial services revenue decreased 8%. 8% year-on-year to 1 trillion 533.8 billion yen, primarily due to the decrease in the net gains on investments in the separate accounts at Sony Life Insurance. Despite the impact of an increase in insurance premium revenue at Sony Life, operating income decreased 4.7 billion yen year-on-year to 150.1 billion yen, primarily due to one-time loss at a subsidiary of Sony Life related to the unauthorized withdrawal funds. New policy enforced at Sony Life during FY21 grew 3% year-on-year, driven by our success in selling insurance to corporations. FY22 financial services revenue is expected to increase 6% to 1,440,000,000,000 yen, and operating income is expected to increase 69.9 billion yen to 220 billion yen. The operating income forecast includes the combined impact of approximately 43 billion yen from a gain on the real estate sales completed last month and the impact of the recovery of the funds associated with the unauthorized withdrawal, about which we recorded a loss in the previous fiscal year, both at Sunilife. Now, I would like to explain the progress of our fourth mid-range plan. Under the theme of Sony's evolution, during this mid-range plan, we aim to evolve Sony into a company that achieves fast and high growth through investment and business expansions in growth markets and through further collaboration across our businesses. Sales are on a higher growth curve than originally expected, driven by growth in our four priority investment areas, the GNNS, Music, Pictures, and INSS segments. Operating income has also increased significantly compared to the previous plan, and we now expect it to exceed 1 trillion yen per year. Based on this, we expect the three-year cumulative total adjusted EBITDA, which is our consolidated group KPI, to increase to 4.9 trillion yen, up 14% compared to the target of 4.3 trillion yen. Now I would like to update you on the progress of our capital allocation. The amount of consolidated operating cash flow generated during the three years of this mid-range plan, excluding the financial services segment, is expected to increase by 200 billion yen compared to the original plan to 3.3 trillion yen or more, mainly due to the operating income improvement. Added to this amount would be the carryover from the previous mid-range plan, borrowing and asset sales, leaving a total of more than 4 trillion yen available to be allocated. As for how this amount will be allocated, I explained earlier that we will increase capital expenditures in the INSS segment by approximately 200 billion yen. Thus, we have made no change to our plan to make strategic investment to 2 trillion yen or more. A total of approximately 1 trillion 60 billion of strategic investment has have been executed or decided, including 97.4 billion yen in repurchase of Sonic stock, and we believe our investment for long-term growth are progressing rapidly. Lastly, we have obtained another authorization to repurchase a maximum of 200 billion yen of Sonic stock over the next year. These repurchases continue to be part of our strategic investments and will be implemented in a flexible manner. We believe that the external environment in FI22 will be quite harsh with many risks and issues that we will have to address, and as CFO, I am managing Sony with the highest sense of caution. At the same time, we will continue to take steps to achieve growth over the long term while responding swiftly to changes in the environment. This concludes my remarks.

That was the explanation by Mr. Chotoki. From 4.25 p.m., we will start the media Q&A, and from 4.50 p.m., we will start the investors and analysts Q&A. Each Q&A session is scheduled to last for about 20 minutes. Those of you who have pre-registered to ask questions, please connect to the designated phone number beforehand. As for the method of asking questions and other points to be noted, please refer to the information that we have provided to you beforehand. Those of you who have not pre-registered, you can view the Q&A session through the Internet. Please wait a while until we resume. We will be starting a Vimedia Q&A shortly. We ask you for your indulgence. Thank you for waiting. We'd now like to take questions from the media. Those who will be responding will be Hiroki Todoke, Executive Deputy President and CFO, and Naomi Matsuoka, Senior Vice President in Charge of Corporate Planning and Control, Support for Finance, Business, and Entertainment Area, and Sadahiko Hayakawa, Senior Vice President in Charge of Finance and IR. We'd now like to begin. Please limit yourself to two questions. Those of you who have questions, please press the asterisk on your phone, followed by the number one. The first question of NHK, Shimai Sam, please. Shimai from NHK, can you hear me? Yes. My first question, about the yen depreciation. Earlier, in the FY21 results, it seems that the depreciation of the yen has benefited you. Meanwhile, the raw material price is increasing, and the weak yen negative impact is being talked about. For your company, what are the negatives of the depreciation of the yen? And also, what measures do you have this year to cope with the depreciation of the yen. My second question. Earlier, you talked about COVID-19 in China and taking about three months for recovery and normalize. But other than that, there are the shortage of semiconductors as well as other shortages. So looking at the business going forward for this fiscal year, where do you think the biggest challenges exist? And what measures are you contemplating? Thank you for your question. Let me talk first about the exchange rate. And then after, Hayakawa will add some more explanation. First, about the exchange rate. If I talk about each of the segments, about games and network service, and the EPNS, And INSS for these segments, we estimate one yen depreciation would be a one billion positive euro of seven billion yen positive for operating income. Now, for each business segment, there are different characteristics. And therefore, Hayaka will add some more explanation. I'd like to explain. about different business segments. Well, GNNS and ETNS, well, the raw materials that we are purchasing mostly in U.S. dollars, and therefore the raw material prices rise, and also the adjustments we have to do in adding on to the prices, and this will undermine our profit structure. Meanwhile, And those which are yen-denominated, I-N-A-S-S, we think that this will be a positive for us. About music and pictures, well, basically the business is being consolidated in U.S. dollar and converted to Japanese yen. And this, for the depreciation of the yen, will be positive for our sales and operating income. And that is about the U.S. dollar. And next, about euro. For the euro, the cost that is generated in euro is limited in our business, and therefore euro and yen, the yen depreciation is a positive for our profit. That is all. Thank you. Thank you very much. Basically, the exchange rate fluctuation, we have the tolerance to cope with these fluctuations. We have DX of operation, improved efficiency, and the margin of the businesses are being increased to cope with these fluctuations. And we will continue to do so going forward. And about your second question, China and the impact of COVID-19. For this fiscal year, there are a variety of risks, as you know. About the parts procurement, we think that to quite an extent, well, last fiscal year, compared to the second half, I think in different areas, for example, we have changed our source of procurement and also changed our design, amongst others. So we have been capable of coping effectively. So for the post-procurement, I think we have a good outlook. Meanwhile, the spread of the virus in China, well, how long this will continue and to what extent it will continue and spread, this is something that is very difficult to predict. At this point in time, we think that it will take about three months, especially for the Shanghai lockdown, it will take about three months to normalize. That is what we're thinking right now, but we should not be complacent and look at logistics and procurement and try to detect those risks early on so as to be able to cope with them. We want to be active in coping with these risks. Thank you.

We'll take the next question from Nikkei newspaper. Tsutsumi-san, please. My name is Tsutsumi from Nikkei Newspapers. Can you hear me? Yes, we can clearly hear you. Thank you. Two questions. First, in the game business about your outlook for this fiscal year, against the assumptions you may have the upsides, and also at the same time, Downside, risks. So upside and downside, both. So if you could mention on both sides, I would appreciate it. Well, you have only one question. Please proceed to the second question. My second question, in the MRP's amendment to revision, EBITDA, cumulative EBITDA, I think there was this number of 54 percent or so. Well, if you could give me the breakdown of the increase, I would appreciate it. And about your strategic investment, if you could give us your philosophy on the strategic investment, I would appreciate it. Thank you. About GNNS outlook or forecast, let me start with that. About our assumptions at this moment, The risks and upsides are both factored in to come up with the best estimation. If there's one upside, how much sales can we expect about our hits? Software, titles, and the number of hits, these are the variables, and we expect highly on these two. As we announced already, PS Plus included network services are to be renewed After June, there will be gradual releases, stage by stage. And for this, we want the users to enjoy this and find them higher quality and easier to use or play, and that should be our upside. And about the risks or downside, needless to say, and it's not only restricted to game business at this moment, 18 million units is the forecast for this fiscal year. For components, we do have a good feel about how to procure the components and parts. But going forward, for example, the situation of the pandemic in China, if it worsens going forward and if the lockdowns will expand further, then that will have – a possibility of affecting the protection, and that can be a downside risk. However, these will not happen overnight, so for us, we need to be proactive, have a focus, and take appropriate measures. Now, about your second question about MRP. Now, concerning EBITDA, and there's the change or revision of EBITDA's forecast. About this forecast, including the supplementary documents of the financial results and others, all the data are available for you to see. Basically, the base load of profitability has been enhanced. Now, we are expecting 14 percent growth now. And using this, we can make this for the – to be allocated to the two trillion strategic investment if there are good opportunities. But at this moment, we look at the market environment now. At this moment, we can leave this fund as it is, and if necessary, we will review the situation, and then we'll make an announcement accordingly. Thank you.

Next, let's move on to the next questions. Nishida-san, freelance writer, please. This is Nishida speaking. Can you hear me? Yes, we can. Please. I also have two questions. The first about the game business. PlayStation 5's procurement is pretty much in place, and the shortage of components you're expecting that will be resolved, and 18 million units, is that enough to the demand, compared with the demand? And the subconductors, sensors, High-end sensors are expected to sell and leading to the increase in sales. Now, without depending on the Chinese market, overall product mix is improved. That's an improvement. Or you're largely relying on the Chinese market for this improvement, if you could educate us. Thank you for your questions. Two questions you asked us first. regarding the PS5-related procurement. Maybe it's more of a demand side is the question. 18 million units is what we feel very comfortable that we can get the parts and components, and we feel that there is a little bit higher demand than that And so if the question is whether we can meet the demand, I think we're still short somewhat. And regarding our stock or inventory, still remain very low. So in order to provide our PlayStation units to customers smoothly and timely basis, in that sense, we are still behind or short. And regarding INSS, The sensors, as I mentioned in my earlier stage, there is an increase in the size and higher added value in the market. That's a trend regardless of the regions. And the large smartphone set manufacturers are going through that trend, and it is becoming very visible. And that's what we feel through discussion with our customers and communicating with customers. And we want to make sure to respond to that demand. That way we can increase the sales. And also, if we talk about the Chinese market, that we are still cautious and we do have slow movement, and also the stock level, inventory level, low in China. And we hope by the end of this year, it will normalize.

Next question, please. Asaki Shinbu. Izawa-san, please. Can you hear me? Yes. Please. I have two questions, both. about PS5 in 2022 of this fiscal year. You said that the unit sales target, you said 22.6 million. I think it was to exceed PS5. But you say 18 million. So why did you have to reduce the number? And second, in Earlier you said FY21, the PS5 result. Can you explain about the PS5 result for FY21? So first question about the fact that we originally were talking about 22.6 million. That was more than PS5. And this was... reduced because of the constraint of components. Well, when it comes to procurement of components, we have not given up on this. We would like to continue to work on this. But at this point in time, what we can say safely is that we can achieve the necessary components for 18 million units. So that is the reason for this change in the number. And also, about FY21, The actual result, did you say? The actual unit sales. FY21 unit sales number. Yes, we have presented that. PS5. 11.5 million units. Have I answered your question? So that is the actual Unit sales for FY21, yes, thank you.

The time is running out on us, so the next person will be the last one to ask questions. From Toyo Keizai, Sasaki-san, please. Do you hear me? Yes, yes. My name is Sasaki from Toyo Keizai. Thank you for giving this opportunity. Two questions first. You stopped the disclosure, individual disclosure of the smartphones. Compared to the previous year, the sales is increasing. But what about profitability? If you could disclose that, I would appreciate it. Second, the plan to increase both sales and earnings of the semiconductors. Well, you are talking about the larger size and higher added value. but what would be the percentage of the contribution to the profit for each from each well i couldn't hear i'm sorry your second question could you repeat again can you hear me yes please go ahead about the image sensor the plan to increase both revenue and sales and the earnings in terms of volume and price i would like to you to explain the contribution of each. I see. About the smartphones. Well, we don't disclose individually, but in a qualitative way, I can say that the profitability improvement, the level of fixed cost has declined by a large margin, and the merchandise appeal improved. profitability improved, so it can contribute to the stable sales increase. That's the structure we have already established. And then the image sensors both increase both in terms of the sales and the earnings of the image sensor. In terms of the market share compared to this fiscal year, there will be seems to be a slight decrease in the market share. Now, the larger size and higher value added will be the direction. So the unit price will drastically increase, and that can push up or drive the sales. Thank you. Thank you.

Okay, it is time. And we'd like to conclude the Q&A session for media people. And we will start the Q&A session for investors at 4.50 or 16.50. Thank you. do do Thank you. you Thank you.

We're starting the investor analyst Q&A shortly. We ask for your indulgence. Thank you for waiting, and now we would like to start the investor analyst Q&A session. I'll be serving as the emcee. I'm from the finance group, IR Group. My name is Shinichi. I seek for cooperation. At the beginning, the moderator is now correcting a mistake in the Japanese version of the CFO speech. Please wait a moment. Please note that there was no mistake in the English script. And now we would like to take questions. And those who will be responding is Executive Deputy President and CFO Hiroki Itotoki, and Senior Vice President in Charge of Corporate Planning and Control, Support for Finance and Business, Entertainment Area, Naomi Matsuoka, and Senior Vice President in Charge of Finance and IR, Sadahiko Hayakawa. And as for how to ask questions, And the points to be noted, please refer to the information we have provided to you early on. And now we would like to proceed to the Q&A. Those of you who have questions, please limit yourself to two questions. And those of you who have questions, please press the asterisk button followed by the number one on your telephone.

Now, first, the Morgan Stanley NFG securities, we have Ono-san. This is Ono speaking of Morgan Stanley. And can you hear me? Yes, we can. Please go ahead. First, I have a question regarding games and another question on the imaging sensors. And first, about the forecast for game sales this year, Bungie cost will be 44 billion yen. And software development, also 40 billion yen. Those are the expected expenditures. And 44 billion yen for Bungie expenditure, it will be quite a large amount of investment this year. And how much do you plan on continuing to invest in Bungie from next year? And also, the effect of the software development expenditure? You will be spending more R&D costs this year compared with the next year and further down? Or do you plan to make similar level of investment? Second point is about the image sensing. And Chinese smartphone sales have been stagnating, especially in high-end segment. more in comparison to the expectation. Now, the CMOS sensors usually have five months lead time. So you should have inventory built up, and it will have an impact on your revenue. That will be my first hunch. If you could expound on how you incorporated these factors into your forecasts. Okay, first, for game and network services first. And not just for Banshee, but we have posted 44 billion yen for acquisitions, and large portions will be used for Banshee acquisition. And in this fiscal year, we have this forecast, but this forecast itself will is assuming that we will complete this acquisition in the third quarter this year. In the fiscal year 23, we have to have expenditure expenses for the whole year, and so we will expect 50% more expenses next year for Bungie. And we said we will increase the R&D cost for software titles, but the game titles, but looking at the current market trend and our capabilities, we feel by investing into R&D and thus create the upside factors for the future, and I think that's the healthy investment, strategic investment, which we want to execute. It will cost us, but together with that, we can expect the growth in sales At least we hope. So next year, this added investment would not reduce the operating income directly. And next, about INSS. The Chinese smartphone market and the demand, our forecast of the Chinese market, right now there is a inventory in the supply chain. And so there is slightly slow in Chinese market. And we hope that the – in the second half of FY22, it will return to normal conditions. And for general-purpose products, a number of customers can use them. So a little bit higher inventory, that's acceptable to us. And to cope with the changes in the demand and also at the same time respond to the higher demand in the market, we want to have healthy stock. and consider the good timing for capital expenditures. And that's our thought. Thank you.

MS. Thank you. And next question, Mizuho Securities. Mr. Nakane, please. Mizuho, Nakane, can you hear me? Thank you. Again, two questions. Buy-in assets and sales? The unit volume will be slightly increased and the price will increase more significantly. As for the price increase, will it be higher value added? And also, the logic procurement cost will increase. I think there are these two factors. So can you give me the breakdown of the two and second? How much of this cost increase are you going to add on to the sales price? For example, are you going to be able to maintain the margin, the gross margin? That's the first question. And about the second question, about inventory. Page 7 of the handout, INSS, you see that the inventory is high, and GNNS, too. And there's COVID-19 and also the logistics and semiconductor. There are a number of factors. And INSS, aside from the, I think the cost increases also included here, in addition to the strategy. So can you talk about this? And towards September, what is the inventory level that you're assuming at this point in time in your budget? Well, then, first, But INSS, the unit price, is it because of the higher value added or the larger size or increase in logic price? So you want to know the breakdown. Well, either or, I guess you're asking. But in regards to this, basically, the larger size and higher value added, this has a bigger impact. we think, and about the logic, procurement cost, the increase of the device increase, and how much of this can be added on to the product price. Well, it depends on the transaction, the deal, and therefore I cannot give you the details, I'm afraid, but basically we think that we will be securing a proper margin, and for this we have to add on. to our sales price. But the shortage of devices, we have to look at both the market and customer. And I think the customers understand the situation. And it's not the case that they will not listen. I think that describes the current status. And About ETNS, about the shortage of materials, yes, we have put in place necessary measures. And about logistics, the lead time, it's long. And therefore, this will have an impact on the inventory level. We think that... The fiscal year that's ended, the inventory level was high, but this was intentional. And therefore, for ET&S, the inventory level, we do not have any significant concern at this point in time. And as for INSS, well, naturally, our capacity needs to be efficiently and effectively used. So we have to run at full capacity. That's what we're doing right now. And for this fiscal year, this is intended to meet the demand. And also the capital investment and also the starting of the equipment. This is also being taken into consideration. And that is the reason why we intentionally increase the inventory. About September inventory level, I don't think that there will be any major change. At the end of the fiscal year, towards the end of the fiscal year, well, it might not change that much. And we are already discussing the FY23 demand. And with that in mind, we want to have the appropriate inventory to satisfy that. So we want to control the inventory properly with these things in mind. And I think I've answered all the questions. I hope. Is that right? Can you hear me? I cannot hear you.

Is that right? We'll proceed to the next question. From SMBC NICO Securities, Katsura-san, please. Thank you very much, Katsura. Can you hear me? Yes. Yes. GNNS and INSS, for these two, I have questions about GNNS. On page 9 of the supplementary document, PS Plus subscribers. Basically, it has shown some decline. Going forward, what's your take on this and what is your plan? There will be a renewal of PS Plus in June. On this renewal, How did you take into consideration the past trend? If you could give me some idea, I would appreciate it. Second, INSS. Well, you talked about the full capacity utilization. As usual, capacity and the number of wafers. If you could give me an idea. On page 21, there's the CAPEX number. 370 billion yen for this fiscal year, I guess 900 billion yen. Next fiscal year, the capex is going to decline and this year will be the peak, in my view. And you're excluding the joint venture deal from this numbers. I mean, joint venture of TSMC. The game network and services first. Now, PS Plus subscribers, before going into the discussion of that, let me give you an overall trend for us. The total gameplay time is so important. Year on year, there has been a decline, but the stay-at-home demand was not so strong. from January to February in 2021. Compared to that, there's an increase by 8% quite recently compared to January and February in 2022. And compared to the end of March in 2020, there's an increase by 5.9 million. So the stay-at-home demand was a temporary factor, but after it has subsided, it seems to me that the high level of engagement is maintained. So on a mid-term basis, I don't see much concern on PS Plus. So I am sure that the high level of engagement will continue. That's a positive take that I have. About the renewal, we will start the renewal from June onward in a staged manner. And we would like it to be stably grow and be supported by users. So I would like you to have great expectations on this together with me. Now, INSS capacity and the number of input wafers, number of wafers, FY21 at the end of fourth quarter, 122K, that's the rough estimate, that's the capacity, with the change of model product mix and the facility maintenance caused some interruptions. As of the end of the first quarter in 2022, 130K will be achieved as originally scheduled. The number of wafers in FY21 and the fourth quarter actual The three-month average, simple average, is 121K. And there was this great earthquake in January, and there's a Miyagi earthquake in March, excluding that flood. And then three-month average, simple average of this fiscal year is 126K. With these assumptions, what about the investment for fiscal 23? There will be a slight decrease, but still there will be a high level to be maintained. About the joint venture with TSMC, well, this is separate from the investment with TSMC. Thank you.

We are running short of time, so the next person will be the last. person asking questions. We'd like to have Okazaki-san of Nomura Securities. Thank you. This is Okazaki speaking of Nomura. I also have a question, one each, at the games and semiconductor. First of all, games, that the renewal of PlayStation, the content will be incorporated into the fleet, and that's what the competitors are doing And in strengthening your content, would that be an option for you in the future? As for imaging, the cells are expected to grow substantially. Imaging sensor will grow, but how about the other segments within that? I see they're expected to grow. If you could share with us, what are some other growth elements? And first, regarding the GABE network service, I will refrain from making comments on the competitors' strategy. And our current thinking is to have a development cost appropriate R&D investment for quality products, and that will improve the platform and also improve the business in the long run. And AAA-type titles for PlayStation 5, if we distribute that on the subscription services, we may need to shrink the investment needed for that and that will deteriorate the first party title quality and that's our concern. So we want to make sure that we spend appropriate development cost to have a solid products with solid titles to be introduced in the right manner. And in terms of renewal, Eternal and Spiderman and the first party popular titles, we will be providing those titles for the new platform. And so we want to have a overall good balance in growing our business further. And as for the FY22 sales for INSS, what are driving factors? And mobile sensor is the driving factor. and laser and other products are experiencing sales growth, but in terms of the magnitude of sales growth, and that comes largely from mobile sensors. That's all. Okay, that finish our allocated time for the – today's earnings announcement of Sonic Group Corporation, we thank you for your attending this session. Thank you.