Sony Group Corp

Now it's time to start Sony Group Incorporated's consolidated announcement. My name is Okada from PR, and I'll be the facilitator for this meeting. I'd like to first ask Mr. Totoki, Executive Deputy President and Chief Financial Officer, Senior Vice President, who will be giving the presentation about our projections for the rest of the year and the result of first quarter of 2022. We are planning to finish this in about... And with that... Thank you very much. I would now start with discussing business environment around our company. The forecast announced in May was based on growth outlook of the global economy as of January, as well as major risks at a time of forecasting, such as direct impact from the situation in Ukraine and the impact of COVID-19 in China. Business environment has changed significantly since then, and there are concerns about more slowdown of global economy, primarily due to rapid inflation as well as responding monetary policy by different countries. We are working to assess the impact from those environmental changes And we'll take prompt actions to address them as a top priority in managing our business. And the forecast we disclosed today incorporates those impacts to a reasonable degree based on current circumstances. AT&S and INSS are highly sensitive to changes in macroenvironment, but we are also paying close attention to all other segments, including gen and S, music, picture, and financial services, and we are taking steps to mitigate risks in managing our business. Now I will explain the following topics. FY22 Q1 consolidated sales increased 2% year-on-year to 2 trillion 311.5 billion yen, and consolidated operating income increased 26.9 billion yen to 307 billion yen, both of which were record highs for the first quarter. Income before tax increased 8.2 billion yen year-on-year to 219.1 billion yen, a net income attributable to Sony Corporation's Sony Group Corporation shareholders increased 6.4 billion yen to 218.2 billion yen. Consolidated operating cash flow excluding the financial services saw an outflow of 167.4 billion yen, primarily driven by increasing working capital and impact from currency adjustment due to weaker Japanese yen. The slide should result by segment of FY22Q1. Now, I will explain FY22 consolidated results forecast. Consolidated sales are expected to be 1 trillion 500 billion yen, 100 billion yen lower than the previous forecast, and operating income is expected to be 1 trillion 110 billion yen, 50 billion yen lower than the forecast. Q1 operating profit was higher than the forecast, but in order to cover uncertainties in business environment from a second quarter and onward, we decided to maintain full-year operating income forecast as announced in May for the five segments, except GNNS where we have revised our view for general gaming market. Consolidated operating cash flow excluding financial services is expected at 820 billion, 230 billion yen lower than the previous forecast to reflect actual result in Q1. The assumed foreign currency rates have been updated to approximately 130 yen to the U.S. dollars and approximately 130 yen to Europe. These slides show our forecast by segment for FY22. I'll now explain the situation in each of our business segments. First one is GNNS segment. FY22 Q1 sales decreased 2% year-on-year to 604.1 billion yen, primarily due to a decrease in software sales, including add-on content. harshly offset by favorable impact from foreign exchange rates. Operating income decreased significantly by 30.5 billion yen year-on-year to 52.8 billion yen, primarily driven by decreasing software sales and increasing gaming software development costs. Despite an upside of bigger sales due to currency, FY22 sales are expected to decrease by 40 billion yen from previous forecasts to 3 trillion 630 billion yen primarily due to revised forecasts of software sales for the year reflecting the results of Q1. Because of the factors such as decreasing software sales and negative impact of foreign exchange rates together with the earlier than expected closure of Bungie acquisition resulted in 13 billion additional yen for transaction for the year. FY22 operator income is expected to decrease by 50 billion from our previous forecast at 255 billion yen.

PlayStation users' total gameplay time declined 15% year-on-year in quarter one. Gameplay time in June improved 3% compared with May and was down only 10% versus June 2021, but this is a much lower engagement level than we anticipated in our previous forecast. We believe the main reason for this is that the growth of the overall game market has recently decelerated as opportunities have increased opportunities have increased for users to get out of home as COVID-19 infections have subsided in key markets. With this in mind, we intend to take action to increase user engagement in the second half of the fiscal year, during which major titles including first-party software are scheduled to be released. primarily by increasing the supply of PlayStation 5 hardware and promoting the new PlayStation Plus services. For now, we have made no change to our 18 million unit sales forecast for PS5 hardware in FY22, but since we are seeing a recovery from the impact of the lockdown in Shanghai and a significant improvement in the component supply, We are working to bring forward more supply in the end holiday selling season. Sony Interactive Entertainment completed its acquisition of Bungie on July 15th of this year and collaboration between the two companies have begun. In addition, the acquisition of Haven Entertainment Studio announced in March was completed in June 27th. In addition to the content development capability enhancement at our existing studios, We are working to strengthen our first-party software by creating new IP and accelerating the rollout of the live game services and multi-platform titles through synergies with the studios we've acquired. Next is the music segment. Q1 sales increased a significant 21% year-on-year. to 308.1 billion yen primarily due to the forex rate impact and the streaming revenue increase operating income increased 5.6 billion yen on year to 61.0 billion yen primarily due to the positive impact from exchange rate The contribution to operating income from visual media and platform accounted for slightly more than 10% of the segment operating income for the quarter. FY20 sales expected to increase 40 billion yen from our previous focus to 1,220,000. 280 billion yen, mainly due to the Forex impact. The operating income forecast and change from our previous forecast. Q1 streaming revenue continue to grow with revenue recorded music growing 27% and music publishing growing. 42% year-on-year, 8% and 20% respectively on the U.S. dollar basis. We are monitoring the impact of the global economic slowdown on streaming services, but we have not changed our view that the global music market, including both recorded music and music publishing, will grow steadily over the next several years at a growth rate in the high single-digit. In recording music, we are producing many hits such as Harry Styles' album Harry's House, which has become a huge hit worldwide. As a result, we averaged 47 songs in Spotify's weekly global top 100 songs for the quarter, a significant increase from the average 36 songs we recorded last fiscal year. In addition to strengthening our ability to continue to generate hits, we are working to expand and diversify our profitability foundation by enhancing artist services through The Orchard and AWOL, expanding our business in emerging markets and collaborating with business partners in new areas such as social and gaming. Next is the picture segment. FY22 Q1 sales increased a significant 67% a year to 341.4 billion yen, primarily due to the foreign exchange rate impact, an increase in the delivery in television production, and a revenue increase from films released in the previous fiscal year in motion pictures. Operating income increased a significant 25.3 billion yen year-on-year to 50.7 billion yen due to increase in the overall sales of segment. FY22 sales expected to increase 50 billion yen compared to our previous forecast to 1 trillion 380 billion yen primarily due to foreign exchange rate. The forecast for foreign income is unchanged from the previous forecast. Theatrical revenue in the U.S. appears to be recovering with box office revenue in some weeks exceeding 2019 levels, thanks not only to the large-scale films aimed at young audiences, but also hits in the family genre, where it was believed COVID-19 would make it difficult to attract audiences. We are looking forward to the movie Bullet Train starring Brad Pitt. to be released in August in the US. Demand for premium content continues to be strong due to increased competition amongst the video distribution services. As an independent major studio that provides product to a variety of partners, we see this as an opportunity. In addition to media networks, the service integration between Crunchyroll and animation distribution business Finimation is proceeding smoothly and the number of paying subscribers and business financial performance are growing at a pace that exceeds our expectation.

Next is the entertainment technology and services segment. FY22 Q1 sales decreased 4% year-on-year to 552.3 billion yen, mainly due to a decrease in television unit sales resulting from the impact of lockdown in Shanghai and worsening market conditions partially offset by the favorable forex impact. Operating income decreased 18.2 billion yen year-on-year to 53.6 billion yen, mainly due to the impact of the decrease in television sales. FY22 sales are expected to increase 50 billion yen from our previous forecast to 2 trillion 450 billion yen, mainly due to the forex impact partially offset by our incorporating the risk of market deceleration into our forecast for the second half of the fiscal year. The operating income forecast is unchanged from our previous forecast. Due to a faster-than-expected improvement in the utilization of our manufacturing facility following the Shanghai lockdown and a faster-than-expected improvement in supply constraints for components centered on semiconductors mainly for digital cameras, Q1 operating income significantly exceeded our previous forecast. On the other hand, new risks such as global economic slowdown, especially in Europe and the adverse effects of the strong dollar on our financial results, Thank you. Even when we exclude the increase in valuation of the inventory due to the yen depreciation and the strategic stockpile of parts that we are concerned about procuring, we plan to adjust that level in preparation for the expected softening of demand in the product market going forward. Moreover, we are steadily promoting the transfer of production across multiple facilities, decentralizing the production of key components, and digitalizing and further optimizing our operations. We will continue to strive to maintain and improve our profitability by responding swiftly to market changes. Next is the imaging and sensing solutions segment. Sales for the quarter increased 9% year-on-year to 237.8 billion yen, mainly due to the fork's impact. Operating income decreased 8.8 billion yen year-on-year to 21.7 billion yen, mainly due to an increase in R&D and depreciation expenses, despite the positive forex impact. FY22 sales are expected to decrease 30 billion yen from the previous forecast to 1,440,000,000 yen. The operating income forecast is unchanged from our previous forecast. Our forecast this time assumes that we cannot expect a recovery in the Chinese smartphone market this fiscal year after considering the trends seen in the Chinese market during Q1, and we have incorporated deceleration of the middle and low-end finished product market, as well as lower sales of the mobile image sensors to reflect this deceleration. On the other hand, in response to growing needs for video recording, the introduction of smartphone manufacturers of our larger die-sized high-resolution image sensors in their high-end lineup is steadily progressing. We believe that this trend toward higher resolution quality and improved functionality of cameras has become even more apparent. From the second quarter onward, we anticipate that the larger die-size sensor adoption by customers will accelerate further and drive sales growth for mobile image sensors. In addition, due to an easing supply and demand equilibrium for logic semiconductors, it has become possible to gradually increase the production of high-value ad image sensors, the production of which was previously restricted due to supply constraints. Therefore, we expect that the product mix will gradually improve from the latter half of the fiscal year. Moreover, when it comes to automotive image sensors in our eye trios and other solution businesses that are expected to grow significantly over the mid to long term, we will continue to proactively invest in the development of technology and the expansion of the system sales. Last is the financial services segment. FY2221 financial services revenue decreased a significant 28% to 297.8 billion yen, mainly due to the decrease in net gains on investment in the separate accounts at Sony Life Insurance Limited. Operating income increased a significant 57.3 billion yen year-on-year to 81.3 billion yen. yen mainly due to the recording of a gain on the sales of real estate completed in April and the absence of the loss recorded in the same quarter of the previous fiscal year from the unauthorized withdrawal of funds both at Sony Life. As Sony Life previously announced, the judicial procedures to recover the funds from the unauthorized withdrawal were completed in July. FY22 financial services revenue and operating income forecasts are unchanged from our previous forecast. With the large-scale and rapid changes in the business environment this fiscal year, the risks and issues that need to be addressed are wide-ranging and diverse. In each business, we aim to thoroughly grasp the situation accurately and respond promptly to changes in the business environment, and we plan to continue to operate the business with highest level of caution. At the same time, we will steadily continue our efforts to achieve long-term growth. This concludes my remarks.