Sony Group Corp

Ladies and gentlemen, let us start. Sony Group Companies and Consolidated Financial Results Announcement. My name is Shinichi from IELTS 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 IER 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 gain on the transfer of business in the pictures segment. Income before income taxes decreased by ¥63 billion year-on-year to ¥398.6 billion, and net income attributable to Sony Group Corporation stockholders decreased by ¥19.4 billion to ¥326.8 billion. The results of that quarter by segment are as shown here. Next, I will explain the fiscal year consolidated results forecast. The consolidated sales forecast is 11 trillion 500 billion yen, a decrease of 100 billion yen from the previous forecast, We have upwardly revised our forecast for operating income by 20 billion yen to 1 trillion 180 billion yen. On the other hand, the forecast for consolidated operating cash flow excluding the financial service segment has decreased by 270 billion yen from the previous forecast to 550 billion yen, primarily reflecting a significant increase in working capital. Now, I will explain our inventory situation, which is the primary cause of the increase in working capital. Inventories at the end of the current quarter were ¥1,464.5 billion, an increase of ¥48.1 billion from the end of the previous quarter. In the G and NS segment, the increase in inventories of PlayStation 5, for which production and sales expanded significantly, during the quarter, and PlayStation VR 2, which is scheduled to be released this month, are notable. The primary reason for the increase in working capital was our decision to raise the level of inventory in an effort to ensure that we can achieve our sales plan for the fourth quarter and to maximize the penetration of PS5, considering the continued risks related to the supply chain and logistics for PS5 in the ET and S segment, Although inventory reduction progressed to a certain level from the end of the previous quarter, we recognize that it is still slightly higher than the appropriate level, and we plan to accelerate further reduction toward the end of the fiscal year. In the I and SS segment, we are continuing to manage strategic inventory paying close attention to inventory quality and carefully balancing inventory risks while maximizing the use of existing capacity and optimizing the timing of capital investment. The forecast for each segment is as shown here. Now let's move on to an overview of each business. First is G and NS segment. Fi22Q3 sales increased a significant 53% year-on-year to ¥1,246.5 billion, mainly due to the increased sales of hardware and the impact of Forex. Foreign exchange rate operating income increased a significant 23.4 billion yen year-on-year to 116.2 billion yen, 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 revised 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 a sales forecast 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 to users who transitioned from PS4 to PS5, such as the PS Plus subscription rate, gameplay time, and average spending amount are significantly higher than those when 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 9th. 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. FY20-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 an average of 38 songs in Spotify's top 100 weekly global music rankings in the current quarters. And among them, the singer-songwriter SZA'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 albums on Spotify in calendar year 2022. 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 yen to 25.4 billion yen, 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 yen decrease of 40 billion yen from the previous year There is no change from the previous forecast in operating 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 US 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, A Closed Spider-Verse, and a new film of Sony Picture Universe of Marvel characters following one's arm, like Venom. And we also... And Crunchyroll's paid members exceeded 10 million as the top of the by the end of the next few years. And we have that evidenced by the release of a one-piece film lead. And following on... from Uncharted, which recorded box office revenue of more than $400 million 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 on HBO, HBO Max and Max January 15, began a big hit in the first episode since its first release with $22 2 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 load. 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 and fy 22 forecast for the sales of 2 trillion 480 billion yen a decrease of 30 billion from the previous forecast there's 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 sales 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 sales. 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 yen year-on-year to 54.3 billion yen, 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 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 a 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.