Sony Group Corp

The time has come to begin the announcement of Consolidated Financial Results of Sony Group Corporation. I'll be serving as Master of Ceremonies, Okada of Corporate Communications. First, Mr. Totoki, President and COO and CFO, will explain to you the FI22 Consolidated Results and FI23 Consolidated Results forecast followed by Q&A. We are scheduled to have a total of 70 minutes Now, Mr. Totoki, please. Today, I will explain the following. Consolidated sales for FI22 were 11,539.8 billion yen, and consolidated operating income was 1,208.2 billion yen, both reaching record highs. Income before income taxes was 1,180.3 billion yen, and net income attributable to Sony Group Corporation stockholders was 937.1 billion yen. Consolidated operating cash flow excluding the financial services segment was 415.5 billion yen, primarily due to an increase in working capital. Results for FY22 by segment are shown on this slide. The cash flow results by segment are shown here. Next, I will explain the full-year consolidated results forecast for FY23. We have decided to disclose the actual results and forecast for adjusted EBITDA on a consolidated basis, which is a group KPI for the current mid-range plan and adjusted OIBDA by segment, which is a metric that adds back a portion of depreciation and amortization expenses to adjusted operating income. Please see page 24 of your material for the methods of calculating these metrics. For FY23, we forecast sales of 11 trillion 500 billion yen, operating income of 1 trillion 170 billion yen, and adjusted EBITDA of 1 trillion 750 billion yen. The consolidated operating cash flow forecast excluding the financial service segment is expected to increase significantly year-on-year to 1 trillion 250 billion yen mainly as a result of a decrease in working capital. The FY23 results forecast by segment is shown here. Now, I will move to an overview of each business segment. First is the game and network services segment. FY22 sales were ¥3,644.6 billion, mainly due to the impact of foreign exchange rates and increased sales of PlayStation 5 hardware. Operating income was ¥250 billion, primarily due to an increase in software development expenses and the recording of acquisition-related expenses. despite the impact of increased sales of first-party software and improved profitability of hardware. For Fi23, we forecast sales to be ¥3,900 billion, operating income to be ¥270 billion, and adjusted OIBDA forecast to be ¥365 billion. Expenses related to acquisitions since FY22, including Banji Inc., that will impact operating income for the current fiscal year, are expected to increase approximately 20% year-on-year to be 65 billion yen. Last quarter, PS5 hardware selling reached 6.3 million units, a record high for PS console for the fourth quarter, and 19.1 million units for the full fiscal year of FY22. Distribution inventories have also renormalized, and we are now able to deliver PS5 to customers without waiting almost all over the world. In addition, the positive impact of increased PS5 selling has begun to appear in engagement metrics with dollar-based third-party software sales exceeding the same month of the previous fiscal year in February and March. Moreover, the number of monthly active users for PS as a whole increased 2.3 million accounts year-on-year in March. Since it takes about one to two months from the time hardware is shipped until the effects of improved engagement become apparent. We will pay close attention to the engagement metrics for this quarter and reflect the results in our future forecast as appropriate. We aim to continuously accelerate penetration of PS5 and aim for PS5 sell-in units for the current fiscal year to be 25 million units, the highest ever for any PS console in history. As for software, we are continuing to strengthen and expand our first-party titles. God of War Ragnarok, which we released in November last year, won the most awards in six categories at the 2023 BAFTA Games Awards, and with this huge hit, sales of first-party software for the full fiscal year of FY22, including Bungie, grew significantly, with dollar-based sales increasing by 41% year-on-year. We're also planning to release a major title, Marvel's Spider-Man 2, this fiscal year. We aim to continue creating new IP, rolling out catalog titles for PC, and strengthening live game service development. Next is music segment. sales were 1 trillion 380.6 billion yen mainly due to the impact of foreign exchange rates and an increase in streaming revenue operating income was 263.1 billion yen in addition to the recording the highest ever operating income for this segment operating income was the highest of all six business segment In FY22, the profit contribution of visual media and platform was mid-teens percent of the operating income of this segment.

For FY23, sales forecast is ¥1,410,000,000, operating income ¥265,000,000, and assisted OIBDA to be ¥325,000,000. Streaming revenue in the fourth quarter increased 23% year-on-year for recorded music and 29% for music publishing, 8% and 13% increase on dollar basis. In recorded music and music publishing, we aim to continue to grow faster and maintain a higher growth rate and profit margin with influential artists, discover and nurture new talent, expand our lineup through OZART and AWOL, and grow business in emerging markets. And we have improved our ability to be continuously create hits in recorded music, an average of 43 songs ranked in the Spotify Weekly Global Top 100 in FY22, increasing our market share significantly year on year. Miley Cyrus released Flowers in January and it has become a huge hit, recording the highest number of streams in a week on Spotify. next the pictures primarily due to the forex impact fy 22 cells were 1 trillion 369.4 billion operating income was 119.3 billion compared to the previous fiscal year in which A 70 billion yen gain from the transfer of business for FY23 sales forecast is 1 trillion 520 billion. Operating income 120 billion. As I said, OIBDA to be 165 billion. sales to increase mainly due to an increase in the number of theatrical releases and growth in cultural and art businesses in India. Despite higher sales in media networks, operating income is expected to increase only slightly, primarily due to increased marketing costs and from the lower sales from having fewer temple films. To maximize IP value over the long term as an independent studio, our business structure could steadily generate operating income of the segment above 100 billion yen. In the U.S., since March, other studios and major video distribution service providers have been releasing large-scale movies, and theaters is expected to be revitalized. In TV productions with increased demand for low-budget products, we are strengthening our production capabilities by establishing SPT non-fiction led by industrial media, which was acquired in April last year. which has nine production companies. On March 4th, Cultural Anime Awards were held in Japan and about 18 million votes were cast from fans in more than 200 countries and regions. In 2021, 48% of the 2.7 trillion yen global Japanese anime market was outside of Japan, and anime is growing into a global form of entertainment. Amid this growth, the number of paying subscribers of Crunchyroll, a world-leading anime-only DTC, surpassed 10.7 million as of the end of March. Growth potential comes from the high growth of our business in emerging markets and we are deepening engagement with fan community such as the overseas distribution of anime movies and through the sales of merchandise. Business performance of Crunchyroll has grown significantly by media network sales and is contributing to the profits despite amortization of costs with acquisition. Next is the ET&S segment. FY22 sales were 2 trillion 476 billion, mainly due to the impact of Forex. Despite a decrease in TB sales, operating income was 179.5 billion, primarily due to the impact of decreased TB sales. For FY23, we expect sales to be 2 trillion 380 billion, operating income 100 billion. 80 billion adjusted oibda to be 280 billion yen in fy 22 despite the severe business environment we achieved profit almost in line with the initial plan for the entire segment through operations and controlling costs for end of fiscal year inventory we further narrow down our generally plan mainly in tb and finish at a level almost on par with the end of FY21. In FY23, risks such as a more severe economic slowdown are expected, so we have lowered our sales forecast. As for operating income, we expect to maintain the level of previous fiscal year by reducing fixed costs in TV and smartphones. Demand continues to be trending well for digital cameras, and primarily through the introduction of competitive products, we plan to maximize profit opportunities. In order to strengthen the business structure, we are promoting a two-axis management to promote growth and maintain profitability of existing business. And therefore, we disclose the actual annual sales of the profit growth axis in the supplemental information we plan to explain the initiatives in the growth axis at the next business segment meeting.

Next is the INSS segment. FY22 sales were 1 trillion 402.2 billion, mainly due to the impact of Forex and an increased sales of image sensors for mobile devices. Despite increased expenses, operating income was 212.2 billion, mainly due to the favorable impact of Forex and increased sales. For FY23, we forecast sales to be 1 trillion 600 billion, operating income to be 200 billion and adjusted OIBDA to be 445 billion. The smartphone product market in the fourth quarter, mainly in China, has deteriorated slightly from the forecast at the time of our previous earnings, and we have to anticipate that the forecast for demand for sensors this fiscal year will start at a lower level than anticipated. Based on the recognition that the business environment for the current fiscal year will be extremely unstable. We have factored into the operating income forecast for this fiscal year the continued slump in demand in the first half of the fiscal year and the risk of increased costs from the mass production of new products. On the other hand, even in such a severe environment, our company is driving the trend toward larger-sized mobile sensors, higher image quality and performance, and flagship models of Chinese manufacturers equipped with our large format 1-inch sensor are being released to the market continuously. Our image sensor business has significantly outperformed our competitors, and our global market share on a value basis has grown significantly from 44% in FY21 to 51% in FY22. By launching sophisticated, highly differentiated technologies, we aim to further solidify our leading position in high-value added products. By doing so, we aim to steadily build a business foundation that will accelerate growth again with a market for finally... for final product recovers, which is expected in FY24 and beyond. Next is the financial services segment. In FY22, financial services revenues were $1,454.5 billion due to a decrease in net gains and losses on investments in the separate accounts at Sony Life Insurance. Operating income was $223.9 billion, primarily due to the recording of gains on the sales of real estate at Sony Life and the impact of recovery of funds associated with the unauthorized withdrawal. From this fiscal year, we will apply the new accounting standard IFRS 17, which pertains to insurance contracts. We plan to show the detailed impact on results associated with the change at the next earnings announcement. financial services revenue is expected to decrease significantly primarily due to the impact of the surrender benefit of insurance premium income no longer being recorded as a revenue, whereas the entire amount was recorded as revenue in the past. Concerning this impact, financial services revenue for FY23 is expected to be $870 billion. The operating income forecast is $180 billion and adjusted OIBDA is forecasted to be $205 billion. Lastly, I will explain the progress of the fourth mid-range plan. Three-year cumulative adjusted EBITDA, which is the fourth mid-range plan's KPI, has progressed significantly beyond the initial plan, mainly in the music and picture segments, and is currently expected to be $5 trillion, or 16% higher than the target of $4.3 trillion. As you can see, we continue to see steady growth every fiscal year since FY20. Regarding capital allocation, we have lowered our forecast for operating cash flow for the cumulative three years, the primary source of capital to 2.5 trillion yen from the original plan of 3.1 trillion yen, mainly to reflect an increase in working capital in the GNNS and INSS segments. Capital expenditure is expected to increase for the initial plan to 1.9 trillion, with 0.4 trillion yen mainly allocated to image sensor capital expenditure and server investments in corporate R&D and GNNS. In terms of strategic investments, investments. Since we decided to increase working capital and capital expenditures and in consideration of the current M&A market environment, we decided to reduce the amount from the initial plan of $2 trillion to $1.8 trillion to grow over the mid to long term. we will continue to invest. However, in the short term, we aim to carefully assess the valuations and timing investments given the recent changes in the market environment. We plan to compensate for the decrease in operating cash flow due to the increase in working capital, mainly through short-term borrowing, and to maintain a total allocation of ¥4 trillion. We have positioned this fiscal year as the year to steadily achieve the targets of the current mid-range plan while emphasizing the management of immediate risks at a time when the business environment is unstable. In the next mid-range plan, we aim to achieve a balance between strongly emphasizing mid- to long-term business growth and profit growth during the period of the plan. We aim to prepare for this during this fiscal year and show the content at the beginning of the next fiscal year. Together with the Sony Group's management team and the employees around the world, we aim to create a positive spiral of growing our business, attracting talented people, increasing corporate value, and giving back to society. That is all from my explanation.