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.

It was presentation by Mr. Totoki. After this, from 4.20, we have Q&A from the media. From 4.45, Q&A from investors and analysts. And we allocate about 20 minutes each for Q&A sessions. Those of you who have made registration for questions in advance, please be connected to the designated telephone number. Also, as to the way of asking questions and matters to be paid attention to, please confirm with the invitation letter in advance. Those of you who have not registered for questions in advance, you can listen to the Q&A session via webcast. You are kindly requested to wait for a few more minutes before we start the Q&A session. Thank you for waiting. We will now begin Q&A session with media. Those people who respond will be Mr. Hiroki Totoki, President, COO and CFO, Ms. Naomi Matsuoka, Senior Vice President, Mr. Sadahiko Hayakawa, Senior Vice President. We'll begin the Q&A session. I'd like to ask you to limit your questions to two per person. If you have a question, please press asterisk followed by number one. The first question is Mr. Tsutsumi from Nikkei Shimbun. Mr. Tsutsumi, the floor is yours. Tsutsumi from Nikkei. I have two questions, if I may. The first question, about the growth going forward in the short term and medium term. This fiscal year, ROIC for each business is going to – the ROIC is going to come down. The increase in inventory and other factors are there. So when would you expect to see increase in ROIC again? For each business, there may be differences, especially for games and entertainment. Can you explain what is the prospect going forward? And specifically, what will be the drivers for improving ROIC? Can you please elaborate on that? That's my first question. Secondly, in the medium to long term growth, mobility and metaverse are the key in this area. Possible risks and hurdles and challenges. How do you look at risks and hurdles, for example, competitive environment? What is your outlook? That's my first question. And second question, short term, you'll be financing with borrowing. on excluding financial services and the net debt. Is this a temporary measure or Tottoki-san became president and you will be changing the rules for the discipline and you'll be using more of the debt borrowing? What is the direction going forward? Thank you for your questions. Well then, your first question, ROIC, entertainment, mainly about entertainment. That's your question. With regards to ROIC, FY22, as you know, especially in game, PS5 inventory has increased. Working capital increased as a result which resulted in deterioration of ROIC. That is a major point. Basically, PS5 hardware sales increased which resulted in decrease in inventory. So this will be working positively for ROIC. and especially acquisition-related expenses in FY22 and FY23, 50 to 60 billion of expense. So that impact will be much less in FY24 and onwards, which will also be a factor to increase ROIC. And then for music, M&A and catalog acquisition. had impact upon deterioration of ROIC. But in the medium to long term, M&A is sure to contribute to growth, and the catalog, having catalog is indeed enhancing and strengthening our position in the industry. Therefore, for ROIC, we look at a medium-term perspective, and I believe that it is going to come to an optimum level. As for the pictures, recovery from the COVID-19 and reopening of the economy, so theatrical release will increase and production will also be increased. Production expense increases. ROIC will go down. But then with the theatrical release, profit will be generated and ROIC will go down again. So we will be growing in the medium term. And then mobility and metaverse, what possible risks are there and what are the hurdles was your question. With regards to mobility, We are in the middle of development at this point in time. We are not at a stage where we should be discussing risks or concerns, but opportunities are huge. Industry is transforming. It is a time of transformation. So we take advantage of this time, and with joint venture with Honda Motors, we are going to show results. And then with regards to metaverse, the expectation is higher than one is expecting, but in the medium to long term, with the evolution and development of technology, at some point in the future, the market will blossom. and more than anything else. We are a company which is centering around entertainment and 3D CG rendering related to metaverse. We have technology, which is our strength. So in line with the growth of the market in a timely fashion, we are going to maximize our technology. And then net debt. on excluding financial services net debt situation. Debt equity balance is basically the balance with the rating. So on that point, I would like to invite Mr. Hayakawa to make some supplementary comment. Thank you for your question. First, balance sheet net debt you mentioned. As of the end of March, the Consolidated Excluding Financial Services, 590 billion. As Tokutoki-san explained, short-term PlayStation 5 production increased, which resulted in increase in working capital. And this PS5 is to be penetrated widespread for growth, and with the intention we are increasing working capital. As Totoki said in his speech, for these finance with short-term borrowing, This fiscal operating cash flow is 1.25 trillion yen. And from third quarter this fiscal year, we are going to convert inventory into cash and manage cash. Now, about fiscal discipline, basically, our fiscal discipline remains unchanged. We have a strong financial basis. For example, one of the discipline, the ratio of capital to the shareholders is 50.3 percent. We have strong financial foundation. So, for maintaining fiscal discipline, we are making investment for growth. So the growth investment and the fiscal discipline and the efficiency of balance sheet, we hit the right balance and come up with a fiscal, the financial capital, financial policy. Thank you.

So we would like to invite next question, please. From Dato Yokezai, Umegaki-san, please. So from the Toyo Keiza, I hope you can hear my voice. Yes. So I have two questions. The first question is due to the macroeconomic situation change. So for the ET&S, I think you have referred. So in the European country, there have been a slowdown in the economy. And therefore, due to the reason, there are lots of companies providing a conservative forecast. and therefore how it's been incorporated in FY23 forecast. So that is my first question. And the second question is that aside from the financial results, because there have been changes in the top management of the financial company, and therefore could you make a comment on this? So thank you very much for the question. For the first question, talking about the macroeconomic condition being changed and looking at the whole business environment, there have been financial... restrained and also there due to this ukraine issue and also the global economy disruption and those conditions have not changed from the last year and therefore i don't have any optimistic forecast however in advanced countries and especially in the european countries i believe there will be a slowdown and also for the emerging countries like china So because due to the reopening of the pandemic, there is a forecast for the recovery. However, my gut feeling is that there is still in transparency and therefore that is a global condition. However, for our business. So from our business perspective, so the U.S. economic condition is going to give a direct impact and also there is a great impact to the global economy and therefore we focus on that U.S. economy. And talking about, so there have been a change of CEO, and our intention for this change is that Mr. Endo is going to assume the CEO position starting from the next term, because he had worked in the finance ministry and also the FSA, and therefore he had contributed to the smooth operation operation of the monetary market and he has a great knowledge and therefore utilizing his know-how as well as knowledge and experience we would like to utilize in the corporate governance sustainability and also in the global economic condition and therefore he has this great knowledge And therefore, since FY 2020, so he had been serving as a senior advisor giving us advice. And this time, so we expect him to contribute to this leadership. And therefore, from the overall decision, we had asked him to assume this position. That is all. Thank you.

Let us move on to the next question. Nakajima-san from Kyodo Tsushin, please. This is Nakajima from Kyodo Tsushin. Can you hear me? Yes. I have two questions. Regarding PlayStation 5, this fiscal year, 25 million is the target, which is the highest ever compared to PS1 and 2. Is it the highest ever compared to those units? If that is the case, smartphone games is recently very popular and the hardware costs have been going up. Prices have been going up with such a severe environment. Is PS5 really popular? What is your take on that? And for games being really popular, the game consoles, what is going to be the changes in the existence of that in FY23? go down for software. So you talked about the increase in software development costs. What is the background of that? Can you specifically share that information with us? Thank you very much for the question. So this is about the games. For this fiscal year, the target for PS5 is 25 million units. The reason is because compared to the past PES generations, compared to them in a single fiscal year, 25 million units, if we can achieve that, it will be the highest level ever. The reason why we believe that this is possible, PES 4 customers exist now and The PS4 usage, use them and they switch to PS5. and that we looked at how much would be switching. And also there are customers, new customers also, and we've been looking at that as well. And based on the data, we have put together this forecast. And based on this forecast, we believe that 25 million units within this fiscal year is something that we would be, we believe that we can achieve. And also regarding the second question, or rather what would be the meaning of having these game consoles in the future. And regardless of the times, having some kind of hardware at hand is necessary. The computing power would be at hand or it could be in the cloud. So in the future that change could happen, but in any case, some kind of a client would be necessary to enjoy different games. So with the evolution of technologies and the hardware that matches the times, providing that type of hardware would create value. Regarding your second question, even though the revenue is going up, why is the profits going down? One is the game development costs are going up and also from a technical standpoint the acquisition related costs is increasing this term. The game development cost is going up because of the following reasons. The first-party software development is going to be strengthened, and the live services will be launched. And intentionally, we are enhancing this part, so that is why the expenses are increasing. That's all.

Now, we'd like to move on to the next question. Asaka-san from Nikkei Business, please. Asaka from Nikkei Business, can you hear me? Yes, we can hear you. Thank you. About the decrease of operating cash flow, earlier you said that the working capital has increased. Can you elaborate more specifically what are the factors which resulted in the increase in working capital? Secondly, is this impact temporary or This will be continuing into this fiscal year, please. Thank you on that question. First, FI22 operating cash flow was low level and the reason for that and is it going to recover? The conclusion is it is going to recover next year and the details I'd like to ask Hayakawa-san to explain. Thank you for your question. Your question about operating cash flow, FI23 result, 415.5 billion yen. Increasing working capital is mainly from the game business and image sensor business increase in the inventory. Game business, as I mentioned earlier, PlayStation 5 production, there are constraints in production, but the constraint was removed, which increased production, which resulted in increased working capital. Secondly, the movie production cost and cash outflow is there with the production. Under COVID-19, the film production was not as much as possible in the past. And in production, marketing expenses incurred, but the theatrical release is not done. So the cash flow outflow was not there during pandemic, but from the last fiscal year, normalization occurred. So increase in working capital and the normalization resulted in increase in theatrical release. As Mr. Totoki said earlier, for this fiscal year, PlayStation 5 will be sold in the operating cash flow of 1.25 trillion yen, we are expecting. That's all from me.

So, due to the time constraint, we would like to invite the last question. So, please give us only one question due to the time constraint. And please push the address of the telephone. So I think we have no more questions. Therefore, we would like to conclude this Q&A session. Thank you very much. So excuse me, please wait. So from the freelance, Ishida-san, please. So are you able to join, Nishida-san, please? So Nishida-san, can you hear us? So we would like to conclude this Q&A session. So we are going to have the Q&A session with the investors and analysts from 4445. Thank you. So we are going to start Q&A session with investors and analysts. Please wait for a while. Thank you. Thank you very much for waiting. Now we would like to start Q&A session with investors and analysts. So I'm going to serve as a moderator. My name is Shinchi from IR group. And the respondents are those three people. And please refer to the instruction that have been already sent. And please limit two questions per person. Now we would like to start Q&A session. If you have any question, please push address. And after that, please push number one. From BOFA Securities, Hirakawa-san, please. Thank you very much. So this is Hirakawa from BOFA Securities for the sensors and games. And today, so according to the presentation, ISS has been risen to 53%. And therefore, So I think this kind of changing to the large scale has contributed to the improvement to 51%. And are you going to improve more? And also talking about the development roadmap with the club partners. And the second is about the gaming. And there have been an increase of the cost for the games and also for the MA cost. So 20% increase. so increase of 10 billion yen, so game development cost. And how much increase was there for the game development cost? Those are the two questions. Thank you very much for the question. For the first, for the INSS market share. So as I have mentioned in my presentation, So currently, for the smartphones, cameras, and for the sensors, so the large-scale centers, and that's driving. So we are driving. And for the Chinese OME, and they're having a one-inch sensors. However, thinking about that, in the midterm, we are able to increase our market share in the future. So this is the first point. And for the second point, for the game and network services, the game development cost and how much increase was there. So Matsuoka is going to explain. Matsuoka-san, please. So talking about the development cost for the games and how much increase was there. So actually speaking, So HR costs and also the development costs. So and also due to the increase of M&A costs was there. And talking about the HR costs and also the development costs. So within that, the development cost in comparison to previous year, we expect an increase. However, we are going to... So I think we are able to offset the cost. And for the M&A cost... So the Bungie Inc., for this year, for the full year, we are going to be consolidated, and therefore that is 12.3 billion yen increase, and therefore 65 billion yen. So talking about the sales cost for the PS5, so we expect more sales of PS5, and therefore there will be the increase of that cost.

Thank you very much. Moving on to the next question from JP Morgan Securities. Ayada-san, please. Thank you. This is JP Morgan. I also have two questions. First question regarding games. This term, the operating profit is 20 billion, is going to increase by 20 billion. On page 15, there are several items listed up. So can you elaborate a little more on them? Mainly there are three points. The hardware loss is going to improve. Right now the yen is $130 to the dollar. So is it based on that or are memory and parts cost going to go down? Are there any factors that would drive the improvements? And for the software, the first-party software is going to decrease according to your forecast. How about third-party software and other types? And for SG&A, you talked about that just now last year. it was not really included. So what is the difference between this term and last term for games? Secondly, for image sensors, for fourth quarter and first quarter, if you compare the way for introduction was slowed down. From your perspective, the smartphone market situation, depending on the regions or North America, depending on the models and channels. And if there's any periods that we'll see recoveries, please let us know. Thank you very much for your question. Your first question regarding the games, this term compared to before, the profits will go up by $20 billion. And what is the breakdown of that? First of all, regarding the hardware, There is the foreign exchange situation and also the material costs is also a factor. So it's a combination and with that we believe that the profit will improve from there. And also regarding the software, it's a slight increase but basically it will be flat. The add-ons. is not going to particularly go down in our assumption. Regarding the third-party software, maybe we are a little bit careful. In the first quarter, we will look at the performance of the first quarter and then review it once again. So that was about the software and also regarding how it is recognized from this term for some software development costs will be listed up. The life services is a new service that we will develop and provide and along with that, The development process has been revisited and a part will be included in the capital or it will be capitalized. That's all. And regarding INSS, excuse me, the smartphone market situation, regarding China, we are not optimistic. If we look at the logistical inventory levels in the fourth quarter at around February, it went down slightly, but in March it went up again. So we believe that we should not be optimistic and also The mid to low camera sensors, the inventory levels of our competitors are quite high. So we believe that the price will be going down rapidly. So again, we're not optimistic about that. And in North America, in Asia, the smartphone markets there, especially for the high-end smartphones. In the fourth quarter, compared to the fourth quarter, the situation has weakened slightly. So for FY23, that is our assumption. So overall, for the smartphone market, we believe that we should not be optimistic. So currently, that is what we believe. Personally, I believe that the recovery would come in in FY24. That's all.

Thank you very much, Mr. Ida. I'd like to move on to the next question. SMBC Nikko Securities, Katsura-san, please. Thank you. Katsura from SMBC Nikko Securities. Two questions. The first question, cash flow excluding financial services, you said 1.25 trillion operating cash flow. Investment cash flow, can you please explain as well? Semiconductors, CapEx plan, You are exciting break as compared to last year, so maybe the background is as you have explained. Other than that, if there is key points about the cash flow, please, investment cash flow. And secondly, related to the operating cash flow, inventory, Q3, Q4, you maintained high level. This year the inventory control, how do you control inventory procurement materials and forecasts? What kind of level of inventory do you have in mind? These are my two questions. Thank you very much for your questions. Now about cash flow, Hayakawa will be responding. Thank you. About investment cash flow, last fiscal year investment cash flow Operating cash flow is 400 billion. Cash outflow has increased and the investment cash flow a bit more than 300 billion increase. Strategic investment with acquisition of Banji Inc. increased and also CAPEX was also increased, which resulted in increase in investment cash flow. For this fiscal year, strategic investment, of course, for future growth, we take opportunity, we are exploring opportunities. On the other hand, in view of the current market environment, as Mr. Totoki said in his presentation, We look at valuation and timing, but more recently, we are to be more conservative and cautious. That's all from me. About capex, as has been explained, INSS capex is reflected. And then inventory control. By each business segment, there are ways of management. With regards to games, for the year-end sales, there will be increasing inventory in the first half and toward the end of the year, this will be more normalized. And then, ET&S. This fiscal year, or the last fiscal year, the result, there were some concerns, but it ended up that we are able to control the inventory very well. So for this fiscal year, likewise, we are going to have the conservative sales plan and appropriate level of inventory is to be maintained and controlled, and we'll continue to do so. I and SS logic and sensor strategic inventory will be reduced from the second quarter onwards. Amount of inventory, the sales size will increase. So end of FY23 as compared to the end of FY22 is going to be higher. However, the turn over month on a forward basis, then it's going to be appropriate level. We are calculating that it is an appropriate level and we are going to bring it to the appropriate level. That's all from me. Thank you.

Thank you very much. So we'd like to move on to the next question from the Citi group. Izawa-san, please. From Citigroup. So I have two questions. The first one is about OIBDA. You're going to start disclosure. And therefore, this is in comparison to EBITDA. So what is the difference? And therefore, why you ask? going to start the disclosure of OIBDA. And also going forward, EBITDA and OIBDA, will there be differences or rather a larger gap between the two? And if that is the case, please explain the logic. And the second question about the semiconductor for the new fiscal year operating profit. So there have been the reason for the changes of operating income. And however, increase of the sales and increase of revenue. However, because I think you have listed according to the value of absolute value. And therefore, the sales is 20 billion. However, the absolute value in comparison to others is rather small. So is there any reason behind? Those are the two questions. Thank you very much for the question. For the first one, for the OIBDA disclosure, so in comparison to EBITDA, because it doesn't include outside of the cells, and therefore for the six segments, so Outside of the cells, because we don't distribute the material, and therefore looking at the segment or IBDA, so in comparison, because it's much similar to the EBITDA, and whether the gap is going to increase, that's not going to happen in the future. So for the time being, for three years, as an important KPI, the consolidated EBITDA, so because the cumulative three-year figure, so that had been outlined in the three-year business plan. However, looking at each segment, so therefore naturally, So I think it is necessary to explain and therefore we, at this timing, we decided to disclose the OIBDA and therefore because this will be an access with the external, in basis of the external communication. So talking about I and SS. So with the increase of sales and the impact to the revenue is rather small. So that was a question. However, talking about this point, Well, because, of course, there will be an increase of revenue. However, well, because with the mass production of the new product, there will be more cost required. Therefore, the profitability for FY23 will go down. And therefore, taking into this consideration and into our forecasts,

Yes, thank you. Yes. It's awesome. Thank you very much. We only have a short time left, so the next person will be the last one. From Mizuho Securities, Nakane-san, please. This is Nakane from Mizuho Securities. Thank you very much. I have two questions. I would like to understand the assumptions that you're using for this term and the ones that you did not explain. Regarding INSS, at the end of the fiscal year, the production capacity assumptions and the inventories are going to increase. What is the operations or movements after Q2? And Todoki-san talked about this earlier. You have the mid to low inventories. Until the last term, the mid to low was also something that you were going after proactively, and I'm sure that you still have some inventory left. Last term and this term, you will be focusing on the high end this term. For the remaining inventory, how about the risk of devaluation and is that also something that you have already reflected and is that something that we should not be concerned about? Second question is about H&S. The TV is improving and R&D costs are going to go up. The TV and audio, video and cameras, mobile and others, If we look at these categories, TV is going to go into the black from red. How is it going to improve or how is it going to deteriorate? It could be qualitative if you can. Thank you very much for the questions. Regarding INSS at the end of the fiscal year, what is the assumption for the production capacity regarding this? One moment please. It's in the handouts. For FY22, in the fourth quarter average capacity for the facilities would be 133k per month and in the it will be 160k per month in terms of the introduction in for fya 23 first quarter 137k and then 127k for what will be a fed in it also Focusing on the high end, that part is not going to change. Regarding the mid to low inventory evaluation reduction risk, as of now, We don't think that we will go to that point where we would have to reduce the valuation. Regarding the strategic inventory, the general purpose items can be stably sold, so we don't believe that it would go to that point. Regarding ASP, mid to low for this term, the situation is going to become severe. We believe that there is a possibility of that. So that's the overall big picture. And also regarding ETS, in each category regarding the profits, to talk about this qualitatively, for the digital cameras, And FY23, the revenue will go up and the profits will slightly go down. And also for TVs, the revenue will go down significantly and the profitability situation will improve. And in the latter half of last year, we struggled. So this term is a conservative And also for other categories, headphones, the revenue will go down, profits will go up. The high value models, added value models is where we're going to focus on. And also for mobile, the revenues will go down and profitability situation will improve. the units will be narrowed down and fixed costs will go down, and we will try to improve profitability. For the different categories, from a qualitative basis, that is what we believe would happen. That's all. Thank you very much, Mr. Nakane. With this, we would like to end the financial result announcement for the Sony Group. Thank you very much.