Sony Group Corp

The time has come to begin EFI 2023 Financial Results Announcement of Sony Group Corporation. I am Okada from Corporate Communications. I'll be serving as Master of Ceremonies today. Let me introduce the people on the stage. First, Hiroki Totoki, President, COO, and CFO. Naomi Matsuoka, Senior Vice President, Executive Officer in Charge of Corporate Planning and Control, Lead of Group DE and I Promotion and Support for Finance and Entertainment Area. Hayakawa Sadahiko, Senior Vice President, Executive Officer in Charge of Finance and IR. These three will be explaining the results of our FI23 and forecast for FI24 and fifth mid-range plan. After that, we are going to have Q&A. A total of 80 minutes is allocated. Now, Mr. Totoki, the floor is yours. Today, I will explain this content. Matsuoka and Hayakawa will talk about our result for FI23 and our result forecast for FI24. And I will talk about the fifth mid-range plan which started this fiscal year. Hayakawa-san, please go ahead. Thank you. FI23 consolidated sales were 13 trillion, 20.8 billion yen, a new record high. Consolidated operating income was ¥1,208.8 billion, net income was ¥970.6 billion, and consolidated adjusted EBITDA was ¥1,818 billion. The 229.4 billion yen in consolidated operating income for the previous quarter was the highest ever for a fourth quarter. Due to the partial spin-off of our financial services business which is scheduled for October 2025 from this earnings announcement, we are also showing other figures without the financial services segment. On a consolidated basis, excluding the financial services segment, sales were 11,265 billion yen, operating income was 1,335.3 billion yen, and operating cash flow was 1,177.8 billion yen. The performance by segment for FI23 is shown on this slide. Next, I will explain our consolidated results forecast for the full FY24. Our full year forecast is sales of 12 trillion 310 billion yen, operating income of 1 trillion 275 billion yen, and the net income of 925 billion yen. On a consolidated basis excluding the financial services segment, sales are expected to be 11 trillion 400 billion yen and operating income is expected to increase 9% year-on-year to 1 trillion 130 billion yen. The forecast for consolidated operating cash flow excluding the financial service segment is 1 trillion 400 billion yen, a significant increase of 19% year-on-year. The full year forecast by segment is shown here. Now, I will move on an explanation of the overview of each business. First is G and NS segment. FI23 sales increased a significant 17% year-on-year to 4,267.7 million yen, mainly due to increased third-party software sales and the impact of foreign exchange rates. Operating income increased 40.2 billion yen year-on-year to 290.2 billion yen mainly due to the increased sales. Operating income for the previous quarter was 106 billion yen, a new record high for the fourth quarter in this segment. The FI24 forecast for sales is 4 trillion 200 billion yen and operating income is 310 billion yen. We expect acquisition-related expenses, including expenses related to the acquisition of Banshee Inc. for this fiscal year, to be approximately 52 billion yen, a decrease of 17 billion yen year-on-year. PlayStation 5 sales in the previous quarter totaled 4.5 million units, and in the full FY23, 20.8 million units. As of the end of March, cumulative unit sales of PS5 reached 59.2 million units, approaching the 60 million cumulative units sold of the PlayStation 4, which had undergoing price cuts of a total of 100 US dollars in the same period since its release. We expect PS5 sales for this fiscal year to be approximately 18 million units. In terms of software, the live service game Helldivers 2 released in February has been a hit that far exceeded expectations with cumulative sales for both PS5 and PC in 12 weeks since its release to the beginning of May reached 12 million copies. surpassing the record set by God of War Ragnarok in the same period after its release in 2022. The game has become our biggest PC hit title to date, and as a multi-platform title, it also contributed significantly to sales and profit last quarter. Following this success, we are looking forward to the release of live service games such as the expansion content Destiny 2 The Final Shape, which is expected to be released by Bungie on June 4th, and Concord, which is scheduled to be released this year by Firewalk Studios, which we acquired in 2023. Thanks primarily to the growing eventualization of PS5, as well as the success of whole Divers 2 and third-party free-to-play titles, the number of monthly active users across PS in March remained high at 180 million accounts, up 9% year-on-year. Total playtime on PS in the month of March increased 15% year-on-year, and for the entire fourth quarter of the FY23, It reached the second highest level in history, second only to the fourth quarter of FY20, which benefited from significant stay-at-home demand due to the pandemic. Looking at the console cycle, we think that the PlayStation business model has changed significantly since the launch of the PS4. The business model up to and including the PlayStation 3 was focused on increasing the number of software units sold in relation to newly sold hardware for each console generation. After a transition period during the PS4 generation, the PS5 model has shifted to one where playtime on the platform has increased due to expansion of the user community beyond console generations. Due to this change in business model, during the PS4 generation, we were able to significantly grow profits in this segment thanks to rapid digitalization and expansion of network services. In the PS5 generation, which has capitalized on the established PS4 user base, the trend is hard to see due to the impact of stay-at-home demand and acquisition-related expenses. But since the launch of the PS5, we have continued to achieve a high level of and more stable profit growth. As we enter the second half of the console cycle, we expect the number of new PS5 units sold to gradually decline. However, by steadily maintaining and expanding the consistently increasing number of active users and user engagement, while also strengthening control over business costs, we believe that we will be able to steadily increase sales and profits from the PS platform going forward. In addition to the stable earnings base on the PS platform, we are aiming to grow sales of first-party software, which we have been actively strengthening in recent years. And by doing so, we plan to achieve a new record high in profits in this segment during the fifth mid-range plan. Next is the music segment. Fi23 sales increased a significant 17% year-on-year to ¥1,619 billion, mainly due to increased streaming sales and the impact of foreign exchange rates. Operating income increased 38.6 billion yen from the previous fiscal year to 301.7 billion yen mainly due to increased sales setting a new record for this segment for the fourth consecutive year and being the highest among our six business segments as was the case last fiscal year. The FI23 profit contribution from visual media and platform accounted for approximately 10% of the segment's operating income. The FI24 forecast for sales is ¥1,690 billion and operating income is ¥315 billion. Streaming revenue in the previous quarter continued to grow on a U.S. dollar basis with both recorded music and music publishing each increasing 11% year on year. In terms of recorded music, an average of 31 songs were ranked in the top 100 on Spotify's weekly global song rankings for the whole of FY23. Moreover, Beyoncé's new album, Cowboy Carter, released on March 29, has become a hit, ranking number one in the U.S. album chart immediately upon its release. Streaming revenue in music publishing has grown significantly, with a CAGR of 38% over the four years since FY20, thanks to an expansion of opportunities to monetize our music catalog, which have been available for a certain period of time. We have been strengthening our music catalog since making EMI Music Publishing a wholly owned subsidiary in 2018, and the number of songs we managed at the end of March was approximately 6.24 million, an increase of 1.7 times over the past 10 years. We also maintain the top global market share in music publishing. The value of music catalogs as IP assets is expanding significantly, and we intend to further expand the monetization opportunities of these IP assets, primarily by maximizing synergies between the entertainment businesses.

Next is the picture segment. Although there was a decrease in the number of television program deliveries, FY23 sales increased 9% year-on-year to ¥1,493.1 billion due to an increase in the number of theatrical releases and the impact of foreign exchange rates. Operating income was 117.7 billion yen, essentially flat year-on-year. This was primarily due to an increase in marketing costs resulting from the increased number of releases, offset by the impact of the increase in sales. Our FY24 forecast for the sales is 1 trillion 480 billion yen, and operating income is 120 billion yen. The negative impact on the profitability of the Hollywood strikes in FY23 is estimated to have been approximately ¥118 billion caused by changes in the film releases schedules and delay in the delivery of the television programs. We believe the negative impact of the strikes and unprofitability will peak in FY24 and we have incorporated approximately ¥34 billion as the impact into the four-year forecast. Regarding Crunchyroll, we are expecting it to contribute even more to the operating income of the entire segment due to the sales growth, primarily from an increase in global playing subscribers and an overseas distribution of anime products, as well as reduced amortization expenses associated with its acquisition. In Motion Pictures, we have plans to release major titles in FY24, such as the sequel to the popular Bad Boys franchise, Bad Boys Ride or Die, as well as new titles from the Sony Pictures Universe of Marvel characters Venom, The Last Dance, and then Kraven the Hunter. Next, the ET&S segment. FY23 sales were ¥2,453.7 billion, essentially flat year-on-year. This was mainly due to a decrease in the unit sales of televisions offset by an impact from the foreign exchange rates. Operating income increased ¥7.9 billion year-on-year to ¥187.4 billion mainly due to the favorable impact of foreign exchange rates and the benefit of the cost reductions despite the impact of lower sales in televisions. Our FY24 forecast for sales is 2 trillion 370 billion yen and operating income is 190 billion yen. In FY23, the digital cameras and the interchangeable lenses generated increased sales and operating income thanks to enhanced product appeals and televisions and mobile communication reduced costs, enabling the entire segment to achieve a level of operating income that exceeded FY22 results in our projection at the beginning of FY23. Moreover, four-year operating cash flow was $322.8 billion, the largest among our five-year business segment, excluding the financial services segment, due to improved profitability and significant inventory reductions, mainly in televisions. The market for interchangeable lens and mirrorless cameras, which is the main source of sales and profit for this segment, showed a strong growth in the previous quarter, mainly in China and Japan, and has continued to remain strong since April. We expect this market growth to gradually decelerate from the second half of this fiscal year onward, but we believe this will remain stable going forward. Next, the INSS segment. FY23 sales increased a significant 14% year-on-year to 1,602,700,000,000 yen, mainly due to increased sales of image sensors for mobile products and the impact of foreign exchange rates. Despite the impact of increased sales, operating income decreased 18.7 billion yen year-on-year to 193.5 billion yen, mainly due to an increase in expenses, including depreciation and amortization expenses. Our FY24 forecast for sales is 1,840,000,000 yen, and operating income is 270,000,000 yen, which would be a record high for this segment. In the current smartphone product market, while unit sales in the previous quarter in China slightly exceeded the same period of the previous year, stagnation continues in the US and in other parts of Asia, and we believe the global recovery will be very slow. In this market environment, our mobile sensor business is expected to continue to grow due to larger die-sized sensors and higher added value in an expanded market share, and we plan to achieve year-on-year sales growth in the FY24 of 10% or more for the third year in a row. In addition to the trend of increasing the die size of the wide-angle camera sensors, smartphone manufacturers are working to increase the size and then improve the image quality and performance of the extra-wide-angle and telephoto camera sensors, and we believe this will be the growth driver for the mobile sensor market over the next few years. To accommodate these trends towards larger die sizes and higher added value, we are focusing our sensor development on improving pixel performance and characteristics. We are developing high-performance sensors while focusing on a number of manufacturing processes and productivity as well as improving production yields through pixel design. These efforts are expected to contribute to future investment and efficiency and cost improvements. In addition, with regards to improving the yield of a mobile sensor, which had been a top priority since the previous fiscal year, we have been making progress at a pace that slightly exceeds our plan. As a result, we expect to be able to reduce the impact on profitability for this fiscal year to approximately $18 billion in almost half of the previous fiscal year. Last is the financial services segment. The financial services revenue for FY23 was 1 trillion 770 billion yen, almost double year-on-year, mainly due to the impact of a market fluctuation in Sony Life Inc. Operating income decreased a significant 144.5 billion yen year-on-year, to 173.6 billion yen. This was primarily due to a decrease in the net gains related to market fluctuations for variable insurance and other products of the Sony Life as well as recording of the gains on the stable sales of the real estate at the Sony Life and the recovery of funds related to unauthorized withdrawal in the previous fiscal year. These negative factors are primarily offset by the recording of the gain, mainly from the transfer of the portion of the shares of the Sony Payment Services Inc. The FY24 forecast for the financial services revenue is 910 billion yen, and operating income is 145 billion yen, a decrease of 28.6 billion yen from the previous fiscal year, which included the recording of the gain from the transfer I previously mentioned. Please note that this forecast does not take into account the impact of the market fluctuations on the Sony life. Now, I would like to explain the fluctuations in operating income that have been particularly notable since the adoption of IFRS 17. This is the trend of the breakdown of Sony Life's quarterly operating income. While insurance services results, which are the base profit for the business, have generally remained stable, Investment gains and losses have fluctuated greatly due to the changes in the market conditions. The majority of the investment gains and losses consist of unrealized valuation gains and losses. We are considering the measures to curb these fluctuations in gains and losses, including the transfer of the previously controlled insurance contracts to the external parties through reinsurance transactions. This concludes our explanation of our financial results for FY23 and the results forecast for FY24. Next, Totoki will explain our mid-range plan. Totoki-san, please go ahead.

Now I would like to talk about our mid-range plan. First, let me give a brief overview of our fourth mid-range plan. Under the theme of our fourth mid-range plan, Sony's Evolution, we have been working to evolve our corporate architecture and business portfolio to drive growth for the entire group. In April 2021, we transitioned from a large headquarters housing support functions for our electronics business to Sony Group Corporation being a scaled-down group headquarters. By doing so, we established a structure to promote the growth of the group in an equidistant relationship with each business. Regarding our business portfolio, we are making concrete preparations for a partial spin-off of the financial services business in October 2025 with the aim of achieving further growth in both the financial services business and our other businesses. Additionally, by concentrating capital allocation on the growth areas of the three entertainment businesses and the INSS business, we were able to significantly increase the combined sales of these four business segments, creating a more growth-oriented business portfolio. Thanks to these efforts, the KPI we set as a growth indicator for the fourth mid-range plan period, three-year cumulative consolidated adjusted EBDA, was 5.1 trillion yen, 19% higher than our initial target, and 42% higher than the amount generated during the third mid-range plan period. In addition, our ability to generate profits is steadily improving. The average annual growth rate of consolidated operating income excluding the financial services segment was 9.0% from FY2020 to FY2023. now i'd like to talk about our fifth mid-range plan we are presenting the plan excluding the financial services segment and endo the head of that business will provide an explanation of the mid-range plan of the financial services segment at the business segment meeting scheduled for may 31st the themes of the fifth mid-range plan are beyond the boundaries and maximum synergies across the group with the intention of continuing to implement the proactive initiatives we have been implementing to further realize synergies and achieve more growth for the entire group. During this mid-range plan, no changes are planned to our strategy of working to increase corporate value through continuous growth. While further strengthening our efforts to realize group synergies, we plan to focus on implementing measures to achieve mid- to long-term growth in our three entertainment and image sensor businesses. At the same time, we expect the business environment to remain uncertain and volatile during the period of this mid-range plan and beyond. In order to further increase our resilience to such environmental changes, we aim to work to strengthen our earnings base through the ongoing evolution of our business portfolio and to improve investment efficiency and business profitability. Consequently, for the period of this mid-range plan, we have placed greater emphasis on profit-based growth KPIs and we have set as KPIs for the entire group the growth rate of consolidated operating income and operating income margin. Specifically, we aim to increase consolidated operating income during this mid-range plan, primarily in GNNS and INSS, and achieve an average annual growth rate of 10% or more and a three-year cumulative consolidated operating income margin of 10% or more. In addition, we have positioned as an important indicator the sales growth of the game software and network services businesses in GNNS, the music, the pictures, and the image sensor businesses. We also plan to regularly report progress on the consolidated operating cash flow, which is the source of capital allocation. I will now discuss the main focus measures for each business under the fifth mid-range plan. Further details will be provided by each business leader at the business segment meeting on May 30th and 31st. In the GNNS segment, under the theme of console and beyond, we aim to drive profit growth of the Sony Group by expanding the stable installed base of PlayStation consoles, providing richer gaming experiences, and growing our business through the two-pronged approach of expanding into PCs and enhancing the first-party software titles originating from our in-house studios into which we have invested. In the music segment, we continue to aim to grow faster than the market by strengthening our efforts in emerging markets, increasing monetization opportunities for our music catalog, and incorporating adjacent businesses such as merchandising. We also plan to accelerate the global expansion of Japanese anime and artists. In the pictured segment, which serves as the core of collaboration between the three entertainment businesses, we aim to maximize the value of the IP assets held by the Sony Group. Furthermore, we aim to achieve profitable growth with Crunchyroll, a DTC service that deeply engages with anime fans and anime creators as a growth driver. In the ET&S segment, we plan to continue to control risks in businesses facing severe environments such as televisions while steadily growing our highly profitable and technologically differentiated imaging and sound businesses and accelerating expansion into the growth access businesses. Through this, we aim to continue to shift the business portfolio of the entire segment and generate cash that supports the Sony Group. In the INSS segment, we intend to maintain our high growth rate primarily in mobile sensors and focus especially on increasing profitability, improving investment efficiency, and reinforcing development and manufacturing during the period of the fifth MRP. We also plan to proceed with the launch of new growth businesses that will follow from mobile sensors such as automotive sensors while maintaining financial discipline and a long-term perspective. Next, I'd like to explain capital allocation during the term of the fifth mid-range plan. Three-year cumulative consolidated operating cash flow, the main source of allocation, is expected to be 4.5 trillion yen, significantly exceeding the results of the fourth mid-range plan due to profit growth during the fifth mid-range plan as well as the recovery of working capital that increased during the previous mid-range plan. With regard to capital expenditures, we expect to spend 1.7 trillion yen, a decrease of 0.2 trillion yen from the previous MRP, taking into account that investment for image sensors is expected to decrease from the previous MRP period. With regard to strategic investments, we plan to allocate 1.8 trillion yen to business growth investments and flexible share repurchases. We will continue to work toward mid- to long-term growth of our business through such means as acquisition of IP and M&A, but we intend to emphasize investment efficiency and be more selective in the strategic arena. The biggest change from the capital allocation strategy under the previous mid-range plan is that we plan to allocate any increase in free cash flow during the period of this mid-range plan primarily to shareholder returns. With regard to shareholder returns, we plan to place emphasis on the total payout ratio, which we expect to gradually increase throughout the period of the fifth mid-range plan, aiming for approximately 40% in FY2026, the final fiscal year of the plan. To this end, we set aside 250 billion yen for share buybacks for this fiscal year, the first year of the MRP, which exceeds the amount we acquired in the previous fiscal year. Regarding dividends, our policy is to continue to increase dividends steadily while accelerating the pace of dividend increases. In addition, with the aim of further expanding the investor base that holds our shares, at the Board of Directors meeting held today, it was decided to implement a stock split with a record date of September 30, 2024 and an effective date of October 1, 2024. These are the main points of our fifth mid-range plan. At the corporate strategy meeting scheduled for May 23, CEO Yoshida and I will explain the direction of our group's businesses over the longer term. That's all for the explanation.