Sony Group Corp

It's time. We'd now like to start the Sony Group Corporation Consolidated Earnings Announcement Meeting. I am Okada from PR. I'll be serving as MC. I'd like to introduce the presenters, President, COO, and CFO, Hiroki Totoki. Hiroki. Senior Vice President in Charge of Corporate Planning and Control, Lead of Group DEI, Support for Finance, Business, and Entertainment Area, Naomi Matsuoka. Senior Vice President in Charge of Finance and IR, Sadahiko Hayakawa. Sony Financial Group, Inc., Senior Managing Director and CFO, Kazuhiro Yamada. These four will be making presentations about the results of the first quarter, fiscal 24, and forecast for the full year, and afterwards we'll have Q&A. Total session time expected to be about 17 minutes. Mr. Totoki, please.

First, I would like to briefly discuss the recent changes in the financial market environment. We are extremely concerned about the sudden fluctuations in exchange rates and possibility of economic downturn, particularly in the United States. The result, the forecast we are presenting today, does not incorporate any of the recent rapid market changes. I believe that the interest in foreign exchange, the assumption assumed rate Thank you very much. significant changes occur. Now we will explain this content. Starting from this time, Mr. Yamada from Sony Financial Group will provide an explanation of the financial services segment in addition to Ms. Matsuoka and Mr. Hayakawa. And I will then give a summary at the end. Now, Hayakawa-san, please. Consolidated sales, including the financial services segment for the quarter, increased a significant 12% compared to the same quarter of the previous fiscal year to 2,567.4 billion yen. And operating income increased a significant 50.6 billion yen. to 249.1 billion yen. Consolidated sales increased 2% year-on-year to 3 trillion 11.6 billion yen. Operating income increased 26.1 billion yen to 279.1 billion yen. And the net income increased 14.1 billion yen to 231.6 billion yen. The results by segment for this quarter are shown on this slide. Next, I will explain our consolidated result forecast for FY24. The consolidated sales forecast excluding financial services has been upwardly revised by 3% to 11 trillion 700 billion yen. The operating income forecast has been upwardly revised by 35 billion yen to 1 trillion 165 billion yen. And the net income forecast has been upwardly revised by 55 billion yen to 875 billion yen. Thank you very much. The net income forecast is 9.4 billion yen higher than the recorded in the previous fiscal year. Opening income on both on a consolidated basis including financial services and the consolidated basis expected to be record highs. The full year forecast by segment is shown here. Now I will move on to the explanation of the overview of each business. The first is the GNNS segment. Although hardware sales decreased, FY24 Q1 sales increased a significant 12% year-on-year to 864.9 billion yen, primarily due to the impact of foreign exchange rates and increased first-party software sales. Operating income increased a significant 16 billion yen year-on-year, to 65.2 billion yen, mainly due to the benefit of increased revenue from the first-party software and network services despite increased costs including expenses resulting from the restructuring we undertook on a global basis. For FY24, we are now forecasting sales to be 4 trillion 320 billion yen, an increase of 120 billion yen from the previous forecast, and operating income to be 320 billion yen, an increase of 10 billion yen. Despite not releasing any tentpole titles, user engagement during the quarter remained high, driven primarily by expanding PlayStation 5 install base and contributions from the solid franchise software titles. The number of monthly active users of PlayStation was 116 million accounts, the highest number ever recorded for June, up 7% compared with the same months of the previous fiscal year, and total playtime also increased 8%. In terms of our software titles... Hell Divers 2 is performing better than our May forecast, and PC version of Ghost of Tsushima and the Destiny 2 expansion content, The Final Shape, are also contributing to earnings. This month, we plan to launch our live service game, Concorde, followed in September by Astro Bot and the PC version of our smash hit title, God of War, Ragnarok. As for the network services, U.S. dollar-based sales increased 13% year-on-year, driven mainly by a steady shift to premium services and increase in IARPU average revenue per user, resulting from price revisions in PS+. Under the new management structure, the platform business group is steadily maintaining and expanding the number of active users and user engagement as priority initiatives and intends to work to further strengthen the PS platform and establish a stable earning space. Additionally, the studio business group is strengthening its development schedule, the management, and optimizing development projects in order to consistently and continuously release hit titles. Next, the music segment. FY24 Q1 sales increased a significant 23% year-on-year to 442 billion yen, primarily due to the impact of foreign exchange rates, as well as increased live box office revenue and the streaming revenue in recorded music. Operating income increased 12.5 billion yen year on year to 85.9 billion yen, mainly due to the benefit of the increased sales and favorite impact of foreign exchange rate. A 6 billion yen remeasurement, the gain... Resulting from the consultation of company previously accounted for using the equity method was recorded during the Q1 of the previous fiscal year. On a US dollar basis, FI24 Q1 streaming revenue in the recorded music increased 5% and music publishing increased 20% year-on-year, 19% and 36% respectively on a yen basis. For FI24, we expect sales to increase. 50 billion yen from the previous forecast, 1 trillion, 740 billion yen, and operating income to increase 15 billion yen to 330 billion yen.

Global market growth in calendar year 2023, it was 10% higher in recorded music and 11% higher in music publishing, both compared to the previous year. In addition to an increase in the number of paying subscribers for streaming services and market expansion in emerging markets, recent price revision by music distributors have led to market growth for the 9th consecutive year in recorded music and the 11th consecutive year in music publishing. In the mid-term, the market is expected to continue to grow at a mid- to high-single-digit average annual growth rate driven by increased ARPU and further growth in emerging markets. From early on, Sony Music Entertainment has been strategically focusing on capturing the expansion of the Indies market and building a robust ecosystem, as seen from the 100% consolidation of The Orchard in 2015 and the acquisition of AWOL in 2021. Through the Orchard's approximately 50 locations around the world, we are expanding our business in rapidly growing emerging markets by providing a wide range of services, such as digital music distribution and data analysis using the latest technology. By actively pursuing strategic investments in emerging markets, including the Brazilian label Sam Livre and Rimas Entertainment, the label of Latin music superstar Bad Bunny, to which the Orchard has been providing services, we have established a strong presence in Latin America, India, Africa, and other markets around the world. As can be seen with the success of Sony Music Entertainment Japan's artist Uasobi in overseas markets, we have been able to create hits that transcend national and regional borders through the orchard. Next is the picture segment. FY24 Q1 sales increased 5% year-on-year to 337.3 billion yen due to the impact of foreign exchange rates, despite a decrease in U.S. dollar-based sales, primarily resulting from a decrease in the number of television programs delivered and a decrease in the number of theatrical releases. Operating income decreased 4.7 billion yen year-on-year to 11.3 billion yen primarily due to the impact of the decrease and U.S. dollar-based sales. For FY24, we forecast sales to be 1 trillion 520 billion yen, an increase of 40 billion yen from the previous forecast, and operating income to be 125 billion yen, an increase of 5 billion yen. In the first half of the calendar year 2024, theatrical box office revenue in the U.S. remained at a level approximately 20% lower than the previous year, primarily due to the impact of the strikes. However, from June onwards, the release of tenfold films from major studios, including ours, has increased, and we expect box office revenue to gradually improve. During the quarter, the sequel to our popular franchise, Bad Boys Ride or Die, and the Garfield movie, which we distributed worldwide, have both been hits. It Ends With Us, a film adaptation of a best-selling novel, is scheduled to be released on August 9. The trailer set a record of approximately 130 million views in the first 24 hours following its release, and we are hopeful that it will be an indicator of the success of our efforts to discover excellent original works and turn them into films. As for Crunchyroll, the number of paying subscribers exceeded 2%. $15 million in July. In order to capitalize on the rapid expansion of the anime market, we have signed a global distribution agreement with Amazon Prime Channels. And after launching in the U.S. and the U.K. in October last year, we began distribution via Amazon in Brazil, France, India, and other countries since April this year. In addition to further expand opportunities for engagement with anime fans, we've announced our plan to expand our e-commerce site, Crunchyroll Store, which was previously only available in North America and Australia to 34 European countries. On June 12th, Sony Pictures Entertainment completed its acquisition of Alamo Drafthouse Cinema. Alamo operates 41 theaters across the U.S. where customers can enjoy a movie while dining. The company is a leader in the dine-in cinema industry and ranked seventh in North America in terms of box office share. It has approximately 4 million enthusiastic loyalty members over indexing on younger demographics. By building upon Alamo's connections with this fan community, We look forward to creating synergies with our content IP, including not only movies, but also games, music, and anime. We also look forward to opportunities for Alamo and Crunchyroll to collaborate. With this acquisition, SB established a new business division, Sony Pictures Experiences, and aims to further strengthen its efforts in the experiential live entertainment business. And next is the ET&S segment. Although television sales decreased, FY24Q1 sales increased 5% year-on-year to 600.9 billion yen, mainly due to the impact of foreign exchange rates. Operating income increased 8.4 billion yen year-on-year to 64.1 billion yen, primarily due to the favorable impact of foreign exchange rates. For FY24, we forecast sales to be 2 trillion 420 billion yen, an increase of 50 billion yen from the previous forecast, and operating income to be 190 billion yen, unchanged from the previous forecast. With regard to operating income, despite the favorable impact of foreign exchange rates, we are maintaining our previous forecast by incorporating the risk of the worsening market environment and the impact of rising logistics costs. Looking at the market environment during the quarter, our key product categories in Japan, Europe, and North America trended according to our expectations, while in China, the television market contracted significantly, and the digital camera market, including solutions, grew significantly. As for the television business, we were able to achieve highly resilient operations during the quarter by focusing on inventory control and cost-cutting initiatives. We will aim to continue to do so, while also focusing on high-value added products such as the new Bravia 9 series, which we believe will further enrich the cinema viewing experience at home. As for the imaging business, which includes digital cameras, we intend to pay close attention to demand trends in China, where the market is growing rapidly, and aim to further expand profitability by further diversifying our creator audience primarily through the launch of the new VLOG CAM product ZVE10 Mark II. In addition, by emphasizing inventory control across the segment, we were able to further reduce inventory at the end of the quarter compared to the same quarter of the previous fiscal year, which is also contributing greatly to the stabilization of profitability in the business segment. In preparation for possible future change in the business environment, we aim to focus on managing inventory and accounts receivable based on conservative demand forecasts and thoroughly control cash flows.