Sony Group Corp

It's now time to begin the Sony Group Corporation Consolidated Earnings Announcement Meeting. I'll be serving as the MC. I am Ishii from Corporate Communications. Today, the financial results for the fiscal 25 first quarter and the full year forecast will be presented by Lin Tao, Corporate Executive Officer and CFO. Then, an overview of the financial services segment, which is scheduled for partial spin-off and listing at the end of September, will be given by Toshihide Endo, President and CEO of Sony Financial Group, Inc. that will be followed by a Q&A session. The entire session is scheduled to last about 70 minutes. Please note that Ms. Tao wishes to deliver her remarks directly in English to the global audience, so a pre-recorded video will be streamed on the English channel.

Hello, everyone. Today, I will explain the content shown here. After that, Mr. Endel will explain the financial results of Sony Financial Group. Sales of continuing operations for the quarter increased 2% compared to the same quarter of the previous fiscal year to 2,621.6 billion yen, and operating income increased 36% to 340 billion yen. both of which were record highs for the first quarter. Net income increased 23% to 259 billion yen. The financial results by segment are shown here. Next, I will explain to our full year results forecast. Our sales forecast is unchanged from our previous forecast of 11 trillion 700 billion yen, and we have upwardly revised our operating income forecast from our previous forecast by 4% to 1 trillion 330 billion yen, and our net income forecast by 4% to 970 billion yen. We raised our forecast for operating cash flow by 2% to 1 trillion 270 billion yen. The forecasts for each segment are shown here. Now I will provide an update on the impact of additional U.S. tariffs. Although there have been significant developments in the past few weeks regarding the situation surrounding the additional tariffs, there are still some fluid aspects, such as product-specific tariffs. We plan to carefully assess the impact and our response throughout this fiscal year based on multiple scenarios. Furthermore, we need to carefully consider the impact on each business of the product and pricing strategies we aim to undertake in response to the additional tariffs. Taking this into consideration, We have decided to present the impact of the additional tariffs as an estimate for all of our continuing operations, as was the case in the previous forecast. We expect the impact on operating income for FY25 to be approximately ¥70 billion, which is a decrease of 30 billion yen from the previous forecast based on the tariff rates announced as of August 1st. We had nearly completed the diversification of the production locations of our main products by the end of the quarter, and we expect to complete the measures we are planning by the end of the first half of the fiscal year. We intend to continue to monitor the situation and take actions to minimize the impact. Now I will turn to an overview of each business. First is the GNNS segment. FY25 Q1 sales increased 8% year-on-year to 936.5 billion yen, primarily due to an increase in third-party software sales, partially offset by the negative impact of foreign exchange rates. User engagement continued to increase year-on-year with the number of monthly active users across all of the PlayStation in June increasing 6% compared to the same months of the previous year to 123 million accounts. And total playtime for the quarter also increased 6% year-on-year. Operating income increased approximately 2.3 times year-on-year to 148 billion yen. a new quarterly record high for the segment, primarily due to the impact of the increased sales of third-party software and increase in network service revenue. As a consequence of the recent strong user engagement trend, we have upwardly revised our FY25 forecast for sales slightly from last time to 4 trillion 320 billion yen, and our FY25 forecast for operating income by 4% to 500 billion yen. The improvement in operating income for FY25 compared to the previous fiscal year is expected to be driven primarily by an increase in our strong network service revenue, cost reduction, and an increase in first-party software revenue. In our studio business, our live service game revenue is steadily growing thanks to the MLB The Show series, Destiny 2, and Helldivers 2, and it contributed more than 40% of our first-party software revenue during the quarter. In the single-player AAA title space, we plan to release Ghost of Yotei in October, following the release in June of Death Stranding 2 on the Beach, which received a Metacritic score of 90. We look forward to many game fans enjoying these titles. We decided to postpone the release of Marathon to further improve the quality of the gameplay. Based on community feedback, we think we can further enhance the overall gaming experience by deepening gameplay and elevating narrative immersion. So we're working hard to do that. MAU in June, four years and seven months after the launch of PS5, increased 32% from the 93 million MAU accounts in June 2018, the same period after the launch of PS4, and they continue to consistently grow. Content and service revenue is expected to grow approximately 50% on U.S. dollar basis in the current fiscal year forecast compared to the level recorded in the fiscal year ended March 31, 2019. exceeding the MAU growth. This indicates that in addition to the increase in the number of users, an increase in spending per user is contributing to revenue growth. We expect content and service revenue to continue to grow steadily from next fiscal year onwards as well, thanks to the user community we have cultivated to date. Next is the music segment. FY25 Q1 sales increased 5% year-on-year to 465.3 billion yen, primarily due to higher revenue from streaming service and increase in revenue from a mobile game, partially offset by the impact of foreign exchange rates. Operating income increased 8% to 92.8 billion yen. On the U.S. dollar basis, streaming revenue for the quarter increased 7% year-on-year in recorded music and 8% in music publishing. We have upwardly revised our previous FY25 forecast for sales and operating incomes slightly to ¥1,870,000,000 and ¥360,000,000 respectively. In recorded music, albums from Sony Music Entertainment-owned and distributed labels claimed 42% of weekly top 10 global albums on Spotify during the quarter, with Bad Bunny's new release taking the number one spot for six consecutive weeks. The contribution of catalog products to our revenue continues to increase, and we remain committed to acquiring catalogs in both the recorded music and music publishing business, since we believe that the opportunity to increase the monetization of these assets by acquiring more of them will continue. In visual media and platform, Demon Slayer Kimetsu no Yaiba, the movie Infinity Castle, which was released on July 18 in Japan, has been a massive hit, attracting 12.55 million people to theaters and generating 17.6 billion yen in box office revenue as of August 3rd. We plan to release the film in the US, Europe, and certain countries and territories in Asia, Central and South America, distributing it along with Crunchyroll and Sony Pictures, and we look forward to it being a major global success. Next is the pictures segment. FY25 Q1 sales decreased 3% year-on-year to 327.1 billion yen and operating income increased 65% to 18.7 billion yen. On the U.S. dollar basis, sales increased 4% year-on-year and operating income increased 76%, primarily due to higher series deliveries in television productions. There is no change to our forecast from the previous forecast. In television productions, the second season of The Last of Us, which was renewed for a third season, received several Emmy nominations. In feature films, 28 Years Later has become a box office hit after crossing $150 million globally. and K-pop Demon Hunters produced by Sony Picture Animation has achieved massive success, becoming the most watched Netflix original animated film of all time. Crunchyroll is steadily growing its paying subscribers and is expanding the global anime community through such activities as hosting the Crunchyroll Anime Awards in Tokyo in May. Now, I will explain our strategic partnership with Bandai Namco, which we announced on July 24th. Through this partnership, we plan to accelerate our collaboration with Bandai Namco even more than before, working to do such things as co-create new IP, collaborate on video production, distribution and merchandising in the anime and manga fields, as well as strengthen marketing through the sharing of data. Additionally, in the field of experiential entertainment, we aim to create new condo experience by bringing together the strengths of both companies such as Bandai Namco's knowledge and venue and Sony's technology. Next is the ETNS segment. FY25 Q1 sales decreased 11% year-on-year to 534.3 billion yen, primarily due to a decrease in unit sales of TVs and the impact of foreign exchange rate. Operating income decreased 33% to 43.1 billion yen, primarily due to the impact of decrease in sales and the impact of foreign exchange rates. There is no change to our forecast from the previous forecast. Except for televisions, where competitors engaged in more aggressive pricing than we had anticipated, Market conditions during the quarter progressed generally in line with our expectation across the other major product categories. The imaging business performed well, essentially in line with our original projection. supported by the continued tailwind of the subsidy program in China. Last June, at the largest Hollywood film production equipment exhibition, Cinegear Expo 2025, we exhibited a system that links Zeng's spatial reproduction display with the Venice Extension System Mini as a form of new content creation. It attracted strong interest from the film production creators in attendance. In this segment, we aim to accelerate the expansion of our creation-centered business through these products and solution services. Next is the I&S segment. Despite the impact of foreign exchange rate, sales for the quarter increased 15% year-on-year to ¥408.2 billion primarily due to increased shipment of sensors for mobile phones and digital cameras. Operating income increased 48% to 54.3 billion yen as the impact of the increase in sales significantly exceeded the negative impact of foreign exchange rate. There is no change to our forecast from the previous forecast. The market for smartphone continued to recover gradually on a global basis. Excluding the impact of foreign exchange rate, mobile sensor sales for the quarter grew steadily. due to an increase in sensor shipment volume and an increase in unit price on a U.S. dollar basis. Although recent shipment volume is increasing year on year, taking into account the possibility that customers are bringing forward orders due to the additional tariffs, we expect the annual shipment volume to be on par with the previous fiscal year. From FY25Q2 onwards, we expect sales to steadily increase due to rising unit price resulting from further progress towards larger-sized sensors and higher added value, despite an expected deterioration in foreign exchange rate compared to the previous fiscal year. In the consumer camera space, in addition to robust demand for single-lens camera, the growing demand for video is driving demand for sensor used in new video camera, such as handheld cameras. We aim to benefit from this market expansion and create new revenue opportunities. To summarize, we believe that during the quarter, we made steady progress toward achieving the numerical targets we established in our fifth mid-range plan as profits continue to increase, primarily in the GNNS, Music, and INSS segments. On the other hand, we expect that uncertainty in the business environment such as additional tariffs in the U.S., will have a greater impact from FY25Q2 onwards, and we will focus on conducting business operations that anticipate change while preparing for risks. This concludes my remarks.

now mr endo will provide an overview of the financial services segment performance so endo please now i are explaining the financial results of the sony financial group on an eye first basis adjusted net income for the quarter increased 0.3 billion yen compared to the same quarter of the previous fiscal year to 23 billion yen, primarily due to the improvement in the loss ratio at the Sony Assurance. Adjusted net income over Sony Life decreased 1.0 billion yen year-on-year to 15.6 billion yen, primarily due to the impact of rising interest rates, partially offset by an improvement in funding costs as a result of the decrease in a repo transaction. Insurance accounting under IFRS requires an amount prepared for the future uncertainty be recorded as a risk adjustment liability. As interest rates rose during the quarter, the risk of a mass cancellation increased from an accounting valuation perspective, which reduced adjusted net income through the recognition of a loss and an increase in a contractual service margin amortization. The new business acquisition at Sony Life continued to trend at the high level of the previous fiscal year with the annualized premiums from the policies enforced during the quarter increasing ¥16.1 billion to ¥1,313.6 billion demonstrating strong growth especially in the corporate insurance sales channels. The recruitment of life planners and an agency supporter is progressing well and our sales channels are continuing to expand. Next, I will explain the progress of our measures to strengthen our financial foundations. As I explained at the investor day in May, the interest rate sensitivity of our assets exceeds that of our liability, resulting in an over-hedge position at Sony Life. To address this, we are selling bonds and undertaking reinsurance over the course of two years, including this fiscal year. In the quarter, we accelerated sales of bonds that we had planned to sell over the course of the full fiscal year. As a result, the ESR level at the end of the quarter improved three percentage points, mitigating a significant negative impact of rising interest rates. Our consolidated ESR was 184%, and then Sony Life's standalone ESR was 163%. Loss on sales of securities is deducted as an adjustment item from the adjusted income. Going forward, we aim to further strengthen our financial foundation by accumulating economic value-based capital through the acquisition of a high-level new insurance contract and efforts to reduce risks.