Sony Group Corp

We'd like to start the Sony Group Corporation's FY2025 Q2 Consolidated Financial Results presentation. This is Ishii from PR. I'll be the MC. So today, we will present the FY2025 Q2 financial results as well as the full year forecast from Lin Tao, the CFO, Corporate Executive Officer. We will have questions and answers after that. The total time will be 70 minutes. Lin Tao's financial results will be presented in English based on the pre-recorded video, which will be streamed.

Hello, everyone. Today, I will explain the content shown here. Sales of continuing operations for the quarter increased 5% compared to the same quarter of the previous fiscal year to 3,107.9 billion yen. And operating income increased 10% to 429 billion yen. Both were record highs for the second quarter. Net income increased 7% to 311.4 billion yen. The financial results by segment are shown here. As for our full year result forecast, we upwardly revised sales from our previous forecast 3% to 12 trillion yen, operating income 8% to 1 trillion 430 billion yen, and net income 8% to 1 trillion 50 billion yen. We expect that the impact of additional U.S. tariffs on the operating income of our continuing operations to decrease 20 billion yen from our previous forecast to 50 billion yen. And we have reflected that impact in the forecast for each segment from this quarter. We upwardly revised our forecast for operating cash flow 18% to 1,500,000,000 yen. The forecast for each segment are shown here. Now I will turn to an overview of each business. First is the GNNS segment. FY25 Q2 sales increased 4% year on year, primarily due to the growth of network service revenue and the software sales. Despite the impact of the increasing sales, operating income decreased 13% year on year. This was primarily due to the recording of approximately 49.8 billion yen in non-recurring losses resulting from an impairment of intangible and other assets and the correction in the amount of previously capitalized development costs. Excluding these non-recurring items, operating income would have increased 23%. We upwardly revised our sales forecast 3% from the previous forecast to 4 trillion 470 billion yen. This is primarily due to the impact of foreign exchange rates. Despite the negative impact of the non-recurring items and the inclusion of a 30 billion yen tariff impact that we are recording from this quarter, our 500 billion yen operating income forecast is unchanged from the previous forecast. This is primarily due to the positive impact of foreign exchange rates. our PlayStation platform continues to demonstrate its strengths as the best place to play and best place to publish. User engagement trended well with the number of monthly active users across all of the PS in September increasing 3% compared to the last September 219 million accounts. And total play time for the quarter also increased 1% year on year. game software and network service sales are steadily growing. We expect this trend to continue in the second half due to a continued shift to higher tiers in our network service business and the contribution of first-party titles. As for PS5 hardware, we plan to expand the install base during the year-end sales season while continuing to balance that expansion with the profitability of the entire segment. Although performance varies by title, our live service game overall accounted for more than 40% of our first-party software revenue, similar to the previous quarter, and are a recurring source of revenue. Regarding Destiny 2, partially due to the changes in the competitive environment, the level of sales and user engagement have not reached to the expectation we had at the time of the acquisition of Bungie. While we will continue to make improvements, we downwardly revised the business projection for the time being and recorded an impairment loss against a portion of the assets at Bungie. On the other hand, Helldivers 2, which was also released for Xbox in August of this year, is doing extremely well, not only attracting new users on Xbox, but also seeing increased engagement from existing users on PS5 and PC. This resulted in a significant increase in sales of the title year on year. MLB The Show 25, released in March, also continued to perform well during the quarter. In the single-player AAA title space, following the release of Death Stranding 2 on the beach in June, we released Ghost of Yode in October. Ghost of Yode surpassed 3.3 million units sold globally as of November the 2nd, becoming a major hit like its predecessor. Building on this recent progress, we aim to strengthen our studio business and expand our IP franchises through continuous learning and improvement. Next is the music segment. FY25 Q2 sales increased 21% year on year and operating income increased 28%, reaching record highs for the second quarter. This was primarily due to a higher visual media and platform revenue driven primarily by the success of the theatrical release of Demon Slayer, Kimetsu no Yaiba, Infinity Castle. It was also due to an increase in streaming revenue. On a US dollar basis, streaming revenue for the quarter increased 12% year on year in recorded music and 25% in music publishing. We have upwardly revised our full year forecast for sales 6% to 1,980,000,000 yen compared to the previous forecast and operating income 7% to 385,000,000 yen. During the quarter, SMEJ made great strides recording its highest ever quarterly sales and operating income and contributing significantly to the growth of this segment. Demon Slayer, produced by Aniplex, became a global hit due to our collaboration with Toho for distribution in Japan, as well as the strengthening and expanding of distribution overseas by Crunchyroll and Sony Pictures. As of October 13th, 77.53 million people worldwide, including in Japan, have seen the movie and the total box office revenue has exceeded 94.8 billion yen. Coco has enjoyed a long run in theaters in Japan and has captivated a large audience, being selected as Japan's entry to the 98th Academy Awards in the Best International Feature Film category. The successes of Demon Slayer and Coco are examples of how we can increase the value of IP by discovering appealing IP and combining them with the production capability of talented creators. We look forward to attracting not only fans, but also many creators and actors. In recorded music, Iris Out and Jendo by Kenshi Yonezu, an artist affiliated with SMEJ, have been breaking records on music charts, both in Japan and overseas, thanks to synergy with the theatrical release of the anime Chainsaw Man, the movie Resi Arc. Outside of Japan, SMG is also achieving very strong results. The global success of artists and songwriters such as Tyler, the Creator, and Bad Bunny has led to a double-digit increase year-on-year of sales and operating income for the quarter. In addition, SMG is further enhancing its relationship with DSPs. It entered into licensing agreements with Spotify during the quarter and in collaboration with several other record labels, agreed to support Spotify's efforts to ensure that AI is used in a manner that will benefit artists and songwriters. Next is the picture segment. FY25 Q2 sales decreased 3% year on year and operating income decreased 25%. This was primarily due to the impact of a decrease in sales from theatrical release, which benefited from hits like It Ends With Us in the same quarter of the previous fiscal year. Partially offsetting the decrease in operating income was the impact of higher sales at Crunchyroll. There is no change to our full-year forecast for sales and operating income. Crunchyroll continues to work to enhance the 360-degree IP experience of anime fans through the theatrical distribution of Demon Slayer, the launch of Crunchyroll manga service, and other efforts. Crunchyroll manga, which currently digitally distributes hundreds of popular Japanese manga titles, has been positively received by fans and publishers since its launch in October. We expect it will contribute to an increase in fan engagement and grow in subscribers. In television productions, new season of popular existing series were released this quarter such as Dark, Gen V, and Twisted Metal. In motion pictures, productions has begun on the major title, Spider-Man Brand New Day and the next Jumanji, which are scheduled to be released next fiscal year. Fans are eagerly awaiting the two titles with five years having passed since the previous Spider-Man film, Spider-Man No Way Home, and seven years have passed since the previous Jumanji film, Jumanji The Next Level. Next is the ETNS segment. FY25 Q2 sales decreased 7% year-on-year, primarily due to a decrease in unit sales of TVs. Operating income decreased 13% year-on-year, primarily due to the impact of the decrease in sales, partially offset by reductions in operating expenses. We have slightly increased our full-year forecast for sales from the previous forecast to 2 trillion 300 billion yen, and we have decreased our operating income forecast 11% to 160 billion yen, reflecting a 20 billion yen impact from tariffs from this quarter. In the imaging markets, demand has slowed in two regions. China, where government subsidies that last through the first quarter ended June 30th, significantly declined, and the U.S., primarily due to the impact of additional tariffs. However, this decrease in demand is essentially in line with our previous forecast, and global demand remains solid primarily because of Asia. The severe operating environment for TVs and smartphones continues, but we are adapting by proactively reducing operating expenses and have been able to minimize the impact on profitability. At the segment level, there are no major changes to the demand outlook for the year-end sales season and second half of the fiscal year. We plan to continue to control costs and inventory and operate our business cautiously. In our sports business, which is a growth area, we completed the acquisition of StatSports in October. StatSports excels in active tracking technology, which collects and analyzes real-time data on athletes' physical condition and performance during games. By combining this data with the optical tracking technology of Hawkeye and KinaTrax, we aim to provide industry-leading sports data solutions to teams and athletes around the world. We also hope to accelerate the growth of our sports business overall. Last is the INSS segment. Sales for the quarterly increased 15% year-on-year and operating income increased 50%, both reaching record quarterly highs for the segment. This was primarily due to a higher unit prices resulting from larger sized sensor for mobile devices and increased sales volume of sensors for consumer cameras. We upwardly revised our full year forecast for sales 2% to 1,990,000,000,000 yen and operating income 11% to 310,000,000,000 yen, primarily due to the impact of foreign exchange rate. Based on the trends in the final product market and the demand forecasts from our customers to date, we have decided not to include any impact from tariffs in this forecast for this segment. The smartphone market continues to show signs of gradual recovery on a global basis. Sales of mobile sensor during the quarter increased significantly year on year due to higher unit prices resulting from larger sensors being used in new products by our major customer and a higher shipment volume than our previous forecast. In addition, growth of the market for cameras that use new video shooting styles such as handhelds contributed to the growth in sales. Our customers might have brought forward the purchase of components during the first half of the fiscal year due to the additional tariffs and other factors. Therefore, we have kept our fiscal year sales forecast unchanged from the previous forecast when the impact of foreign exchange rate is excluded. We expect sales for the fiscal year to increase an already significant 11% from the previous fiscal year. During the third quarter ending December 31st, 2025, we plan to carefully assess the possibility of another upward revision. The higher sales of image sensor and our fixed cost management through an accelerated review of low profit business and a shift of resources and costs to priority areas are contributing significantly to profit growth this fiscal year. During this mid-range plan period, we intend to continue to focus on improving the efficiency of business operations and product development. In the next mid-range plan period, we aim to build on those efforts by continuing to work to improve the profitability of the business by considering measures that balance business expansion with improved efficiency of capital expenditure. To summarize, excluding non-recurring items, the GNNS, Music, and INSS segment all achieved record high operating income during the quarter, and we believe that our business momentum is strong. Looking ahead to the second half of the fiscal year, given the uncertain business environment, we intend to continue to operate our business cautiously while striving to steadily achieve results. The upwardly revised operating income forecast for this fiscal year presented today projects an average annual growth rate of operating income of 18% compared to the final year of our fourth mid-range plan, and a cumulative operating income margin for the fifth mid-range plan to date of 11.3%. This demonstrates that we're making steady progress toward achieving the targets of our fifth mid-range plan. As for shareholder return, we established today a share repurchase facility of a maximum of 100 billion yen to be executed by May, 2026. And we successfully completed the partial spinoff of the financial service business on October the 1st. We would like to reiterate our sincere gratitude to our shareholders and investors. This concludes my remarks. Thank you.

So that was a presentation from Lin Tao. From 425, we will accept questions from the media. And from 450, we will accept questions from investors and analysts. The time allocated for questions and answers is 20 minutes each. Those of you who have registered your questions beforehand, please click the link which says participate in webinar. As for the instructions on how to ask questions, please refer to the information that was sent to you beforehand. We will break for a while.