Sony Group Corp

We thank you very much for joining us today. We'll now begin the Sony Group Corporation's first quarter earnings announcement. I am Ishii of Corporate Communications. I will be emceeing this session. Today, fiscal 2026 first quarter consolidated results and consolidated forecast will be presented by Executive Officer and CFO Lin Tao, followed by questions and answers. The English pre-recorded presentation by Ms. Tao will be streamed through the English channel. We are planning for a total of 70 minutes. Ms. Tao, please.

Hello, everyone. Welcome to Sony Group earning announcement. Before explaining our financial results, I would like to discuss the impact of the 2026 Kumamoto earthquake that occurred on July 28th. First, I would like to express my heartfelt sympathy to those affected by the earthquake and to those daily lives have been disrupted. We have several semiconductor facilities located in Kumamoto Prefecture and neighboring prefectures. And while all these facilities were affected by the earthquake, there were no casualties other than a few people who sustained minor injuries. The Kumamoto Technology Center of Sony Semiconductor Manufacturing Corporation in Kikuyo Town, Kumamoto Prefecture, which is relatively close to the epicenter, experienced shaking at a seismic intensity of 5+, and suspended production immediately after the earthquake. Restoration efforts to resume productions are currently underway. Our production sites in Nagasaki, Oita, and Kagoshima had no significant damage to buildings or equipment, and production has resumed. We will continue our efforts to fully restore production, and will update you on the progress and impact on our business at the appropriate time. As it is currently difficult to reasonably estimate the financial impact of this earthquake, the impact has not been incorporated into the full year results forecast we will show today. Now I will turn to the earning presentation. Consolidated sales for the first quarter ended June 30, 2026, increased 8% compared to the same quarter of the previous fiscal year to ¥2,837.8 billion, and consolidated operating income increased 40% to ¥476.5 billion, both record highs for the first quarter. Net income increased 32% to 342.2 billion yen. The financial results by segment are shown in the Q1 FY26 results by segment slide. We have increased our FY26 sales forecast 2% compared to our previous forecast to 12 trillion 500 billion yen. Our operating income forecast 8% to 1 trillion 720 billion yen and our net income forecast 4% to 1 trillion 210 billion yen. We expect operating cash flow to be 1 trillion 500 billion yen unchanged from the previous forecast. Regarding U.S. tariff refunds, we expect approximately 80 billion yen of the tariffs, which the Sony Group as a whole paid, to be refunded during the current fiscal year. And we have allocated most of that amount to an upward revision of our consolidated operating income forecast. The FY26 result forecast by segment is shown in the FY26 results forecast by segment slide. In all other segments, Sony Financial Group, which was previously accounted for under the equity method, no longer meets the accounting standard of an equity affiliate since SFGI's shareholders meeting last month. Consequently, we have concluded the recording of equity method income or loss in FY26Q1, and it is not included in our results forecast from the second quarter ending September 30, 2026. This is strictly a change in accounting treatment and does not imply any change in the position of SFGI within the Sony Group, nor a change in our collaborative or capital relationship with SFGI. Now, I will turn to an overview of each business. First is the GNNS segment. FY26 Q1 sales were essentially flat year-on-year at 937.1 billion yen. Operating income increased 37% year-on-year to 202 billion yen, primarily due to the impact of US tariff refunds, partially offset by an increase in costs, including investment for the next generation platform and restructuring costs. We increased our sales forecast 3% from the previous forecast to 4 trillion 540 billion yen, primarily due to the impact of foreign exchange rates. We increased our operating income forecast 10% from the previous forecast to 660 billion yen, primarily due to the impacts of the US tariff refunds and foreign exchange rates, as well as additional cost improvements. The number of monthly active users across PlayStation platforms in June increased 2% compared to last June to 125 million accounts, a record high for June. Although total playtime during the quarter decreased 4% year-on-year, we think that user engagement continued to be solid because the same period of the previous fiscal year benefited from season updates to major titles and new hit titles. We expect further improvements in engagement metrics going forward because many major titles are scheduled to be released toward the end of calendar year. Regarding the impact of memory market conditions on PS5 hardware, we have secured the quantity of memory necessary to meet our projected sales volume for the current fiscal year, and there is no change to our plan for hardware profitability to remain similar to the previous fiscal year. We continue to aim for further growth of the install base while closely monitoring PS5 hardware demand trends and the potential for securing additional memory. In the studio business, live service titles such as latest installment in the MLB The Show series and Helldivers 2, now in its third year since release, continue to contribute steadily to revenue. With the release of Season 2 in June, Marathon has maintained a high user retention rate while also acquiring new users. As for titles on sale this fiscal year, Saros, released in April, received high acclaims with a Metacritic score of 88 and is steadily expanding its user base. In addition, going forward, we expect Marvel Token Fighting Souls set for release in August, Marvel's Wolverine set for release in September, and God of War Lao Fei set for release in February of next year to continue to drive performance in this segment. Next is music segment. FY26 Q1 sales increased 21% year-on-year to 562 billion yen, primarily due to the impact of foreign exchange rates as well as increased revenue from live events and higher streaming revenue in recorded music. Operating income increased 14% to 105.9 billion yen, a record high for the first quarter. We increased our forecast for sales 2% from the previous forecast to 2 trillion 190 billion yen and our forecast for operating income 5% to 420 billion yen, primarily due to the impacts of foreign exchange rates and the consolidation of Recognition Music Group. Streaming revenue for the quarter on the US dollar basis increased 10% year on year in recorded music and 8% in music publishing. Reflecting the global success of the movie Michael, Streams of Songs by Michael Jackson, whose music catalog is co-owned by Sony Music Group, increased significantly, reaching approximately four times the level seen before the film's release. We think that the significant increase in streams of his songs by Gen Z indicates that Michael Jackson's music is attracting a new generation of young fans and will continue to be enjoyed for many years to come. As catalog listening continued to grow throughout the market, SMG is leveraging its global catalog management expertise to expand its reach into new markets and audience. thereby continuously enhancing the value of its catalog. We believe that we can expect further value appreciation going forward due to new and greater licensing opportunities enabled by AI. In F-126Q1, Ella Langley's new album, Dandelion, reached number one on the US Billboard album chart, and its lead single broke the all-time record for the longest run at number one by a female artist on the Billboard single chart. This indicates that we are continuing to discover new hit artists, and we plan to further enhance our business foundation by also continuing to focus on catalog. Next is the picture segment. FY26 Q1 sales decreased 4% year-on-year to ¥315.1 billion, primarily due to a decline in the number of series deliverers in television production, partially offset by higher revenues from Crunchyroll. Operating income increased 33% to 24.8 billion yen, primarily driven by a decrease in marketing costs related to theatrical releases. We increased our sales forecast 2% from the previous forecast to 1 trillion 660 billion yen, primarily due to the impact of foreign exchange rates and our operating income forecast 3% to 150 billion yen. Spider-Man Brand New Day, which opens in theaters around the world starting this weekend, is one of Sony Pictures Entertainment's most iconic and long-loved franchises, and we are confident it will be a hit. In June, SPE announced that it will further enhance its experiential entertainment through a strategic investment in COSM, which specializes in cutting-edge shared reality technology that bridges the virtual and physical worlds. Through this partnership, SPE aims to provide fans around the world with new immersive content experience and expand the value of Sony Group's extensive portfolio of IP. Regarding anime, which is one of the pillars supporting our creative entertainment vision, we are working with creators and partner companies to further grow our business across the Sony Group. Aniplex and Kadogawa, through the anime film distribution company Animac, which they jointly established in March 2026, have begun distributing theatrical anime films since May. Going forward, they plan to distribute works made by Aniplex and works sourced from Kadogawa's novel and games. Aniplex and Crunchyroll are continuing to collaborate on the development and expansion of anime IP, and they have decided to produce a theatrical film of the global popular hit anime Solo Leveling. Crunchyroll continues to grow its subscribers beyond the more than 21 million it had at the end of March this year, and its results in the quarter improved year on year. Next is the ETNS segment. In FY26, Q1 sales increased 2% year-on-year to 543.9 billion yen, and operating income was essentially flat at 42.6 billion yen. There is no change to our FY26 forecast. The imaging market this quarter remained stable in all regions except China, where the market continued to experience negative growth compared to the previous year. Against this backdrop, strong sales of the Alpha 7 Mark V, which won the grand prize at the Camera Grand Prix 2026, and the Alpha 7R Mark VI launched in June, helped raise average selling prices and expand our market share in the full-frame camera market, enabling the imaging business as a whole to maintain its sales on par with the same quarter of the previous fiscal year. In the displays business, new true RBG Bravia models boasting the widest color gamut in the history of our consumer TVs were well received. The continued surge in memory prices remains a key business challenge for this segment this fiscal year. However, the business is doing everything it can to implement cost reduction measures in procurement and design and to adjust its pricing strategies, including foreign exchange management. We expect to maintain the profit level projected in the previous forecast for the segment as a whole. Last is the INSS segment. FY26 Q1 sales increased 26% year-on-year to 512.7 billion yen, mainly due to higher average selling prices of mobile sensors as well as the impact of foreign exchange rates. Operating income increased approximately 2.3 times to 122.2 billion yen and reached a record high for the first quarter. We have increased our FY26 sales forecast 2% to 2 trillion 110 billion yen and our operating income forecast 5% to 420 billion yen from our previous forecast, mainly due to the impact of foreign exchange rates. While the smartphone market posted negative growth for the second consecutive quarter, high-end manufacturers, primarily our major customers, are expanding their unit sales and market share. In line with this trend, although our mobile sensor unit sales only slightly increased year-on-year, sales grew significantly year-on-year due to improved customer and product mix, as well as the impact of foreign exchange rates. Looking ahead to the second half of the fiscal year, we anticipate that market conditions for memory will also affect shipment volumes of high-end phones. Therefore, we remain cautious in our full-year forecast and expect revenue for mobile sensors as a whole to slightly decrease from the previous fiscal year. Regarding the strategic partnership with TSMC for the development and manufacture of next generation image sensor announced in May, detailed discussions are progressing smoothly with a view to signing definitive agreements. To prepare for the establishment of the joint venture with TSMC, we have incorporated approximately 10 billion yen in additional costs for the current fiscal year into our full year forecast. Through our partnership with TSMC, which possesses world-class semiconductor process technology, we aim to further enhance the technological competitiveness of future image sensors, including high density, and to firmly capture growing demand not only in mobile sensors, but also in areas such as physical AI, thereby further solidifying our number one position in the image sensor market. To summarize, the GNNS music and INSS segments posted record profits for the first quarter, and the Sony Group as a whole has continued to achieve robust profit growth. Even in an uncertain business environment, the profit-generating capacity of each business segment is steadily increasing, and we intend to continue our efforts to deliver solid results in the final fiscal year of the fifth mid-range plan. Regarding the share repurchase program, the cumulative amount purchased through the end of June was approximately 120 billion yen out of the facility we established in May. And we intend to continue to work toward strengthening shareholder returns. This concludes my remarks.

That was the presentation by Tao. From 4.25pm we will take questions from the media and from 4.50pm we will take questions from investors and analysts. We are planning for approximately 20 minutes for each Q&A session. Those who have pre-registered please click the link Please refer to the Q&A method instructions provided to you beforehand. We ask for indulgence until we start the Q&A session. Thank you.