Sony Group - Q3 2023

Transcript

Speaker 0

Ladies and gentlemen, thank you for joining us today despite short notice. We would like to start a press conference for the announcement of changes to Sony Group's management structure. Today, I will be the master of ceremony. My name is Ishii from Corporate Communication Department. Nice to meet you. I would like to introduce to you who are on the stage.

Mr. Kenichiro Yoshida, currently Director, Representative Corporate Executive Officer, Chairman, President, and Chief Executive Officer, who will assume Director, Representative Corporate Executive Officer, Chairman, CEO as of April first this year. Mr. Hiroki Totoki, Director, Representative Corporate Executive Officer, Executive Deputy President, and Chief Financial Officer, who will become Director, Representative Corporate Executive Officer, President, Chief Operating Officer, and Chief Financial Officer. The speeches will be made in the order of Mr. Yoshida and then Mr. Totoki, and we will take questions afterwards. After the Q&A session, we will have about five minutes for photo session. Overall, we plan to have about 40 minutes for this press conference, and then followed by the briefing on the Q3 result. Mr. Yoshida, please take the podium.

Thank you, all for coming today, despite the short notice. I would like to explain the executive changes announced today. Effective on April the first, Hiroki Totoki, currently Executive Deputy President and CFO, will be appointed President, COO and CFO, and I will become Chairman and CEO. These changes are intended to strengthen our group management structure. From April onwards, we will strive for the further evolution and growth of Sony under this new management structure. First, I'd like to touch on the background of these management changes. Sony is engaged in the diverse businesses, based on our purpose to fill the world with emotion through the power of creativity and technology. Furthermore, in April 2021, we transitioned to a new group architecture and established Sony Group Corporation, which is aligned with all our businesses in an equidistant manner.

Our approach to business management is one where the vectors of each business are connected by the social significance of creating and delivering of Kando, but also emphasizes the autonomy of individual businesses, organizations, and employees. On the other hand, in order to enhance the group's overall values over long-term perspectives, it's vital thoroughly implement capital allocation, collaboration between businesses, and business portfolio management. To do this, I concluded that we should strengthen our management structure and proposed to the nominating committee and the board of directors to promote Mr. Totoki, who has deep understanding of each business operation, to president and appoint him as COO.

This proposal was approved today. He will also continue as CFO.

This is because the CFO also needs to have a deep understanding of the business. We believe that this role is closely related to the duties of the COO. For approximately five years since I became CEO in April 2018, he has been a driving force in the implementation of growth strategy for the group, particularly from a financial perspective in his role as CFO. His greatest contribution has been in supporting our investment for growth, primarily in two major areas. One is content IP. While we have made acquisitions in the DTC domain, such as anime distribution company, Crunchyroll, we have focused particularly on strengthening content IP. This started from the acquisition of EMI Music Publishing in May 2018, just after I was appointed CEO. He led this acquisition, including the negotiation of terms. The other is semiconductors.

I regard CMOS image sensors as creation semiconductors that generate Kando. He supported our investment in this area, while managing risks through in-depth discussions with the business side regarding demand, the competitive environment, and the development roadmaps. His other contributions included setting the JPY 2 trillion framework for strategic investment in the current Mid-Range Plan. This investment framework established by him has led to an improvement in the growth mindset of the entire group. There is also the repurchase of our shares, which we have positioned as a part of our strategic investment. While constantly taking investment opportunities and the financial conditions into account, he has supported the repurchase of approximately JPY 500 billion of Sony shares since fiscal 2018. I have worked with Mr. Totoki since 2005 when I became President of So-net.

I have also learned quite a lot from him with his strategic perspectives encompassing the broader external environment. Furthermore, he has the experience of planning and founding Sony Bank himself and operating it as a representative director. He has accumulated a wide range of experience, including directory, leading a large organization as the head of Sony Mobile for more than three years, starting in 2014. Going forward, I'm confident that he will make an even greater contribution to enhancing our corporate values as President, COO and CFO. As part of efforts to strengthen our management structure, we have also decided to appoint Toshimoto Mitomo as Executive Deputy President and CSO. Mr. Mitomo possesses extensive experience in the intellectual property field, technological expertise and strategic perspectives.

Most recently, he has overseen areas including a new business development and corporate venture capital, and is leading discussions across the group in areas such as virtual production and the metaverse. At Sony, we operate our business in the Kando value chain of creating and delivering Kando, and he helps an important role in expanding and deepening the scope of this business. I look forward to Mr. Mitomo in collaboration with Hiroaki Kitano, who was appointed CTO last year, further contributing to Sony's evolution as a creative entertainment company with a solid foundation of technologies. Sony's purpose is to fill world with emotion, and its corporate direction of getting closer to people will remain unchanged. Our approximately 110,000 employees who share this purpose, driving force of the Sony Group are diverse businesses.

The management team will work together as one along with our employees to create values from a long-term perspectives based on our purpose. That is all from me. Thank you.

Next, I'd like to invite Mr. Totoki. I am Hiroki Totoki, and will be assuming the role of President, COO and CFO of Sony Group. Thank you for your attendance. I'm grateful to Mr. Yoshida and the board of directors for their trust in recommending and appointing me, and at the same time feel a great sense of responsibility. To introduce myself, I joined Sony in 1987, and after working in finance, including an overseas assignment in London, I left Sony in 2002 to take on the role of Representative Director of Sony Bank, a company that I led in establishing. While it was on a small scale, the experience of launching and managing a new business with a spirit of start-up formed the foundations of my current value perspectives in management.

In 2005, I moved to our ISP business, So-net, where I took on a wide range of roles, including CFO, under Mr. Yoshida's leadership. In December 2013, I returned to Sony and the following roles, including CEO of Sony Mobile and Corporate Executive Officer and CSO of Sony. I was appointed to my current position of CFO in 2018 when Mr. Yoshida became CEO of Sony. Since then, as a member of the management team led by Mr. Yoshida, I have dedicated myself to enhancing the corporate value of the Sony Group. This fiscal year is the second year of our current fourth Mid-Range Plan.

Thanks to the efforts of management at each of our businesses and from each and every employee, we are focusing strong results this fiscal year, including record sales and more than JPY 1 trillion in operating income. On the other hand, looking at our current business environment, there is increasing instability due to factors such as the uncertain global economic outlook, geopolitical risks, energy issues, and the natural environment. In addition, I feel an acute sense of urgency that there is a fine line between whether we can channel the rapid evolution of technology with AI as a leading example into further business growth. Conversely, whether our business will be disrupted by it. As our business environment and technology continues to undergo great change, I believe the key to increasing the resilience of the overall Sony Group is evolving our diversity.

Diversity in our business and talent is part of Sony's DNA. We must further evolve this diversity. Our goal is to bring together people with various attributes, experience and expertise from inside and outside the company to co-create the future by unleashing their ideas and creativity, and to continue to grow both as individuals and as a company. By leveraging the Sony Group's diversity and continuing to evolve and grow, I would like to create a positive spiral that begins with Sony being chosen by customers, which then energize our employees, enables us to attract more new talent, increases our corporate value, and ultimately enable us to give back to society. Working together with Mr. Yoshida, the Sony Group's management team and our employees around the world, I intend to continue to develop through my efforts to the further evolution and growth of our business based upon our purpose.

I look forward to your continued support.

From now, we would like to take questions. Time for questions and answer is about 25 minutes. Due to time constraint, we will not separate the sessions. We would like to take questions from the investors and analysts. Those who are asking questions online, please connect your phone to our branch offices. Those who have questions in this venue, please raise your hands. Those who have questions online, please press one after the asterisk key on the phone. In this venue, our staff will bring you the microphone. Due to time restriction, we would like to limit your question to one question per person. Please raise your hand should you have a question. The far right. The second row from the front on the right.

Shimai from NHK. I have a question to Mr. Totoki, the new CEO. In your self-introduction, you were talking about the Sony Bank, and talked about the venture spirit. We'll be continuing your position as a CFO, and then you become CEO this time. As a CFO, you have. In your position as the president, what business would you like to develop? What is your wish for your new position? Thank you for the question. The management and also the group business will be continued. With the current Mid-Range Plan, we have some plans for the actions. We will thoroughly put those actions into place.

Basically, we would like to strengthen all aspects of a business. That's my basic thinking. Thank you. Next question, please. Person in the middle row. The third row from the front on the right side from this side. Honda. I'm a freelance journalist. I have two questions. To Mr. Yoshida. As Mr. Yoshida's presented, and it is great to have the support by person who is quite knowledgeable about the finance. At the same time, I recognize that the CFO has certain unique authority. Do you think that there are any conflicts or problems for a CEO is also a CFO? It appears to me that this is rather sudden that this announcement was made. Why now? That's my second question.

Let me answer to your question. About the first question, whether the double-hatting of a CEO and CFO will be a problem. Well, this COO of Mr. Totoki's position is going to be a Group COO, not the CEO, a COO. So it will be a little bit different from giving the direct instruction to the front line. So this is the COO position who understands the operation very well to double-hat as a CFO. When we think about the Group structure of a company, I think this is reasonable and efficient. In this Group, in each parts of the business, we're going to confirm the standing of each parts of the business to lead the way for further growth. I think it makes sense.

The second question was why now? Sony is now practicing this Mid-Range Plan or the plan, and we are right in the middle of the fourth Mid-Range Plan. We have business planning people, but the actual management itself is being done with a long-term perspective. At the moment, when we look at the external landscape, the changes are accelerating. As Mr. Totoki also mentioned, the technology is changing rapidly, and also there's heightened geopolitical risks. As I mentioned, capital allocation and also the business to business collaboration, and also the portfolio management of the businesses need to be strengthened. That's all.

I would like to move on to the next question. The second row, from the front on this side. My name is Nakagaki from TV Tokyo. I have a question to ask about Yoshida-san. These management changes will lead to a two top structures, Yoshida-san and Totoki-san. Both of you are from financial sectors, financial areas. What's gonna be the impact?

The two top structures of the management. The purpose of this management changes is just to strengthen our management structure and architecture. We assign a new COO.

The capital allocation, and business portfolio management, and the business structure management, is to be operated for sure. That's the purpose. As CFO experience, that's quite right. I myself has been serving for So-net, the internet provider, serving as the President, for nine years. I think that the variety of experience is quite important for us to serve for the company. He has ever worked for the start of the Sony Bank, and he has been serving as the President of Sony Mobile as well. I do believe that he can take the leverage of his experience.

Next question, the person in the middle, second row from the top, from the front. The president, each president had a slogan, a mission. Hirai-san is focusing upon manufacturing, and Kando Yoshida-san is to become closer to people. Totoki-san, what is the slogan that you have in mind?

Thank you for your question. I am focusing upon growth. Business and company. If growth is stagnant in various ways, one tends to fall into negative spiral. Therefore, I am focusing upon growth and realize growth. As I said in my speech, we are to be chosen by customers and energize people, and positive spiral is to be created. In short, it is the growth. Thank you.

Next question, please. The person in the middle row, second from the front, to the left side, from this side.

Thank you very much for this opportunity. Furukawa from Nikkei. I would like to ask a question about the necessity of COO. This as in the comment by Mr. Sumi about the necessity of the COO, there was a discussion in the board. In the past, Mr. Idei's era, there was the CEO and the COO separate. There was the split between the CEO and COO under Mr. Howard Stringer. Whether they functions or not is another question.

In order to maintain the forces, I think it may be a difficult question to answer, but when you have the CEO and COO, there are some views that it may be better to be separated in terms of the functions. What do you think?

Sony's management myself is not so much their one top management. I am part of their management team, that's what we have been demonstrating as the management of a business. With that, as I mentioned, external landscape, there are major changes happening due to political risks and also acceleration of technology. Also these positions are independent position. While valuing the independence, we together think about the the business to business collaboration and also the business portfolio improvement. We all the management team needs the deep understanding of the external environment. Of course, Mr. Totoki has a deep understanding of the external landscape. With this title of a COO and CFO, and the...

He can bring it to the higher level of the understanding, and elevate it to the higher level, his understanding of the external, landscape.

Next question, please.

I would like to take questions in the middle row, and the second from the front. My name is Nishida, freelance journalist. I have questions on the CEO, and its positions. In terms of the strengthening of the product portfolio, is quite well understood. Would you please be a bit more specific what we want to do? Yoshida-san's leadership and Totoki-san's leadership, what they will be, and how each of you would like to work for Sony Group. Probably Totoki-san will make another comment, and that's for the details, and that's subject to the discussions from now on. As for business structures, we have six segments of businesses, and we have to maintain, and let them grow.

As for the discipline of the corporate management, we should regularly check whether or not those portfolios and segments are optimum. That should be the role of the board of directors and the management. That's my ideas. I would like to make some additional comments for the questions. As for the business portfolio, should not be static. That should be dynamic. And diversified business means the different harvesting cycles. We need a cyclical revisiting and reviews of those business portfolios so as to be update. We need enormous power to do so. As Yoshida-san said, the strengthening the management structure is quite plausible for us to carry on. We have to raise the management capabilities.

I have to play my role to do that. Thank you.

Next question. Those of you online, if you have any question, please press one followed, asterisk followed by one. Now the person third row from the front.

Nishigori from Nikkan Kogyo Shimbun. I have two questions to Totoki-san. Sony Group, what kind of company would you like to steer the company into your vision? I think this is a message for the employees as well. What is your vision for the company? Mr. Totoki, personally, your credo, something, belief that you think is important?

Thank you very much for your question. What kind of company I would like to make Sony into. Yoshida-san and we have defined a purpose and expand the kind of value chain, and we have been sending that message internally and externally. We have to make this more concrete. Ideal way would be without having to explain, everybody can have an image as to what we have to do. That is the ideal situation. We are going to bring this into reality. As for my belief, a credo, it's not something that big, but from before, the key of management is courage and patience. I like this saying. Many people are saying this. You, as one is engaged in management of company, identifying risks and make a judgment, and you have to have the courage to make decisions.

At times, you may be faced with headwinds and also contradictions, but you have to persevere and should have patience. I feel the need of patience. I am telling myself the importance of this always. Thank you.

Let's move on to the next question. The person in the middle row, on the far right, please. On the front row. Yes, please.

Thank you very much for this opportunity. Sasaki from Toyo Keizai. Under the new management structure, Yoshida-san's going to be the CFO. Totoki-san, I believe you have accepted your position as a CFO as well. What are the other concrete actions, and were there any other choices or options?

This change to Sony Group's management structure, first we had a discussion with the nominating committee in July last year. At that time, of course, there were a lot of discussions, but I then talked about Mr. Totoki's strengths. Our biggest strength, I think, is the strong willingness for growth. I think it is a very important, a key attributes that is required of the management of the company and the company growth. I think it's important for it to result in the growth of the employees as well. That's my view. I strongly stressed that Mr. Totoki is suitable as a new leader of Sony Group, and that's what I've been repeating to the nominating committee, as well as in the board meetings as well at several occasions.

Let's go to next question.

On this row and with white shirt. My name is Asaka of Nikkei Business. I have two questions. You have the experience of CFO. Was it a positive effect on your future jobs, and how you can take the leverage of your experience as CFO? As CEO, Mr. Yoshida, what you are going to do as an CEO?

Thank you. The first question is to be answered by Totoki-san, what I'm going to do as an CEO. There are so many things for me to do. Ultimately, I have to take ultimate responsibilities of the Sony Group. CFO experience, how those experiences will serve positively to my jobs.

Depending on the companies, and probably the roles might be different even though they may carry the same name. CFO in the Sony Group has a wide range of roles and quite deeply involved in the strategies and the management. That's been true since Mr. Yoshida as CFO. Those experiences should be quite positive, positively serve to be the president. Because we can have overall view, and we can read financial fears, and we can take leverage of those ideas through interaction with investors and analysts. Thank you.

Let's move on to the next question. Anybody who are connected online, please press asterisk followed by one. If not, once again back to this room. In the center, in the front line. Soma from Nikkei ESG. I have a question to Mr. Totoki. Mr. Yoshida, after he became president, creativity, he has been saying that he has a purpose of fill the world with emotion through the power of creativity and technology, and he has been working upon this. Totoki-san, after you become president, what would be the priority areas that you would like to address? Thank you for your question. I, myself, as Yoshida-san clearly defined the purpose and disseminated this purpose to the group.

As I mentioned earlier, we have to make sure that the purpose takes root in the group, and we have to make the purpose into something concrete. Purpose itself is the Kando value chain. It is made into something concrete, Kando value chain. We create Kando and deliver Kando, and that's where we are doing our business. We have to make this even stronger and wider in the range as well. That's all. Thank you. We are running out of time, so we would like to take one last question. From JPMorgan, Security, Mr. Ayada, please ask your question.

Thank you very much. My name is Ayada from JPMorgan. I have one question about this management change, Mr. Yoshida from Mr. Totoki each. About the group executive officers, what did you tell them or what are you planning to tell them? Also to the employees, what are your messages from each person? I would like to hear. Thank you.

Thank you for your question. Well, already the message has been issued, and today, as I mentioned in my speech, there's a change in the external environment, and also there are things that we need to tackle internally. The, we, I have already conveyed to our employees in the same manner I mentioned in the speech and also the purpose of the company and also, we're going to get closer to people that will not change, and together we're going to attain further growth. That was my message. From myself too, basically I delivered the contents of the my speech with a little more meat to it, in a sense, to our employees and also to the key team members.

Individually, I had opportunities to speak to them one by one. I asked them for their cooperation because I'll be assuming this new position. We received a lot of feedback through the email and the messengers. I would like to take my time to read through all the messages. I'm looking forward to doing so. That's all. Thank you very much. It is time. This concludes the question-and-answer session. Next there will be a photo session for the meeting.

Ladies and gentlemen, let us start Sony Group Companies and the consolidated financial results announcement. My name is Shinji, from IR Group of Financial Department. I'm happy to serve as MC. Please, I, let me introduce those who are on the podium. Hiroki Totoki, Executive Deputy President and CFO, and Ms. Naomi Matsuoka, Senior Vice President in charge of Corporate Planning, Control, Support for Financial Business and Entertainment Areas. Sadahiko Hayakawa, Senior Vice President in charge of Finance and IR. Those three are on the podium. First, Totoki-san will have the floor to talk about the Q3 FY 2022 consolidated financial results, and then go down to the questions and answers. As for the questions and answers, we will first entertain questions from investors and analysts, then, to the separate sessions, from media.

In total, we are planning for 45 minutes. For the related documents, we have posted on the IR website. Please refer to that. Totoki-san, you have the floor.

Today, I will explain the following. Consolidated sales for the quarter increased 13% compared to the same quarter of the previous fiscal year to JPY 3,412.9 billion. Consolidated operating income decreased by JPY 36.4 billion-JPY 428.7 billion. This operating income result was close to the record high reached in the same quarter of the previous fiscal year, which benefited from the recording of JPY 70.2 billion gain on the transfer of a business in the picture segment. Income before income taxes decreased by JPY 63 billion year-over-year to JPY 398.6 billion. Net income attributable to Sony Group Corporation stockholders decreased by JPY 19.4 billion-JPY 326.8 billion.

The result of that quarter by segment are as shown here. Next, I will explain the fiscal year consolidated results forecast. The consolidated sales forecast is JPY 11,500 billion, a decrease of JPY 100 billion from the previous forecast. We have upwardly revised our forecast for operating income by JPY 20 billion-JPY 1,180 billion. On the other hand, the forecast for consolidated operating cash flow, excluding the financial service segment, has decreased by JPY 270 billion from the previous forecast to JPY 550 billion, primarily reflecting a significant increase in working capital. Now I will explain our inventory situation, which is the primary cause of the increase in working capital.

The inventories at the end of the current quarter were JPY 1,464.5 billion, an increase of JPY 48.1 billion from the end of the previous quarter. In the G&NS segment, the increase in inventories of PlayStation 5, for which production and sales expanded significantly during the quarter, and PlayStation VR2, which is scheduled to be released this month, are notable. The primary reason for the increase in working capital was our decision to raise the level of inventory in an effort to ensure that we can achieve our sales plan for the fourth quarter and to maximize the penetration of PS5, considering the continued risks related to the supply chain and logistics for PS5.

In the ET&S segment, although inventory reduction progressed to a certain level from the end of the previous quarter, we recognize that it is still slightly higher than the appropriate level, and we plan to accelerate further reduction toward the end of the fiscal year. In the I&SS segment, we are continuing to manage strategic inventory, paying close attention to inventory quality and carefully balancing inventory risks while maximizing the use of existing capacity and optimizing the timing of capital investment. The forecast for each segment is as shown here. Now let's move on to an overview of each business.

First is G&NS segment. FY 2022 Q3 sales increased a significant 53% year-on-year to JPY 1,246.5 billion, mainly due to the increased sales of hardware and the impact of forex rates, foreign exchange rate. Operating income increased a significant JPY 23.4 billion year-on-year to JPY 116.2 billion, mainly due to the impact of the increased sales of first-party software despite an increase in cost. The focus for FY 2022 sales is unchanged from the previous forecast. We have upwardly revised our operating income forecast to JPY 240 billion, an increase of JPY 15 billion from the previous forecast. Expenses associated with acquisition for the current fiscal year are expected to be approximately JPY 57 billion.

7.1 million units of PS5 hardware were sold during the quarter, and the cumulative number of units sold by the end of December exceeded 32 million. Based upon this result, we have set our sales forecast for the fiscal year at 90 million units. By optimizing our operations, we are exerting every effort to sell as many units as possible to meet the strong demand. Due to the penetration of PS5, the percentage of PS5 users in the number of monthly active users in December increased to about 30%. Engagement metrics users who transitioned from PS4 to PS5, such as the PS Plus subscription rate, gameplay time, and average spending amount, are significantly higher than those when they played on PS4, and we will continue to focus on accelerating transition of PS4 users to PS5.

In addition, nearly 30% of PS5's MAUs are users who never used PS4. With the spread of PS5, the acquisition of new users is progressing. Although total gameplay time of all PlayStation users during the quarter was down 3% year-on-year, it was up 6% compared to the prior quarter, and it was up 14% in December compared to the prior month. We believe that user engagement is on a recovery trend due to the penetration of PS5 and the contribution of hit titles. In terms of software for PlayStations, the new title, God of War Ragnarök, recorded sales of more than 11 million copies in the first 10 weeks after its release on November ninth, marking it the fastest-selling first-party title ever.

Looking ahead to next fiscal year, we have strong titles planned to be released for both first and third party, including Marvel's Spider-Man 2. The sales contribution of PC software is steadily increasing thanks to the rollout of our popular IP to PCs, such as Marvel's Spider-Man: Miles Morales, which went on sale in November. As for Bungie, pre-orders are steadily increasing for the Destiny 2: Lightfall expansion, which is scheduled to be released this month. On the 22nd of this month, the PSVR 2 will be released worldwide. By maximizing next-generation sensing functionality and the performance of PS5, we aim to provide a virtual reality experience like never before.

In anticipation of the launch, we are preparing a line-up more than 30 titles, including Horizon Call of the Mountain, the latest title in our IP, and Gran Turismo 7, which will be upgradable to PSVR 2 for free. In this way, we are seeing steady results from the various measures we have taken in terms of both hardware and software, and we believe that we have created positive momentum to re-accelerate growth and the game business centered on the expansion of the penetration of PS5. Next is the music segment. FY 2022 Q3 sales increased by 23% year-on-year to JPY 367.7 billion, mainly due to the impact of foreign exchange rate and the increase in streaming sales. Operating income was JPY 63 billion, an increase over JPY 7.8 billion year-on-year.

The contribution operating income from visual media and platform accounted for approximately 10% of the operating income of the segment for the quarter. There is no change from the previous fiscal year forecast. Streaming sales in the quarter continued to grow steadily with the year-on-year increase of 33% of the recorded music and 60% of the music publishing, 7% and 28% respectively on a U.S. dollar basis. In recorded music, following the first half of the fiscal year, during which we had many new albums, hits by artists such as Harry Styles and Beyoncé, we continued to generate hits and with an average of 38 songs in Spotify's top 100 weekly global music rankings in the coming quarters.

Among them, the singer-songwriter SZA's album, SOS, released on December 9th, became a big hit, remaining at number one in the Billboard 200 for the consecutive seven weeks after the release. In music publishing, our affiliated songwriters participated in all of the top five most streamed albums on Spotify in calendar year 2022, we believe this further solidifies Sony's positions in the industry leader. Next is the picture segment. FY 2023 Q3 sales were JPY 331.5 billion, a significant decrease of 28% compared to the same quarter of the previous fiscal year, which benefited from the blockbuster release of Spider-Man: No Way Home and the U.S. television series Seinfeld. Operating income fell by significant JPY 123.9 billion.

JPY 5.4 billion are primarily due to the recording of the gain from a transition from G&NS Games business in the same quarter of the previous fiscal year, and the impact of the decreased in sales. FY 2022 focused in sales are JPY 1,400 billion, decrease of JPY 40 billion from the previous year. There is no change from the previous focus in operating incomes. Due to the fewer films being released, a result are mainly from the production delays brought by the COVID-19 situations. Box office revenue in the U.S. calendar year was about 60% of the calendar year 2019.

Next fiscal year, Sony plans to release highly appealing films including the sequel of the Academy Award-winning animation film of the Spider-Man: Across the Spider-Verse, and a new film of Sony's Spider-Man Universe of Marvel characters following ones like Venom. We also Crunchyroll paid members exceeded 10 million as the top of the by the end of the next years. We have that's evidenced by the release of a One Piece Film: Red. Following on from Uncharted, which recorded box office revenue of more than $400 million worldwide, with more than 10 projects underway, convert games IP to video, including Gran Turismo and God of War.

The live action television drama adaptation of The Last of Us, which began airing HBO Max and Max, January 15th, became the big hit in the first episode, since its first release, with 22 million viewers. Due to this, the game of The Last of Us Part I, released end of 2020, and Amazon sales ranking for PS4 software in the U.S., which has the positive impact on the game's load. More by March, we plan to release the first PC game software by using this IP. In this way, we plan to further increase and strengthen our values, highly appealing IP, through a multifaceted exploitation of the IP into the collaboration actors over.

Next is the Entertainment Technology and Services segment. FY 2022 Q3 sales increased 10% year-on-year to JPY 752.8 billion due to foreign exchange rates and increased sales of digital cameras. Operating income increased JPY 1.1 billion year-on-year to JPY 81.1 billion, primarily due to the benefit of the increased sales of digital cameras, despite the impact of decreased sales of televisions. FY 2022 forecast for the sales of JPY 2,480 billion, a decrease of JPY 30 billion from the previous forecast. There's no change from the previous forecast for operating income.

By responding swiftly to market changes and minimizing the impact of the economic slowdown and deterioration of the market environment in certain categories such as TVs, we secured a profit for the entire segment during the quarter that was the same level as of the same quarter of the previous year. Regarding interchangeable lens cameras, although the pent-up demand due to product shortage in the previous fiscal year is abating, there has been no noticeable negative impact from the economic slowdown so far, and sales are relatively stable. We have been able to control the supply chain disruption caused by the resurgence of COVID-19 in China since the end of last year, so that it does not affect sales. We are closely monitoring the situation after the Chinese New Year and are taking necessary action.

We anticipate that the business environment will become even more severe over the next fiscal year. We will revise our sales plan for the fourth quarter even more conservatively, and will proceed with the business operations with the top priorities being prevention of any negative impact from being carried over into the next fiscal year, and acceleration of our efforts to further strengthen our business structure. Next is I&SS segment. FY 2022 Q3 sales increased 28% year-on-year to JPY 417.2 billion, mainly due to the impact of foreign exchange rates and increase in sales of image sensors for mobile products. Operating income was JPY 84.9 billion, a significant increase of JPY 20.2 billion year-on-year, mainly due to a positive impact foreign exchange rate despite an increase in costs.

Both sales and operating income for the current quarter were recorded heights for this segment. The FY 2022 sales forecast has been decreased JPY 20 billion from the previous forecast of JPY 1,420 billion. There's no change from the previous forecast for the operating income. The smartphone market continues to be sluggish, centered to mid-range and the low-end products in China. Recently, this trend has become partially conspicuous for high-end products as well, but that is highly within the expectations of our previous forecast. At present, we assume that the smartphone market will recover moderately starting from the second half of this fiscal year, ending in March 31, 2024, and we are proceeding with the careful verification and assessment in preparation for formulating a business plan for the next fiscal year.

On the other hand, sales of our large format, high definition sensors for flagship models have grown significantly from the previous fiscal year, leading to significant growth in sales for the segment. We believe that the growth in the trend towards larger size, higher image quality, higher performance mobile sensors is a major achievement this quarter. Taking this into account, we will continue to consider medium to long term investments and increase production capacity to further expand our image sensor market share. In the automotive sensor business, we expect to double sales in the current fiscal year compared to the previous fiscal year. We expect the sales to continue to grow in a high level of the next fiscal year as well.

Last is the financial service segment. FY 2022 Q3 financial service revenue decreased a significant 24% year-on-year to JPY 359 billion, mainly due to deterioration in the net gains and losses on investments in the separate accounts at Sony Life Insurance. Operating income increased a significant JPY 19.1 billion year-on-year to JPY 54.3 billion, primarily due to a reversal of policy reserves at Sony Life resulting from the rise in interest rates during the quarter. Sony Life's new policy amount in force increased 57% year-on-year due to growth in the corporate business and strong sales, mainly of the new individual variable annuity, SOVANI. There's no change in the previous forecast.

Next fiscal year will be the fiscal year of the fourth midterm range, Mid-Range Plan. It will be an important fiscal year where we establish the next Mid-Range Plan. I believe that the most important theme in the next Mid-Range Plan is the Sony Group's strategy for the further growth beyond the current tough economic cycle. Our next fiscal year, we anticipate that we will need to operate our business in the face of headwinds. While each business will focus on responding quickly and decisively to the changes it faces, we also will steadily lay the foundation for the future. We plan to further evolve the diversity of our businesses and human resources, which are our strengths, enhance resilience of our business portfolio, and take on the challenges of the creating new value in the growth markets. That concludes my remarks.

Mr. Totoki, now we'd like to move on to Q&A session. As we explained at the outset, first we'll be having Q&A session from investors, analysts, and from about a quarter after five, we'll be entertaining questions from the media. Those of you who have registered for asking question in advance, please connect the dial the designated number and press asterisk followed by one. Those of you who have question in the room, please raise your hand, and then wait until the microphone is brought to you. Today, because the time is limited, I'd like to ask you to limit your question to one per person. Now, those of you, if you have any question, please indicate. Now, online participant, BofA Securities, Shirakawa-san, please. Thank you very much. Shirakawa from BofA Securities. About PS5 I have a question.

PS5, 7.1 million units, sales has increased significantly. As the market consensus is about 7.5 million, 7.1 million. If you can produce more, you could have sold more, or the demand was about this level. In the 3Q, you have exceeding PS4. What is the current situation of PS5?

Thank you for your question. I would like to respond to your question. Sales unit of 7.1 million units is not a bad figure at all. However, the production and distribution problem continued, so the products are not delivered to the customers sufficiently. Distribution channel at the shop front, the products are not delivered yet sufficiently, so we need to streamline the operation and so that the units will be delivered to the customers as promptly as possible. Therefore, the momentum of demand, we are not concerned. Rather, we have to make sure that we can solidify the operation, and we can deliver as many units as possible, as quickly as possible. That's all. Thank you.

Thank you. Thank you for your question. Let's go to the next question. Once again, from online, Morgan Stanley, MU, Ono-san.

Thank you. Congratulations, Totoki-san, for assuming a new position. I have a question concerning games. three months ago, you talked about some of the focus. Games KPI is now gaining momentum, I think, especially MAU and, 112 million, that's quite a positive, the ways. PlayStation, is, recovering, in the quarter. But as for the user compositions, you talk about transition from PS4 to PS5. How do you, focused, the transition status of from, PS4 to PS5? Will it gradually, the increase or depending on the new titles, to boost, the demand for PS5?

As for PS5 and PlayStation Plus, the paid member increase is might be one of the main factors. As for the next quarter, that's almost as planned. As for PS5, the sales increase and promotional effect, should lead to the increase of the sales and reup. There are some players who are being away from the gaming, and that should be the reasons for us to see this current level of the user. As for PS5, and there are some reopening purchases are rather high, and that should have a time lag to see the positive effect onto the figures. That might be because of the time lag for that membership and reflection onto the sales and the revenue. We would like to continue to monitor the business, and we are going to solidify the software deliveries, and so as to enhance the engagement with users for gaming. Thank you.

Thank you. I would like to move on to the next question. Please raise your hand if you have a question. From the venue, the person in the middle of this row.

Thank you very much. Sakai from Daiwa Securities. I have a question about the finance area and our financial services area. The third quarter result of the new contracts, was it as ex-expected? Also, the interest transition, how will it affect the performance? Also, the MCEV, what was the result? In addition, for the next term, there will be a plan for the change in accounting system. At this moment, what is your view on how this may affect the performance?

Now, I would like to invite Ms. Matsuoka to answer about the finance services related questions. Thank you very much for the questions. About the new contract value, the third quarter situation is your question. Thankfully, as mentioned in Mr. Totoki's speech, the SOVANI is performing quite well and our new contract is increasing and therefore the new contract values is also increasing. That is the trend, and that is to last for some time. Also an interest rate shift impact. We do have a hedging, so there we don't expect any significant impact. Even if there may be some impact, it will be very slight.

Depending on how the interest rates shift, we need to look at the different spreads and also in particular, the bank spread certainly will be affected. In that sense, we would like to, we will be increasing the profitability through that. IFRS number 17, in regards to this accounting system change, there will be another occasion for us to explain in more details about the IFRS. Please wait for that occasion. Thank you.

We'd like to move on to the next question. Anybody? Next online, participant online, Mizuho Securities, Nakane-san, please.

Thank you very much. Nakane from Mizuho Securities. Congratulations for the good results. Now, I have a question regarding game. Recently, U.S., Europe and China macro trend is different. In December results and the forecast for March and the forecast for next fiscal year and onwards. Business environment, hardware and software network in by region, what difference in trend is observed or no difference? Can you give me some hint? That's my question. Thank you.

Thank you very much for your question. Game and network, globally, the deceleration of the economy, there is a difference by regions. How does that impact our business at this point in time? By regions, there is no significant difference. That's my recognition. Having said that, however, PS5 share compared to peers in Europe as compared to the United States, it is high. Our position is higher. We are maintaining a high position. In the United States also, in summer, there was some narrowing of the gap, but more recently our share has expanded significantly. Impact, there's not much impact of the macroeconomy. Having said that, however, this is something dynamic, so we have to watch carefully the situation from the fourth quarter onwards. Thank you.

Thank you. We would like to move on to the next question. Online participant, Ayada-san of JPMorgan Securities.

Thank you. My name is Ayada of JPMorgan. I have a question. Based on your documents, and for the Q3 sales-

The North American the smartphone the production was the constraint, and as for the Q4, wafer input, that's almost on the same level of the previous fiscal year. As for the capacity, seems to be a lot of smaller compared to the previous years' figures. That might be decreasing factors over your productions. What is your perspectives for the North American market and production situations?

Thank you very much. For the first part of the questions, based on the customers, production, the changes, we had quite minor impacts. As for Q4, we have yet to identify the exact cause. We need to continue to monitor what's going on. As for capacity and wafer input, actually, Q4, 90% is for the operating utilization rate. That's for image sensor productions related to the changes. Based specifically for industrial use in the Kumamoto plant. As for the others, we are going to maintain the full-fledged productions. The Q4 capacity, it seems to be dropping because of the plant and the maintenance and the inspection.

Thank you.

Time is running out, so we would like to take one last question. Those from SMBC Securities, Mr. Katsura, please ask a question.

Hello, I'm Katsura, congratulations, Mr. Totoki. Now, I have one question. About the market landscape, how you interpret the market situation, it's dynamic, your competitors and other peers say that it's tougher than three months ago. Your semiconductor business is doing quite well. Based on this, towards next year, what is your plan? Also G&NS, I believe that the forecast is quite tough and I believe that you would like to take some measures or countermeasures. I would like you to explain to us what you will do. Thank you for the question. Overall, economic landscape, I think that's the question.

I believe last year, in comparison to end of last year, in particular, European, U.S. economy, there is an optimistic view that they may be making a soft landing. IMF forecast has been revised in a upwards manner. Also the equity market, the financial market is, the momentum is maybe recovering in advance to the overall market recovery. The generally, that may be the tendency, but when it comes to the real economy from the finance market, always the changes comes in delay.

The first, the fourth quarter and also the early next fiscal year, the real economy and also the consumption trend, we need to be cautious to be prepared for any shifts. As far as our business is concerned, currently, the smartphone and the low-end and mid-end are going down, and the TVs demand is weak. I mentioned that in I can say that. This is something that was foreseeable to a certain extent. As far as we are concerned, we think we are prepared. But from the fourth quarter to the first part of next fiscal year, we are going to do the right risk control.

We'll be prepared for the next phase and the next momentum, so we will not be left behind then when the next momentum increases. That is the overall view at this point in time. Thank you.

Thank you very much. Now it is time, we would like to conclude the Q&A sessions for the investors and analysts. Now, we would like to move on to entertaining questions from the media. Those of you who have any question in the hall, please raise your hand. Those of you participating online, if you have question, please press asterisk followed by one. In this hall, the microphone will be brought to you if you raise your hand. Because the time is limited, I would like to ask you to limit yourself to one question per person. Now, if you have any question, please raise your question. Now, in the middle, fourth row.

Kyodo Tsushin, Yamazaki is my name. Not directly related to earnings, announcement. About Semiconductor business, I have a question. In Kumamoto, You are considering building a new plant in Kumamoto. What is the current situation of, considering the plant in Kumamoto?

Thank you for your question. It's not something that we have made an announcement of, so this is based upon speculation, and I'd like to refrain from responding to the question. Generally speaking, image sensor market growth in the mid to long term, and based upon that, consideration for expanding the production capacity is always considered, not limited to specific location, but widely we are considering that. If there's anything that is decided, then we would like to inform you immediately. Thank you.

I would like to move on to the next question. Next question, please. In the center, two rows from the front, and the second from the left. My name is Tsutsumi of Nihon Keizai Shimbun. one question, and that's for entertainment, music, and pictures. What is your strength as the conglomerate? Centering around entertainment business and the macroeconomic situation has been rather improving, and that should be a driving force for you to maintain the good business performance. For the next fiscal year and you are expecting furthermore solidifications of the user basis. What is your strength in that environment? How you can take the leverage of your corporate strength for that environment for the entertainment related to being a conglomerate?

We may have, you may have a conglomerate, discount, and that might be, negative factors for you. If there is any, discounting factors, how are you going to minimize, those factors? How you should address, to those, the elements?

Thank you for your questions. As to the strength of being a conglomerate, we have the diversified businesses. Diversified businesses are probably that they are not so closely related, so, and all of the sectors do not go along at the same time. That should be one of the strength for us to have multiple businesses. That's the same concept of the portfolio management. As for conglomerate discount, there should be many people saying different things. As I talked in the presentations, as for the entertainment three businesses, we have the transmedia, and we have a quite strong synergy effect between the different business areas. That's almost visible in the financial figures.

We can expect some good circulation and benign cycles for the bottom up, the effects. That should be another strength of ours. In addition to that, we have the technologies. Sony is a technology company. That's one of our uniquenesses and how we can take the leverage of those technologies to entertainment business. The metaverse should be one of the topics that's represented by the metaverse. That's our activities for the new digital experience and entertainment. That should be a core factors of our future business. Thank you.

Okay. Please raise your hand if you have a question. In the middle, second row from the front.

Nishida, I'm freelance journalist. About the inventory level, at the moment, for the Game and the electronics point of view, when we think about the market, I believe you may have to be conservative in planning on the inventory level. how are we to analyze your inventory level from the perspective? For the gaming, you have a high level of inventory, and we judge that it can be mobilized. what is your view on the inventory?

Thank you for the question. Would like to share, add some informations, a statement about the inventory level and for the Game & Network Services for this third quarter, the sales, production sales is increasing. That is why it is, the inventory is building up significantly. Even if there's the sales and the demand, for a long time, we were not able to deliver products smoothly. We therefore increased the production capacity significantly and produce the products, and we are in the middle of delivering this products. In regards to the game and entertainment service, we are not worried about the inventory level actually.

The inventory level, when we think about the sales momentum and also the PS4. The seasonality, now that it's in the fourth year. In the past, with the simulation, the inventory itself may increase in the monetary value. In comparison to the PS4, the product unit price is much higher. At PS4, we decreased the price in the fourth year. The monetary value seems to be higher than what actually is. When it comes to ETS, in the previous briefing, I mentioned that the inventory level at the end of the second quarter was rather high. We worked on the reduction of the inventory.

we managed to achieve our goal. Our timing can be delayed. That's all. Thank you.

Now, anybody who has a question, please raise your question. Next, participant online, Takenaka-san from Reuters. Takenaka from Reuters.

Game segment. Totoki-san, earlier you made a comment, I'd like to confirm. This fiscal year, PS5's sales target is 19... 18? 19. You have increased to 19.

Yes, it is 19 million units.

It was JPY 18 million and were raised to JPY 19 million.

18.5 million.

We say 18, and it is 19. We have raised the target. Thank you.

The time is running short, and we'd like to entertain one last question. On this row, on the right, and fifth from the front. My name is Imaida of Diamond. Totoki-san talked about image sensor business, and you are going to enhance the production capacity. Will it be for the other applications than mobile products?

Thank you for your questions. That includes the other products than mobiles. Mobile image sensor products are the driving force for the most of the growth. We have some other segments as well. Thank you.

This is time for us to adjourn the session. This concludes the today's the consolidated financial result announcement.