Ladies and gentlemen, it's now time to start this Sony Group Corporation's Financial Results Briefing for the Fiscal Year Ended March 31, 2021. I'm [ Ida ] as the emcee for this session. Thank you very much for coming. And today, that -- as we have announced beforehand, we have invited media members and analysts and institutional investors. And this -- the conference will be streamed through the Internet from our site. Executive Deputy President and CFO, Mr. Totoki, will present this financial results of the fiscal year ended March 31, 2021. And later, we have a Q&A session. And the total program is about 70 minutes. Thank you very much. We'd now like to turn to Mr. Totoki.

Thank you very much. So this is the topic that I would like to cover today. The consolidated results for the fiscal year ended March 31, 2021, and so forth. And the consolidated sales grew -- increased 9% compared to the previous fiscal year to JPY 8,999.4 billion, and consolidated operating income increased JPY 126.4 billion to JPY 971.9 billion, both record highs, primarily due to the improvement of valuation gains and losses on the investment securities and other income and expenses. Income before income taxes increased JPY 392.9 billion year-on-year to JPY 1,192.4 billion. And net income attributed to Sony Group Corporate stockholders increased JPY 589.6 billion year-on-year to JPY 1,171.8 billion. Adjusted operating income before income taxes and net income attributable to Sony Group Corporate stockholders, which excludes extraordinary items can be found on Page 4 through 10 of the materials. FY '20 consolidated operating cash flow, excluding the Financial Services segment, was JPY 1,122.2 billion, approximately JPY 2.6 trillion cumulative for the last 3 fiscal years, a level that significantly exceeds the target we established with the third mid-range plan. The cash flow of each of our business segment in FY '20 is shown on this slide. This slide shows the results by segment. Next, I will show the consolidated results forecast for FY '21. Sales are expected to be JPY 9,700 billion. And operating income is expected to be JPY 930 billion. We have changed our accounting standards to International Financial Reporting Standards, IFRS, from FY '21. Therefore, the FY '20 results I will explain today are based on the U.S. GAAP, while our FY '21 forecast is based on IFRS. As a result of the adoption of IFRS, the impact of the fluctuations in the market for financial instruments is expected to result in variances…

Thank you very much, Mr. Totoki, the Executive Deputy President. And at 16:25, we would like to start this media question and answer. At 16:50, we have a Q&A session for the analysts and the institutional investors and then about 20 minutes each allocated to each Q&A session. And then -- so those -- the media members and investors and analysts who have already registered to ask questions, you have a designated phone number and then please link to that number. If you have not made any prior registration, through the international streaming, you can listen to the Q&A session. So please wait a moment while we get ready for the Q&A session. Thank you. We will soon start the question-and-answer session for the media. Please wait for a few minutes.

Thank you very much for waiting. Now we'd like to entertain questions from the media. The responder is Mr. Totoki, the Executive Deputy President and CFO; and Ms. Naomi Matsuoka, Senior Vice President in charge of Corporate Planning and Control, Finance and IR; and Mami Imada, the VP -- Senior General Manager at the Corporate Communications. [Operator Instructions] Thank you for your cooperation. [Operator Instructions] Thank you. The first question from Toyo Keizai, [ Mr. Takahashi ], please.

I hope you can hear my voice.

Yes, we can.

I have 2 questions. First of all, the games, this year, the PS5, the unit volume was presented. But in that -- this number, for example, within this year, at certain times, there could be maybe the solution of a problem of the semiconductor and then maybe the number might be different and maybe increased. In conjunction to the EP&S, you also talked about the possible impact by the semiconductor shortage. So is that the likely scenario of the shortage of semiconductor? That's the first question. The second one is capital allocation, your outlook. Maybe on the IR Day, you might give us more details of capital investment in the facility and equipment. In the previous MRP, the semiconductor was the major focus of investment. But in the fourth MRP, where do you give emphasis in your capital investment? Do you have any change in your policy? Strategic investment, some of the acquisition candidates were mentioned. What's your philosophy? And would that be different compared to MRP 4 -- 3 versus the new MRP 4?

Thank you very much for your question. You gave us 2 questions. And then as to the first question, Game & Network service, in PS5, the launch and the sales unit and EP&S might be impacted by the shortage of semiconductor supply. The second question is about capital allocation and our capital investment in equipment. In the third MRP, semiconductor was forecast, but whatever the MRP for in that investment strategy. That was my understanding of your question. So let me respond to this question by myself. As to the PS5, the sales scenario estimate, of course, as I said earlier, the PS4 and there should be more than the PS4 sales volume. That's what we aim at. But can we drastically increase the supply? No, that's not likely. So the shortage of semiconductor is one factor, but there are other factors which will impact on the production volume. So that at present, we'd like to aim at the second year sales that is 14 million -- 14.8 million units. That is the second year of the PS4 sales. As to the EP&S, the semiconductor shortage might have some impact. Well, within this fiscal year, there are different devices and the supply was rather limited or constrained. For example, we could find maybe second resource, or by changing design, we could cope with them. In EP&S, we can -- we took a flexible maneuver. So in fiscal 2021 that we would like to flexibly adapt to the situation. To the second question about the capital allocation. Well, capital investment -- or capital allocation, as I explained to you, in the MRP 4, in upcoming period, JPY 1.5 trillion of capital investment is scheduled. In that plan, about JPY 700 billion will be dedicated to semiconductor. So when you think of that, the percentage in the -- compared to the MRP 3, there's not a major change in this next MRP 4. Thank you.

From Asahi Newspaper, Suzuki-san, please.

Suzuki of Asahi Newspaper. Can you hear me?

Yes, we hear you.

I have 2 questions as well. One, EP&S, the Image Sensor, the semiconductor, a certain customer of China because of its influencer impact, do you get enough inquiries from other manufacturers to compensate for the particular Chinese customer? In IS&S segment, certain Chinese customers, are we getting enough inquiries to offset that portion?

Last year, what we tried to achieve is that, by FY '21, we try to recover the market share in volume and the profitability should be recovered in 2022. But FY '21, recovery of market share in volume, as far as this is concerned, we are getting a very good feel about it. So in FY '21, to a certain extent, we will strengthen CapEx.

One more question about the Electronics Products. The improvement of the product mix, in what way are you going to shift toward the high value-added products? If you could elaborate more on this shift, I would appreciate it.

EP&S product mix improvement, what is it specifically. I think that's the question. As you rightly said, basically, TV getting larger screens and a shift towards high-end products, those were most conspicuous examples or achievements. Thank you.

Nishida-san, please.

Do you hear me?

Yes, we do.

Freelance, Nishida. Two questions. One, about the Game business, particularly in this fiscal year, download business revenue will grow because mainly of, well, PlayStation 5 or stay-at-home demand. In fiscal '20 and thereafter, what is the impact? What's happening to maintain the download revenue? And number two, Electronics business. Mobile profitability is improving. Could you elaborate on the reasons for the profitability improve? And is there a possibility of product mix and others? If you can talk about something around this area.

Game & Network service in fiscal '20, download ratio you said, we call it a digital ratio in our explanation. So let me, well, regard that as digital ratio to explain this. Now here, stay-at-home demand was not small. And particularly in Q4, we are -- please take a look at the material as externally announced. It appears that digital ratio is increasing. And partially because of the titles, at the beginning, stay-at-home demand, well, there was a lot of contribution from the older titles in Q1. But at that time, well, there were not many new releases. That was a big impact. And to answer your second question about the Mobile profitability improvement. Why did it happen? Well, broadly, I think there are 3 reasons. The first is we have narrowed down on the areas for business, where broadly it's now concentrating in Japan. With this, we saw an improvement of the profitability. And secondly, the high value-added products have been forecast. In terms of volume, it's not so large, but again, high value-added products do have high profitability. And also another reason is the huge reduction of expenses. On this point, design efficiency improvement, with that, we have reduced the expenses quite dramatically. And so these are mainly the 3 reasons that drove the improvement of the Mobile profitability. Thank you.

Any other question? [Operator Instructions] From Nikkei, [ Mr. Bam ], please.

I hope you can hear me.

Yes.

The first question is maybe abstract question. The net profit of JPY 1 trillion, because of different factors, maybe it is an important input-making stage for your company. Compared to over 10 years ago, your sales mix has changed. As Sony Group, Mr. Totoki became the leader, but what changed? Why your profitability has become so much better compared to a dozen years ago? The second point is the strategic investment or capital allocation. As you mentioned, the content IT investment and some of the projects were announced. So high value-added one through the net streaming. So acquisition, the value -- or valuation might have increased because of that. So because when you consider that you would choose the appropriate candidate at the proper pricing and valuation, so you have actually acquired at a good timing. Is that maybe some beneficial effect upon your good performance?

Thank you for your question. As to the net profit of JPY 1 trillion was achieved, on behalf of Sony Group, what has -- what kind of changes made it possible for you to achieve such a good result? Well, it didn't happen overnight. We have accumulated steady steps and that outcome turned out to be this JPY 1 trillion. So maybe that JPY 1 trillion figure just stood out there. But these changes take place every 10 years. Every year, you make some progress, every year and then you accumulate that. So when we reflect upon the last 10 years, of course, at the business -- the policy meeting that the CEO will present to you, Mr. Yoshida will give you more details. So maybe he will explain at the corporate -- the strategy -- strategic management meeting as to the strategic investment focused on IT. Well, attractive IP -- sorry, attractive IP, there are some merchandising channels and opportunities and scale will increase, and that reflects this valuation and that's something you have to keep up with. It's inevitable. But on the other hand, a lot of attractive products and candidates might appear. So in terms of M&A and IP and then other things, this market, I think, has become quite activated or vigorous. So we'd like to find a good candidate and we'd like to take active stance to try to continue investment. As to the past investment, well, the time is still premature to evaluate how we did it. But as to the past investment projects, the estimation or the quotation or the -- was out of the -- deviated from the strategy, we didn't have such a case. So that was a reflection.

Well, time is running out. So the next question will be the last one for this Q&A session from Newsweek's [ Hiraoka-san ].

My name is [ Hiraoka ] from NewsPics. Do you hear me?

Yes, we hear you.

My first question as a midterm forecast. In the past, operating cash flow and ROE were disclosed as an indicator, but now you are talking about adjusted EBITDA as a KPI. Operating cash flow and EBITDA are closer in concept. What's the difference between these two? What's the background of adopting EBITDA this time? Now at Sony, there are many businesses with creativity. Those investments not included in the investment cash flow seems to be increasing, for example, recruiting talents with creativity is one such example. That can push up the personnel cost and this is not exactly investment from us, an investor's viewpoint, as an advanced investment that may have the impact on your balance sheet or financial statements. Where should we focus? At Sony, what's your idea on the investment? Second question is about your Game business, at least from PlayStation 2 to 3 and from PlayStation 3 to PlayStation 4, as the generation is upgraded, the level -- profit level declined. Probably the hardware sales towards the end of its life cycle was down. And in the beginning, the cost was higher. Now from PlayStation 4 to PlayStation 5, I think the level of profit remained at a high level. What's the difference from the past practice? Probably network service may be the main driver? But as you look back on this PlayStation's history, could you comment on this?

Thank you. I think you gave me 2 or 3 questions. First about KPI. From operating cash flow to ROE to adjusted EBITDA, why did we change? In concept, they are very similar to each other. However, it can be used in a different way. The operating cash flow, for example, in a certain period of time, you have to look at tax and working capital. These 2 may affect the cash flow. So there's a lag of time period. So on a long-term basis, we can have a good view. But if you look at a certain period of time, these 2 factors affect too much and difficult to use. Another thing is that because Financial Services is now wholly owned and they don't have the operating cash flow idea, so the Financial Services is consolidated now. And then because of this, adjusted EBITDA would be easier to use and give us a clearer view. That's why we chose EBITDA. Now ROE, when profitability was low and the capital efficiency had difficulties, then we had to look at ROE and use it as KPI. However, our profitability has improved and the balance sheet has improved. Therefore, ROE, itself, is now rather than calling it KPI, we just recognize the cost of capital as a hurdle rate to look at each one of the businesses. I think that's more important for us. Now about acquiring talents, excellent human resources. In order to attract them, we need investment. But for this, where do we look on our financial statements or balance sheet? There's a cash compensation and there's stock equity-based awards. In order to attract good talents, we need to launch appealing projects or programs, various things. But for us, we want talented people to come and we want to be such a company which attracts those talented people. The investment in human resources, the focus is not on the number of people. We want to target people with high talent in recruitment. I think going forward, that's the direction we are going. Now the past PlayStation, when there was a change of generation, the level of profit declined oftentimes, as you rightly said, because of the increase in network service and we carry on the customer base from the older generation to the new generation. So in case of PS4 and PS5, we secured compatibility so the users can enjoy seamlessly. So this is what we intended to achieve. Now hardware's profitability, we take that into consideration so that we shouldn't have a very drastic negative margin. And that's why this segment contribute to the group's overall profitability. Thank you.

Now it is time to conclude the Q&A session with the media people. To change the responders, the Q&A session with analysts will start at 4:50 p.m. [Break]

We will begin a Q&A session with analysts and investors shortly. Please wait just for a few minutes until resumption.

Thank you for waiting. We would like to answer questions from investors and analysts. I will serve as the moderator. My name is Hayakawa with Finance and IR. The responders are Executive Deputy President, Chief Financial Officer, Senior Vice President, Totoki; Senior Vice President in charge of Corporate Planning and Control and Finance and IR, Naomi Matsuoka; Senior Vice President, Senior General Manager, Global Accounting Division, Hirotoshi Korenaga. [Operator Instructions] We're going to call the questioner. And when your name is called, please start speaking. [Operator Instructions] JPMorgan Securities, Ayada-san, please.

Ayada with JPMorgan. I have 2 questions, if I may. Question one, about I&SS. Wafer, the input and capacity, what's the track record and also outlook about capacity at the end of the year. If you have the number, we appreciate that. And relatedly, Totoki-san earlier on said fiscal '21 you have a good outlook, prospect for recovery for volume. But with respect to improvement of product mix, what is your, well, view? In the second half, are you going to have larger, well, products qualitatively? So if you see -- have any prospect? Question two, in the MRP 4, the adjusted EBITDA of JPY 4.3 trillion. Just thinking around it, if possible, in this fiscal year, based on the plan, the adjusted EBITDA, what is it? And the pretax profit, that's JPY 900 billion-plus. And D&A, that's JPY 450 billion. So perhaps JPY 1.4 trillion or JPY 1.5 trillion. But I would like to ask you about the number. If it's JPY 1.4 billion, JPY 1.5 trillion, then in terms of math, in 3 years, it will be flat, it appears. So in 3 years, the growth -- or beyond that, how do you look at the growth? So in terms of adjusted EBITDA, well, with respect to the balance, with the growth, if you have any message to the market, I'd be appreciative to hear that.

Thank you for your question. Two questions. The first question is with respect to I&SS, early wafer input and the capacity and product mix improvement prospect, qualitative point, in my understanding. And your second question, adjusted EBITDA. Based on this fiscal year's plan, what would be the level of EBITDA. So first, to answer your first question. Regarding capacity, in fiscal '20, in Q4, at the end of Q4, the mask -- well, installation, it's about 139,000. That was the capacity. And the previously, it was 131,000. So it's up. The plan was to start operating it in April. But because of, well, earlier preparation, we started the operation partially. That's why we have this number. And in fiscal '21, at the end of Q1, it will be 141,000 in our prospect. So what about the increased capacity? Well, increased -- or the building for increase, that's just for some production lines. So that doesn't mean -- it doesn't mean that there going to be huge a increase in the capacity. With respect to the wafer input in, well, 4Q, the track record was 128,000. That's the average, well, simple math. It was expected. And our in-house capacity is in full operation. And in fiscal '21, in Q1, the wafer input, the 3-month average is 138,000. And again, in-house capacity is expected to be in full production. We have a lot of inquiries these days. In addition, in fiscal '21, the -- well, in preparation for the shipment of new models of smartphone, we are increasing our production. With respect to the prospect of product mix improvement, in fiscal '21, in the second half of this fiscal year, 0.7, well, a small product will pick up. And so when it picks up in fiscal '22, higher value-added types will be launched. That is the prospect at this moment. So with respect to product mix improvement, that is the idea that we have. Also about adjusted EBITDA, well, this is just a ballpark. Please understand it's just proximation. But in fiscal '21, it should be JPY 1.3 trillion in fiscal '21. But in a single year, well, evaluation of that in a single year, given our, well, mid- and long-term plan, well, we should look at it -- we should look at the total. So if you just look at a single year, we'll launch something. That kind of a discussion should not be done in my view.

SMBC Nikko, Mr. Katsura, please.

I hope you can hear me.

Yes.

Music is something I have one question about and the second one I have a question on, semiconductor. In Music, as Mr. Totoki explained at the media and platform, the profit, about 30% of that is related to this Aniplex. But anyway, according to this year's plan, what is the assumption? Is it that the more optimal solution will be chosen? But in this fiscal term, what's your philosophy and idea? That's my idea on this. The second question is related to semiconductor investment philosophy. For this fiscal -- over the upcoming 3-year plan of investment, could you -- and that's what you have given us, some of the ideas. But about 6 months ago or maybe 3 months ago or so, compared to that timing, more active stance -- you have shifted to more active investment. Could you please give us a background for that investment? By that investment, how is market share or the capacity share that you'd like to achieve? Now the details will be explained at the IR meeting with regard to the MRP 3 -- 4.

Thank you for your question. Music, the percentage of media platform for 2020, about 30%. That's something we have indicated to you. When you break it down to that breakdown, naturally, you hear the version of the Demon Slayer is a big hit. So in 2021, it doesn't happen again. And mobile game as well, the content was very good. So there could be deceleration in that area. And those factors -- excluding those factors, JPY 11.9 billion is income from the sales of the business, transfer of business. Taking that into account, year-on-year, JPY 14 billion or so is the reduction. So that is a reduction to be felt. So anyway, when you compare overall the income, of course, the other part will enjoy the growth. That is thanks to the increase of the revenue from the streaming. And that's how we see the growth of the profit. As to the I&SS, this is area last year, 2020, fiscal 2020, there was original planned investment and I explained to you earlier. But some of the investment plan was postponed to the future. As of now, 2022 and afterwards, there is strong demand we expect. So in that sense, some of the capital investment in 2020 and afterward, some are to be implemented as well. So this is JPY 283 billion, JPY 283 billion. And 2020, the volume share is recovered and we are almost to achieve it till 2022. Further strength of ours will be achieved. In other words, we will get this profit and then the sales. And we need to have a capacity prepared to produce. So that's why we started to invest for the capacity building and additional facilities. And as of now, in the fourth term, the final year capacity and its size, we expect -- it's not a simple increase of the capacity for investment. But rather, we are shifting to the high value-added products. The process itself need to be increased and enhanced. Investment in there is quite voluminous. And then by enlarging the size, it might change. So when we talk about the relation between capacity and then investment, it's not a linear relationship. So we cannot specifically just talk about capacity because of the complexity.

From Mizuho Securities, Nakane-san, please.

Nakane speaking. Two questions. First, in the text about the Games, what I wanted to ask, hardware, software, network, if you divide this, what would be the profit for each? And the backdrop, the contributing factor is the improvement in hardware. PS5 and peripherals may give this uplift. When the volume is increasing, the gross deficit may increase. That will push down, we thought, the level of profit. But the network profit is not included. What would you say? Second, R&D is JPY 610 billion, which is a large increase. You talked about I&SS, but any other areas that there will be an increase under MRP -- in the new MRP?

Thank you very much for your questions. First about the Game & Network Service, I couldn't really hear you clearly. So let me confirm. We improved the profitability of hardware. When the PS5 unit sales increases, that may lower the profitability. Was that what you're asking? Including the peripherals, probably you could achieve the profitability. That's what I thought. Now profitability -- profit contribution of hardware in FY '20, inclusive of the peripherals, is positive. That's what we have been saying. And then the amount of the contribution in this fiscal '21 will be about the same or even above the previous year's level. That's the assumption of the plan. Why is it the case? Compared to last year, PS5's profitability will improve. That's how we forecast. That's why this change will be brought about. Second question about R&D expense. Your question about the R&D cost, on a consolidated basis, as you rightly say, JPY 610 billion from the -- compared to the previous year, it is an increase by more than JPY 80 billion. Game & Network Services, EP&S and I&SS, every segment increased. Game & Network Services, the development cost increased by JPY 20 billion, and that had the impact. Also, I&SS, JPY 25 billion or so increase is expected. And the remainder will come from EP&S. Thank you.

Now we're running out of time. So the next question will be the last question. Morgan Stanley, we have Ono-san.

My name is Ono with Morgan. First, well, this may overlap somewhat with Nakane-san's question. Game & Network, JPY 17.2 billion reduction in profit. The game development expense, that's about JPY 20 billion. I think you said that in your comment. But the positive factors and negative factors in terms of scale, could you give us more hint? And on content, negative factor, game development, the in-house software and also the hardware as related with Nakane-san's question. So that's my first question.

Ono-san if you could also give us your second question.

My second question, EP&S, JPY 13.9 billion reduction in profit. Well, if possible, by product category, the sequence, what are the items, if you could explain that.

Thank you For your questions. Now with respect to Game & Network service fiscal '21 reduction in profit, positive factors, negative factors. That's what we would like to know. Now we're including some qualitative aspects, I would like to give you an answer. Number one, as I have been saying all along, with respect to hardware, basically, we are moving positively the entire hardware. We ask you to look at it positively. And including investment in studio, the development of games, we're going to increase that. So that's part of investment that will increase. And third-party software reduction in profit, we do anticipate it somewhat. But again, last fiscal year, first quarter, I think, well, it just increased dramatically because of stay-at-home demand last year. So I think we have to discount it. I think that's a reasonable way to look at it. So that's the way we should look at it. And the end result of our calculation is that. I think that is some -- one way to look at it. Regarding currency, I think that should work positively. And EP&S, EP&S increase in profit by product categories. Well, it's not all that complex. From camera, the increased profit and revenue coming. Well, last year, because of pandemic, the negative impact was given on the digital camera. And here, we are on a path for recovery. And by country, it differs. But the pandemic as it abates, there are strong products and they will, again, grow. Thank you.

Now -- thank you. Now it's time to close it. We would like to conclude the Sony Group Corporation's financial results briefing. Thank you for your participation today. [Statements in English on this transcript were spoken by an interpreter present on the live call.]