Good afternoon, ladies and gentlemen. It is now time to start Sony Group's Q1 FY 2023 Consolidated Financial Results Presentation Meeting. I am [ Okada ] over the Corporate Communications. I would like to first introduce the speakers today, President, COO and CFO, Hiroki Totoki; and Senior Vice President in charge of the Corporate Planning Group DE&I promotion, also support Financial Service and Entertainment segment, Naomi Matsuoka; and then Senior Vice President in charge of Finance and IR, Sadahiko Hayakawa. So those 3 will present the Q1 FY 2023 consolidated financial results also the outlook throughout the FY 2023. And there will be a question-and-answer session, and we plan to have a 70 minutes session. Thank you. First speaker is Mr. Totoki.

So the speakers today are Matsuoka and Hayakawa. And then toward the end, I'd like to make a summary comments. So first speaker, Hayakawa-san. Matsuoka and Hayakawa will present the consolidated results. Starting from FY '23 Q1, Sony has adopted a new accounting standard, IFRS 17 new standard, pertaining to insurance contracts, the annual results for the same quarter of the previous fiscal year. And previous fiscal year that we'll show today are presented after recalculation based on the new standard. We will explain the details later in the Financial Services segment part. Consolidated sales for the quarter increased a significant 33% compared to the same quarter of the previous fiscal year year-on-year to JPY 2,963.7 billion. Consolidated operating income decreased JPY 111.8 billion year-on-year to JPY 253.0 billion, primarily due to an JPY 84.7 billion decrease in operating income of the Financial Services segment. This decrease in operating income on Financial Services segment was primarily due to the impact of the recalculation of the previous weaker years' results, resulting from the application of the new standard and absent of a gain on the sales of real estate recorded in the same quarter of the previous fiscal year. Adjusted EBITDA decreased JPY 90.6 billion year-on-year to JPY 406.2 billion. Income before income taxes decreased JPY 73.2 billion year-on-year to JPY 276 billion. And net income attributable to Sony Group Corporation shareholders decreased JPY 43.5 billion to JPY 217.5 billion. Result per segment for the quarter are shown on this slide. Next, I will explain the full year consolidated results forecast for FY '23. The forecast for the full year is JPY 12.2 trillion for sales, an increase of JPY 700 billion from the previous forecast. JPY 1.170 trillion for the operating income, no change from the previous forecast. And JPY…

Thank you very much. Totoki, Matsuoka and Hayakawa made a presentation. Now at 16:25, we would like to entertain the questions from the media. At 16:50, we'd like to intertie questions from the investors and analysts. And each session consists of about 20 minutes. And some people have already pre-submitted questions so that the pre-link your phone to that registered phone number. And then as to this way to ask questions in some of the matters of consideration, please refer to our invitation letter. So please wait for a few minutes before we resume the session. Thank you.

Thank you very much for waiting. We will now like to have the session to entertain questions from the media. The speakers are the same as the previous presenters, the 3 people on the screen. So let us start to entertain questions. [Operator Instructions] The first question is from [ Furuka-san ] from Nikkei.

I hope you can hear me. I'm [ Furuka ] of Nikkei newspaper. I have 2 parts of questions. The first question is that about your financial results. As Mr. Totoki explained to us that -- so the situation is maybe leveling off, like games and semiconductors and other issues. But from the Q1, of course, you are in the middle of that phase. But Mr. Totoki, what is your vision for the growth? To which area and segment are likely to grow more? Do you have a vision on this growth scenario? That's my first part of the question. And my second part of the question is about the situation on the strikes. To what extent that the movie new film release might be delayed because of the U.S. strikes of actors and others. So that in the generative AI is linked to this problem because that might have adverse impact upon music and films and pictures. Some of the content assets might be undermined by the -- potentially by the AI. So what do you think of that the potential impact there?

Thank you very much for your question. As to your first question, so in the next fiscal year in the growth scenario that I have in mind, actually, in this mid-term business plan that the Content IP, DTC as a technology investment as well as some of the diversified business segment should have intergroup collaboration. Those are promoted. As a result, in the last 3 years, the cumulative -- that JPY 1.9 trillion of capital investment in equipment imaging led to JPY 1.8 trillion for that strategic investment. So gradually, we made progress. For the mid- to long term, we have already planted the seeds for the future growth potential. That's the first point. As to the collaboration within our group companies and segments, PlayStation game IP will be used. [indiscernible] HBO, that the actual -- the drama TV production, but that became a big hit in 2022 in February. Unchartered was released in the theater, and those were success. Following those successes, numerous projects are ongoing, therefore, so that there's a strong momentum now like together with the music business. This kind of entertainment business, the 3 segments of the entertainment business, in the next mid-term plan that we expect a big growth, a sufficient growth to be achieved. As with I&SS segment, for this fiscal year, of course, there could be maybe some stagnation or we are levering off the growth to a certain extent. Of course, the revenue sales are going up. In terms of profitability, there's slightly some areas where we are not fully satisfied. So we must secure the profitability in a growth scenario. That's something we have to implement in the mid-term, the plan, and that's our challenge and priority. In 2024 and afterwards, semiconductor market situation and mainly the market situation improves, especially in China, like a recovery in Chinese smartphone market is expected. But we have to be prepared fully so that we will be ready for the next term. As to respond to your second part of the question about the strike-related issues. It's not directly just linked to the strikes, but of course, the generative AI has an adverse impact. And I think that's something I'd like to respond to you. It's not only affecting these films and pictures. The game of production, the music production and creator support already for anime, that the multilingual, the translation and so forth could be supported by AI. So the stakeholders have the rights and copyrights, and that should be respected in introduction of AI. Like music copyright, it might be violated. So we have to protect the IP as well as the artist and content. Related issues must be solved, just not by Sony stand-alone, but we have to have the entire interest involved in order to discuss to identify the future solution. That's my thought on this.

So we would like to move on to the next question. [ Nishida-san ], who is a freelancer. Very difficult to hear your voice. I'm very sorry, but I can not hear your voice. Can you repeat your question once again? Can you hear me? Your voice is not clear. Your voice is not clear, unfortunately. Can you just put the microphone a little bit more distantly? I am very sorry, since the voice is not clear, for the time sake, we would like to move on to the next person to ask question. [ Umedaki-san ] from Toyo Keizai.

Can you hear me?

Yes, I can hear you. So please go ahead.

I have 2 questions. And first question is that, as was already mentioned, the 3 areas of segments of entertainment, the total, the income, the exceeds are 54%, the 3 segments combined. It is still very high. And so you talked about next MLP, what are the percentage you would like to reach for the total -- the income of those 3 segments? And so now the China slowdown, and you have already mentioned in I&SS. And for other segment, what is the impact? For instance, the consumer spending has been quite weak in China. So what is the impact on overall business of Sony Group?

Thank you very much for your question. And so I would like to answer the 2 questions. And as for entertainment, 3 segments combined, the operating income, what is our plan to reach the certain percentage? That -- and we do not have any target in terms of the percentage. But 3 segments: Entertainment, the segments combined, and also I&SS where the growth is expected. So comprehensively, I believe that the percentage or the portion of the profit earned by those segments will increase. And the second question is other than I&SS, what is the slowdown of Chinese economy on other segments? And for the consumer spending, the ET&S will be affected. The TV and smartphones are areas where -- which is severely impacted. But currently, as far as FY '23 is concerned, the slowdown in China since there is a great concern about that, so our plan is made quite conservatively. And therefore, management itself has been going quite well. But on the other hand, as for the camera, the market, which is quite -- performing quite well, and under COVID, the activities have been restricted in the past. But there is a very good demand in this area. So we would like to reap the profit as early as possible in this area. That's all.

Now we'd like to move on to the next question [Operator Instructions] [ Abe-san ] from [indiscernible] Industry Delhi.

I'm Abe from Industry Delhi [indiscernible]. Can you hear me?

Yes, I can. Thank you.

Related to the question asked earlier, ET&S segment. Digital camera is the area that I have a question. The sales unit increased, which relatively increased profit. By regions, can you explain, for example, year-on-year basis growth rate? Can you enlighten me? In addition, in this area, Chinese market, you said that there is a robust market demand in China. Going forward, do you expect robust demand will continue in the Chinese market? What is your view of the Chinese market and the demand in the market in China?

Thank you very much for your question. ET&S segment, digital camera increased in the number of units sold, and what is the breakdown by regions was your question. In the first quarter, camera body and lens both are doing well. By regions, China and Asia, the sales has been very robust. And Europe and U.S., full on, the competition with others is getting more severe. So in some areas, there is some slight decline in share. But we are making additional investments such as sales promotion, and we are expecting our share to increase. Going forward, we should not be optimistic, and we have to be prepared for the possible slowdown of the market. And we have to invest for new products, and also we'll be controlled in both production and sales.

We'd like to entertain next question. Kyodo Tsushinsha, [ Endo-san ], please.

Endo from Kyodo Tsushinsha, I hope you can hear me. I have one question about camera. The sales are going up because after the COVID-19, there's some maybe the repercussion after the -- that for the people troubling again, that they like to use more digital camera. Is that the new demand? Linked to the COVID-19 and the pandemic, how the demand is increasing after the COVID-19 pandemic?

Thank you for the question, as I said, there's maybe reaction after the COVID-19 pandemic. Let us say at one time, demand was down. That's a fact. So people now have the pent-up demand. So last year, already -- that the people already bought lots of cameras after that. So the strength of demand is still persistent, which is a great pleasure. We have a continuing demand. From a macroscopic standpoint that the traveling demand is going up, people spend more money on traveling, vacations and so on, I suppose. So that might have a good impact on that demand.

So we'd like to move on to the next question. [Operator Instructions] [ Nishida-san ], who is a freelancer, please go ahead.

Can you hear me?

Yes, I can hear you, please.

I have 2 questions, and the first point is about game business. The third party, the application has increased. How do you assess this? Do you think that this trend will be here to stay? Or do you think that you need more efforts to promote this? And so that is related to that. In your document, PlayStation Plus, the number of user, there is a change in the disclosure conditions. So is there any reason for that? And secondly, about Pictures, particularly for drama, the streaming service overseas, is there any other impact of the fluctuation of the overseas market in this area?

Thank you very much for your question. The Game & Network Service that you are talking about, the increase of third-party titles, and I think your question is about our assessment on that. And during the first quarter, the new title from the third party, we have a very strong ones. And so in a software, the overall year-on-year, there has been increased revenue from this. So of course, on our part, the strong titles, the third-party titles should continue to prosper. And as a platform, we are very happy about it. And first-party titles and our new titles, because of the release timing, there has been the reduced sales year-on-year. But not only the third-party titles, but we would like to make greater efforts for the first-party titles. And your second question is about PS Plus and the change of the assumption about disclosure conditions. And about PS Plus, we just ceased to announce a review and the disclosure. And also, there has been some expansion of disclosures. So Matsuoka-san will cover this point.

And FY '22 in June, there was renewal. And after that, the PS Plus, in addition to the greater number of the subscribers moved to the more attractive titles with the increase in app. So we have been expanding the PS Plus business. So extra and premium, we would like to continue to promote the shift. In order -- and in order to do so, we would like to increase the service appeal. And on this basis, we are able to confirm the growth through network services expansion. And so we stopped the disclosing, the number of subscribers as a result. And what are included in others? That is software sales other than PS Plus. They will be newly released. So in this area, the multi-platform will be covered, including PC. So we would like to promote this. So with additional disclosure, I hope that we can give an update about our progress.

And about the Pictures, in your second question, drama streaming, is there any -- the impact of overseas market? And so overall, the business environment surrounding this area is that in overseas theatrical market, there are many tent-pole, the films released. So they become very active. But as a result of strike, the major studios, the productions have been actually delayed in major studios. And so there is some concern about advertising. So the theatrical, the business, after July, we have to pay close attention. And there is the competitive environment among the streamers. And so the content investment of those players may not decrease immediately. But as a result of the strike, there will be the change of the schedule about the production. And therefore, the future development since impact will be -- will emerge. From now, we'd like to pay attention to that.

Time is running short. So the next will be the last question. [Operator Instructions] [ Kutsumi-san ] from Nikkei Newspaper, please.

Kutsumi from Nikkei. Can you hear me?

Yes, we can, please?

One question. PS5 sales, the -- you said that the actual is lower than the forecast. What is the reason for lower-than-expected sales, the sluggish personnel spending or other -- the users went to other game hardware? Can you please explain the reasons?

Thank you for your question. First quarter sales were 3.3 million units, slightly lower than the expectation. But from last year, 38% increase. We also believe that the demand is strong, and promotion itself was rather limited. In view of the profitability, we limited promotion activities and slightly weak. So starting from July in some regions, we have started the promotion on full-fledged basis. So the sell-through, we are looking at the sell-through, and we are seeing good signs already. So in view of the seasonality of the sales, the first quarter, slightly less than the target. But. On a fiscal year basis, especially calendar year-end, by that time, we believe that there is ample possibility for us to catch up. Especially towards the third quarter, we will be increasing the number of sales, and it's important to increase the sales. And we will aim to achieve the target.

Thank you very much. Now it is time for us to end this media Q&A session. Thank you very much. The Q&A session for the analyst and investors will start at the 4:50. Thank you very much for waiting. Let us now start this Q&A session for the investors and analysts. I would like to serve as the MC. I am [ Kondo ] of the Finance and IR Group member. The speakers are the same as the media. Session, the photos are shown on this PowerPoint slide. So I we'd like to now entertain questions and comments from the analysts and so on. [Operator Instructions] First, from Morgan Stanley, please.

I'm Ono of Morgan Stanley. My question is about games and the other one is I&SS. So I have 2 questions. First of all, that throughout the year that you have the annual plan for Game & Network Services systems, and the JPY 7 billion is something that -- JPY 270 billion, so actually, that it's only JPY 10 billion. So that software, of course, the third party is a focus. So you had an analysis of flat, but you have raised that plan. And so there might be some impact, maybe the upside of this sales figure. However, this is only that level of the profitability you achieved. So maybe hardware promotion was accumulated and maybe that's the result. But what is the size and scale you're expecting to have some hint for the total scale you'd be achieving? The second part of the question is I&SS. Previously you showed the outlook for the downward turn, lowered the revenue and income. So the production costs are very high and that is a very challenging situation, which the expense is regarded as -- and expected to be very high. On the other hand, China is another place where the mid- to low range of the smartphones, that the price reduction has to be implemented in China. So the additional JPY 20 billion downward adjustment was done. But what is -- is a change taking place to influence that balance? Those are 2 parts of the questions.

Thank you very much for your question. The first one, about the Game & Network Services related question. Throughout the year, what is our annual plan and how should we interpret our annual plan? Maybe that's the gist of your question. But in terms of profitability, what you said is right. Third-party software, the good sales in the first quarter is reflected in there. In the second quarter and afterwards, the sales plan was adjusted upward. So that is one impact. And the other one is the foreign exchange rates, that we have revised it to the weaker yen situation. So that would push up these sales. On the other hand, what was about operating income? The third-party software sales are going up. And then of course, the profit will be pushed up by that. But the first-party titles, the sales launch was delayed, postponed. And there's some postponement from this fiscal term to the next term. So that was taken into account in that adjustment. Another factor is the promotion and other activities. There is no major change to the promotion plan. However, some part of that, because there was original channel mix that is direct sales versus the so-called the other sales channels and that kind of sales, so the sales channel mix -- compared to our original forecast, rather than the direct sales, I think the other ones going through the retail shops and the dealers, I think that proportion is likely to increase more. So you have -- we have to pay margin for that. So that margin has to be taken into account in the changed sales channel mix. But overall, that part means this -- how to calculate and estimate this expense there, and we are quite conservative. But the 15 million units is -- 25 million units is something that we have set as a target. We would like to really achieve that target, and our intention is taken into account in this revised plan. Another factor, the second part of your question about I&SS related question. Of course, there is some production cost increase, that was an impact. And then in China, the smartphone momentum is being changed. But these are 2 factors which have to be considered and taken into account. That is to say, as of April, we announced the outlook and there's a change. The production expense compared to the original plan has increased slightly. So that increased production cost was taken into account. But no, I think we have considered fully all the potential increase. And in China, as of April -- compared to the April outlook, the current outlook in the smartphone market, the recovery is more likely to be delayed. So that was also taken into account. So these are the factors which are again added to revise this current plan. Thank you.

So we would like to move to the next question. Hirakawa-san from BofA Securities, please.

My name is Hirakawa from BofA. I have 2 questions. The first is about semiconductor. And previously, for the announcement from January to March, so at the end of the quarter, that will be higher than year-on-year. But the market condition is worse than your April forecast. So is there any change about your strategy? And the -- well, the reason for the March FY '23, why you are quite optimistic? And for Pictures, because of negotiation, it's not easy for you to reveal your strategy about the Pictures. And so strike, how to deal with strikes of writers and the actors? How do you incorporate the impact into your -- the financial results at this moment?

Thank you very much for your question. And first is I&SS. The first quarter -- at the end of first quarter, the inventory level and about it, if I may explain, as a result of sales expansion, that has increased. And also, there is some downside of -- the downward revision of sales during the first quarter. And for the future outlook, logic and sensor, strategic inventory will decline towards the end of the year. But inventory amount itself, the sales has been expanding. So FY'23 -- at the end of FY '23, compared to the end of FY '22, it is expected to increase. There is no change in this forecast. But I should say that basically, as a result of sales expansion, this is increased as a result of sales increase. And so it does not mean that we have excessive inventory. And we have to pay close attention to the quality of inventory, but to a certain extent, we'll keep inventory under control. And we have to effectively utilize the equipment and have appropriate timing for the investment. And what is the reason we are optimistic about FY '24? And the reason is that the demand for the image sensor, we do not think that we make wrong assumption about it. And the issue is -- that pertains to the manufacturing cost or excessive, the inventory of -- our competitors' inventory in China, so as a result, decline of ASP. So that has adversely impacted the profitability. And as for the business, the volume itself, our forecast is not quite incorrect. And so that is the reason we are quite optimistic about FY '24. And your second question about Pictures. About this fiscal year, under our assumption, we have actually incorporated our assumption into the forecast. And for the details, very difficult for me to share the details with you. But in terms of profitability, the impact on this fiscal year's business is relatively limited because business turnover is long for the motion pictures industry. And therefore, that is the reason that we forecast this way.

Moving on, JPMorgan Securities, Ayada-san, please.

Ayada From JPMorgan. I have 2 questions, if I may. The first question about game. Earlier, full year profit increased, as explained. The first quarter, profit changed. Can you elaborate on the first quarter? Compared to last year, JPY 3.6 billion decrease, and excluding FX impact, about JPY 6 billion decrease. In your explanation, you talk about Bungee expense is negative JPY 16.6 billion, and positive side, software increased add-on point about JPY 80 billion. So the software increase and there's contribution to profit, the change of the sales channel was explained as well. On the other hand, the profitability of software seems to be deteriorating. In the current quarter, the sales of software is large, but mainly older titles are sold. So the content of the software sales, can you explain that? That's my first question. My second question, I&SS. Full year, downward revision, JPY 20 billion. And the breakdown of this downward revision with FX, about JPY 50 billion positive, I believe. So negative side, 70 -- around JPY 70 billion impact is there. On the negative side, the breakdown, the sales forecast is revised downside, and this is about half of the total, about JPY 30 billion to JPY 40 billion, and then the increase in the expenses of mass production launch, about JPY 30 billion to JPY 40 billion. So the magnitude of the increase in expenses, can you please elaborate? These are my 2 questions.

Thank you very much for your questions. Your first question, first quarter profit increased -- or decreased and the breakdown for that. Profitability itself basically is not changing so much according to our analysis. First quarter -- the factor for the first quarter, first, M&A-related expenses, acquisition-related expense. And then Bungee acquisition, and this is on a full consolidated basis now, so the cost related to full consolidation of Bungee. In the first quarter, the breakdown I have not explained, on a full fiscal year, about JPY 68 billion, M&A-related expense and expenses for full consolidation, combined, we are looking at that number for your reference. And then your second question, I&SS. As you pointed out, the impact of the reduced revenue and the expenses related to launch of the mass production of new products, these are negative factors. And the positive factor is exchange rate, as you pointed out. The breakdown, we are not disclosing the breakdown. So it's very difficult for me to explain. But I would say, image sensors for mobile decreased in revenue and industrial social infrastructure image sensors decreased in revenue. So not only for the mobile, but sensor -- image sensor itself is impacted by reduced revenue. That can be a hint for you to understand.

Thank you very much. [Operator Instructions] From Citigroup, Ezawa-san, please.

I'm Ezawa of Citigroup Securities. I have a question, a semiconductor-related question. The inventory is to be lowered, reduced, and then the production expense, I think related to this production yield, but I think that will be improved. I understand in the future, and demand is likely to go up. There are 3 factors affecting the Q2, and later on, those are the important factors. Then if you separate this Q2 and the second half, I think the semiconductor is likely to improve markedly. But still the figure is still so low, or despite this, maybe the improvement of recovery might be delayed slightly. So during the second half, would that happen markedly? So could you please tell us the factors and background factors for your forecasting analysis?

Thank you for your question. About I&SS, what is to do during the second quarter and the second half. When you split the 2 analysis, as to the second quarter, there's a seasonality influence. In other words, the demand is weak in Q2. So there is an emphasis on this second half so that the second half, I think, is emphasized mostly. That's how to read it.

So from Mizuho Securities, Nakane-san, please?

Nakane from Mizuho Securities. I have one question. For the game, PS5, now the sales is bit weak. But in the U.S. and Asia and Europe, what is the situation? And can you just share with promotion, 25 million is the target of unit sales according to Totoki-san. And so current exchange rate assumed to continue, there is some the gap of exchange rate. So I believe that for that portion, there is a deterioration of profit. If the exchange rate stays this way or a further depreciation of yen, installed base is important. So you put more emphasis on installed base than the current profitability? Or PS5, when you think about future profitability, if there is a major change in foreign exchange rate, you have a plan to change this. Now JPY 135 against the $1. And do you think that this is a conservative estimate?

Thank you very much for your question. For PS5, Game & Network Services segment, PS5, currently it's a bit weak. And what is the situation by regions is your question. And by regions, currently in Japan, the sales is strong, and the same holds true for Asia. And about North America, the response to the promotion is quite favorable. In United Kingdom, it's a bit weak, but Europe as a whole has been performing quite well. And that seems to be the current response. And our target of 25 million units, and so in light of the impact of foreign exchange rates, even we sacrifice profitability, whether we will put emphasis on installed base, that seems to be the heart of your question. And currently, of course, expansion of installed base is important, so we will continue to make efforts. But we do not make any extreme measures in order to achieve this. So the strength of demand and, of course, a certain level of profitability and expansion of installed bases, so those 3 factors must be well balanced. So the extreme promotion, as a result of extreme -- the promotion, even we acquire the subscribers are very difficult to follow that the trend. Therefore, we would like to use data-driven, the method approach, to make it appropriate level.

Next person will be the last person, SMBC Nikko Securities, Katsura-san, please.

Katsura from SMBC Nikko Securities. Can you hear me?

Yes, we can.

I would like to ask a question on the consolidated operating cash flow, excluding Financial Services segment. Full year, JPY 1.25 billion remains unchanged, a significant improvement as compared to last fiscal year. First quarter cash flow is negative, but as compared to last year, slight improvement. And going forward, how are you going to look at this? Can you please explain? That's the background. Inventory, ET&S, the inventory level is controlled, as you have explained. First quarter, G&NS and I&SS, slightly heavy inventory. Other factors? Full year operating cash flow is maintained. And as compared to 3 months ago, what are the plus and what are the minus negative factors, excluding Financial Services, consolidated cash flow?

Hayakawa-san, please.

I would like to respond to your question. First, the first quarter operating cash flow is minus JPY 80.7 billion. Year-on-year, you have made a comparison, but as compared to year-on-year, positive by JPY 90 billion. In first quarter, then it is negative. The key point, the PlayStation 5 inventory and I&SS, first quarter and second quarter inventory has built up slightly. So based upon these, cash flow level has come down. But this is the working capital, especially PlayStation 5 Station 5, towards the third quarter selling -- sell-through, which results in cash returning. That is the assumption. So ultimately, this year, excluding Financial Services, JPY 1.25 trillion is our forecast, which remains unchanged. Basically, for the cash flow, working capital, especially game, PlayStation 5 and I&SS inventory, in the first quarter, these will have impact. That's our analysis.

Thank you very much. So this concludes today's Q1 FY 2023 consolidated financial results presentation. On behalf of Sony Group Corporation. I would like to again thank you all very much for your participation. [Statements in English on this transcript were spoken by an interpreter present on the live call.]