We will now begin FY 2023, Q3 consolidated financial results Corporation. I am Okada, the Corporate Communications, I am master of ceremonies. People on the stage are Mr. Hiroki Totoki, President, COO and CFO; Ms. Naomi Matsuoka, Senior Vice President in charge of Corporate Planning and Control, Lead of Group Diversity Equipment and inclusion, support for financial services and entertainment area; Mr. Sadahiko Hayakawa, Senior Vice President in charge of Finance and IR. These 3 people will be explaining the FY '23 Q3 results and full year forecast, followed by Q&A. A total of 70 minutes is allocated. Mr. Totoki, the floor is yours.

Today, after Mr. Matsuoka and Mr. Hayakawa explained the content shown here, I will summarize the entire earnings briefly. Mr. Hayakawa, please go ahead. Matsuoka and Hayakawa will explain.

Consolidated sales for the quarter were ¥3,747.5 billion, a significant increase of 22% compared to the same quarter of the previous fiscal year, a record high on a quarterly basis. And the consolidated operating income increased ¥41.8 billion year-on-year to ¥463.3 billion, the second highest level on a quarterly basis. Net income increased ¥42.4 billion year-on-year to ¥363.9 billion, and adjusted EBITDA increased ¥75.5 billion to ¥605 billion. Nine-month cumulative consolidated operating cash flow, excluding the Financial Services segment was ¥618.5 billion. The full year forecast is for sales to be ¥2.3 billion, a decrease of ¥100 billion from the previous forecast for operating income to be ¥1.180 trillion, an increase of ¥10 billion from the previous forecast. And for net income to be ¥920 billion, an increase of ¥40 billion from the previous forecast. Adjusted EBITDA is expected to be ¥1.770 trillion, a decrease of ¥15 billion from the previous forecast, primarily reflecting the impact of the foreign exchange rate on nonoperating profit and loss. The consolidated operating cash flow forecast, excluding the Financial Services segment, is expected to be ¥1.80 trillion, a decrease of ¥80 billion from the previous forecast, mainly reflecting an increase in working capital in the G&NS segment. Now I will move on to overview of each business segment. First is G&NS segment. FY '23 Q3 sales increased a significant 16% year-on-year to ¥1,444.4 billion, primarily due to increased third-party software sales and the impact of foreign exchange rates. Operating income decreased significant ¥30.1 billion year-on-year to ¥86.1 billion, primarily due to a deterioration in the profitability of PlayStation 5 hardware mainly due to promotions and adjusted OIBDA decreased ¥26.8 billion to ¥113.1 billion. The full year forecast is for sales to be ¥4.15 trillion, a decrease of ¥210 billion from the previous forecast, and…

Thank you very much. We have given presentation by Totoki, Hayakawa and Matsuoka from 4:25, we have Q&A for media. And from 4:50 Q&A for investors and analysts. 20 minutes for each Q&A session. [Operator Instructions]. Please wait until the Q&A session begins. Thank you for waiting. We will now entertain questions from the media. As it was the case of presentation, the people are shown on the slide are the people who will respond in to your questions. I'd like to now begin the Q&A session. [Operator Instructions]. The first question it's Tsutsumi from Nikkei Shimbun Newspaper.

Tsusumi from Nikkei Shimbun. I have 2 questions. First question. The strategic investment and CapEx of the current midrange plan. You referred to this in the semiconductor group as a whole FY '21 to the end of this fiscal year, in 3 years. At the end of the day, how much would be the amount of investment? Also, based upon that, next mid-range plan, the strategic investment and the CapEx. What will be the direction and the size? How -- what would be the level of investment? Are there going to be increase? Or strategic investment will increase, but the CapEx will be flat? Can you please give us the direction and also the size. The second question, in the medium term, ROIC forecast for each business segment, entertainment and semiconductors. What applications and uses will drive growth. The products and services as well. Can you please elaborate? These are my 2 questions.

Thank you very much for your questions. Your first question, regarding the current mid-range plan and strategic investment and capital expenditure from FY '21 through FY '23. The cumulative amount, CapEx will be about ¥1.9 trillion. M&A and other strategic investment is ¥1.8 trillion. That is our forecast. The investment is progressing steadfastly. So in the medium term, this investment will bear fruit. And then next mid-range plan and the size of investment and the direction of investment. Officially, in spring next fiscal year, we would like to give you explanation. CapEx I&SS investment. As compared to the past, it will be 70% to 80% I explained in my presentation. The largest amount -- largest of the CapEx is investment into I&SS. So there will be a slight increase in investment in this area. With regards to strategic investment, there are opportunities that we have to look at. So it's very difficult to say precisely. But about the same level as this fiscal year or might be a slight decrease from this year. Strategic investment, as you know, include return to the shareholders. So including that, we have to think about strategic investment. And then from next year, the direction of ROIC. Entertainment area, the driver of the ROIC will be gained. And in terms of improvement, Music, we have expectations for improvement in Music. Music in the current midrange plan, acquisition of large catalogs and the foundation of the business and the competitives have been strengthened. Going forward, based upon the catalog base, we are going to further expand this. That's all from me. Thank you.

Next question, Mr. Meyaki from Toyo Kezai. Toyo Securities.

I have two questions. The first question is about the spin-off that was released today. When I read this, by implementing this spin-off, entertainment and other areas that you are focusing on will not bring in any cash. So the purpose of conducting this spin-off and also trying to improve the business. What is the relationship between the 2? My second question has to do with Indian strategy. So I understand that your negotiations with Z for a merger didn't -- wasn't successful. I understand that you spent some time explaining about India, but are you thinking about a change in your strategy? What will you do with that investment you were thinking about that merger? How will you use that money?

Thank you for the question. About the financial spinoff. Regarding that point, as you know, we will do an actual -- we will not use any cash. But on the balance sheet, I think there's about ¥20 trillion asset and liability recorded. And if we streamline that, the business capital allocation will become easier to handle. On the other hand, in financials or by -- they can, of course, try to grow on their own because they are going to become a listed company. So for both companies, I think this will be a win-win situation. That is our aim. And regarding the Z merger, the negotiations as -- has been announced. The negotiations are not progressing at the moment but the strategy itself, India on a long-term basis has a great growth potential. It's a very appealing market. Therefore, we will try to seek various opportunities. And if we can find another opportunity that would replace this type of plan, we will look into that, and we will also continue to look into organic growth and our strategy. The amount of money that was expected to be used for that merger? Well, that investment wasn't -- isn't going to change capital allocation or it will not change our behavior in our investment. So at the moment, we don't have any concrete plans.

Now we can move to the next question. Jarka from Newspeaks.

Yes. My name is Jarka from Newspeaks. First question is about the Gaming business. Over the last few years, you had shortages of smart chips, semiconductor chip supply was the problem. But then to the smartphone chip is becoming more difficult to produce additional value by miniaturizing it. In the past, if you wait for 2 or 3 more years, more advanced CTGT, like can reduce the energy consumption with a much lower prices. You could do that, right? So the hardware itself you can sell at ¥30,000 or so. You could take that strategy. But right now, for 5 or 3 nanometers, if you are trying to get those miniaturized semiconductor jobs, it will become more expensive. So taking that strategy to become more expensive or more complicated. But at the same time, you could expand on the network to have different ways to develop the GPS? Or do you think still we need to rely on hardware with the pricing so that you can widely sell them? Do you still not giving that option? So that's my question. Second question is about cash flow. For several years -- years ago, you had ¥4 billion cash flow. But right now, operating cash flow because of many reasons is quite behind the plan compared with the plan. But operating cash flow will be the -- like a driver of where you would make investment. Therefore, would you become slightly hesitant to make less of investment? Or would you want to like reduce inventory? There are other ways to increase cash, right? So do you think allocations of capital as big as previously is going to be possible? There are also financing. There are many different options to manage their cash, right? So currently, can you talk a little more context about how do you see about the use of cash and how much cash that you could generate and invest?

Well, first question about G&NS. There is a structural issue, as you have pointed out. And you said it exactly right, PS5 today is using Nano die that is on single digit. In the past, PS4, the previous version, chip shrink benefit is very difficult to combine unlike older generation. Therefore, cost reduction is very difficult simply. But if -- I simplify the explanation. Now our sales strategy, we used to have a steep discount, but we do not want to rely on that. We want to make sure our business is profitable as well as we want to focus on user engagement together with the volume of sales of units. You need to strike a nice balance between all those components. So generation from PS4 to 5, one of the biggest differences we shifted more focus on network service. That's one. And from PS4 to PS5, we can continue to handle over the consumer customers. So user engagement is something that we want to sustain so that we can sustain the level of image. That will be the most critical things in our business right now. Now our plan for the hardware, that is like one is the commercial strategy that gets to do with the commercial strategy. And what will be the right pricing for customers. But whatever that might be, you have to -- you cannot enjoy a game without client device in your hand. So in that sense, a PS portal would be 1 device that we just came up with as a conduct an experiment, but we are getting some feedback. We are hoping to get more feedback. But we can get those feedback while customers using them. So that our services and our network mature if I evolve by receiving those feedback. Now the other question that you raised was on the cash flow. As you said it rightfully so, we had about ¥4.2 billion in cash flow in financial years ago. This year, the operating cash flow is relatively lower. But working capital has actually have grown quite a bit. If you just cut it off in 3 years, it may look like our operating income is lower, but inventory level can be reduced. We can collect accounts payable and we can get the cash. So in a big sense there's no major change. And I would say you've -- you can actually understand it like that. And if you look at the rating agencies, we do actually have more opportunity for financial leverage should it need to. If it were required, we can also take that as an option.

Next question, Abeta from Nikkan Kogyo Shimbun, please.

Abe from Nikkan Kogyo Shimbun. DNS Camera. I have 2 questions regarding the camera. The first question by situation by market, for China, sales unit sales volume was larger than your forecast. What about other markets, North America, Europe and domestic in Japan? What is the trend of the sales? Second question is the level of inventory. ET&S segment as a total as of the end of December, reduction in the inventory as compared to the same period last year. What about the inventory level of camera? These are my 2 questions.

Thank you for your questions. First, ET&S segment, and you're talking about camera, and what is the market trend was your question. China has been doing well. For the third quarter, North America and the European market have been moving rather relatively well. The inventory itself, there is no particular problem in the inventory level at a level that we are satisfied with, and we are able to maintain that inventory level.

I think we don't have much time left. I think the next question will be the last question. From Yomiuri Shimbun, Masala from Yomiuri Shimbun.

Sorry, this is a different question. This is about the Nikkei average, and I believe that it is the highest -- record high. Were you expecting this? I'm sure the investors have a lot of expectations towards the Sony Group. How do you feel about this?

Thank you for the question. Since the beginning of this year, we're seeing this increase -- significant increase. Quite frankly, I, myself, did not expect this kind of trend. So in that sense, I kind of regret that my forecast didn't come true, but I'm very happy that the market's expectation of us is quite high. We hope to make sure that we don't underperform against that type of expectation and to demonstrate growth and development. Thank you.

Since it's time, we'd like to conclude the Q&A session with the media. Q&A with the investors and analysts will start at 4:47. We will soon be starting question-and-answer session with the investor and analysts. Please give us a few more moment while we get started. Thank you for waiting. We'd like to now start questions from the investors and analysts. I'll be facilitating this meeting -- this session. My name is Condo from IR Group. Very good to see you all. Respondents, just like all media sessions are being going to be responded by 3 of them on slide. And please note about the information that we have distributed to you ahead of time about how to use telephone, how to control it and other things to be careful about. [Operator Instructions]. With that, I'd like to ask Katsura from SMBC Nikko.

My name is Katsura from SMBC Nikko. I like to, yes, ask 2 questions. First question is about on a fourth quarter industry inventories like your plan is going to be shrinking the inventory level. But it is looking at Slide 7 tandem that you are showing how much inventory that you expect. But how much are you planning to shrink? Do you -- can you give any idea about how small the inventory level is going to be? And then the 7 19 talks all about utilization. So maybe you can do that calculation about that. But can you also talk about how we should interpret it after Q1 next year? Second question for the next year, Game & Network Service, Pictures. And I think you mentioned back then in those sections, you made about aiming at certain levels. But can you also talk about other segments about perspective and other segments as well.

Okay. Thank you very much for your question. I&SS fourth quarter inventory to that question, well, in terms of that in a 3 quarters levels is actually quite a small level. So the impact overall is quite limited. In general, I would say it will end up to about being flat. Flat or plus incremental small addition on top of third quarter. Now you asked also about inventory level for next financial year. And we are expecting our top line growth to grow. And so inventory will also grow as fast as the top line but that should be covered during the business planning process for next financial year, and I hope that is good enough for my answer to your question. Now for FY '24 in general, what I've talked about, yes, I mentioned about Game, Pictures, I&SS. Yes, I mentioned about them for perspective for FY 2024. For Music, market on a streaming single high digit or mid-digit, single to mid-digit was the growth. And we hope to grow faster than that. So finance, well, the base profit level is going to gradually slowly grow. It's going to take some time, right? But the new policy amount is going up, too. So it's not changed since it's going to keep growing in a steady or gradual but because of adoption if IFRS, we have to do risk hedging because there can be volatility because of the change of the standard. That is the risk. We are going to be investing some costs. Therefore, we believe relatively gradual growth for finance. Pictures, I actually mentioned it already. Flat or plus incremental on top or flat for Picture, like I said. But in any case, we will be giving the next financial guidance during the springtime. So we hope to cover more details at that time. Thank you.

Next question, Okazaki from Nomura Securities.

Okazaki from Nomura Securities. Game, I have questions regarding Game. MAU became a record high level. PS5 cumulative sales is already exceeding. So PS5 alone will not be able to satisfy that. Why is it MAU has grown to this level? Can you please explain a bit more in detail? MAU use is a metric for user engagement and an important metric. While MAU is increasing, in the fourth quarter, the profit is not as much as expected. MAU increases, but the profit was not as high. What is the background for this?

Thank you for your question. First, with regards to MAU, for one thing, there is seasonality. Third quarter is the holiday season. So there's seasonality factor. And then free-to-play titles, we had the big hits. So we are enjoying benefits from that. These are the 2 major factors drivers for increasing the MAU. And then engagement metric. Third quarter, I already explained a bit, special factors were there. And about ¥30 billion of profit will be shifted to the fourth quarter from the third quarter PS5 inventory valuation-related number. In the second half will be leveled. But if you only look at the third quarter, the profit level, as it appears is slightly less than what it actually is.

The next question from Mizuho Securities. Nakane-san.

From Mizuho Securities. I have 2 questions. The first question to Mr. Totoki, the first question is as follows. It's 4 months since you became the President. What have you noticed or realized since you have become the President? Next quarter, there's no first party, large first parties but the W3C titles going to be have. Now in 2020 -- FY 2025, what kind of measures are you considering? If you can share with us your impressions. The second question is about the return to shareholders. I understand that the strategic investment is going to become slightly lower. So basically, I understand that your measures of investment will not change significantly. But if you have any comments on that point.

Yes. Thank you very much for your question i.e., actually, I am the chairperson. It's been about 4 months. And I'm trying to demonstrate leadership and trying to have as many meetings as possible with the management team. I also visit studios and everyone is working really hard to fulfill their responsibility, to try to optimize the business. And I understand that. But overall, growth, overall growth and sustainable profitability or increasing margin, how will that translate to these goals? I don't think people understand that deeply. I think that is the problem of the organization. So as far as I'm concerned, I try to understand what is happening in the company, in the industry and also with the perspective of the analysts, and try to explain in a transparent manner so that people can recognize and notice these issues so that we can have a harmonized approach going forward. That is a very general comment since I became the chairperson. There are concrete points, which I will not go into today. Now about visiting the studios and about Bungie. And I've had meetings with the leaders there, the studios. People who work in the studios have very high motivation. They're very highly motivated. They're very good people, and they're very creative people. They have great creative minds and they also have knowledge about live streaming. However, having said that, when it comes to the business itself, I think there is room for improvement. And that's got to do about how to use the money or about the schedule of development or how to fulfill one's accountability towards development, et cetera. Those are my frank impressions. So I will continue to engage in dialogue with the people so that we can find the right way to proceed. Now shareholder returns and dividends. As you mentioned, no major change there. We will have to deal with shareholder returns in an honest way. And that is part of the strategic investment and we believe that if the solution is considered to be the optimum solution, then we will go ahead with that solution.

Now let me move to the next question. I'd like to ask Yasui from UBS Securities to ask the next question please.

This is Yasui from UBS Security. I have to want to ask 2 questions. And so basically, it's a single question. Operating profit, the game and semiconductor they were actually, top line is growing, but the profit level is not really growing up. Respective of 3 years or not, what are the things that you think -- so what do you think what you need to have, whether it's possible or not, is there any particular initiative or angle that you're going to get at to improve the bottom line, not only the top line?

Thank you. For gaming this year, profit margin, especially the operating margin was not really a wonderful situation. Well, partly because we are currently in a transition where the PS5 as a hardware units are expanding as a process. But what we need to manage is that PS4 and the previous general -- unlike PS4 or previous generations, consoles -- if you look at the console cycle, cost reduction within the cycle is very difficult to come by. And that is a big challenge. Because if you think about PS console device, unlike high specs computers. It's affordable price, while with a very safe countable environment with a very great experience. That's wonderful things about PlayStations. But compared to the past, in order the cost for building that experience, memories, chip sets, the prices of the cost of all those components are going up as a fact. And how can we give in the station can put our product plans together to make it affordable so that without relying on steep discounts to reasonably sell them to continue our commercial journey on a sustainable basis. I personally think that's important. And there is an opportunity in that, and that's how I see it. And the other potential driver is the first-party title generation because in the past, as you all know, we wanted to popularize console. And title was something -- and the first-party title may purpose was to make the hardware or the console popular, right? It is true, right? But there is a synergy to it. So if we have a strong first-party content, not only with our console, but also other platform like computers. And the first-party can be grown with multi-platforms and that can help operating profit to improve. So that's another one that we want…

Time is running short. So I'd like to ask the questions to be please limit to 1 question per person. Next question, please. Morgan Stanley, MUFG Securities, Ono, please.

Ono from Morgan Stanley. About Game. I have 1 question. Next fiscal year, a slight increase in profit you are expecting. And ¥270 billion this year and in the past, the peak was more than ¥300 billion. So the peak in FY '21 with PS5, it's very difficult to exceed the peak level of 300 in '21. I may be asking a repeat the question. But MAU, ¥123 million is to be increased. And further, is it possible to exceed the peak in profit level, especially in the cycle, the fifth year is a peak of the hardware and 6-year is the peak of hardware and seventh year is the peak of the margin. That was a cycle, as I understand this in the past. So 6th year, next year will be the sixth year of the release and the software mainly is if it is third-party, I think it is regrettable. But how should we interpret this? Can you please explain?

Well, PS4 can be one big reference for us. Under COVID-19 -- we had a COVID-19 period so we cannot accurate, say, fifth year, sixth year and seventh year for PS5, there may be some argument. Margin or the profit level. Absolute amount of profit is to be increased. And for that, it is challenging but I'd like to try and increase. At the time of -- compared to PS5, market itself, including the third-party titles, the market is increasing for PS5. But the profitability of hardware is higher for PS4. So with loan cost will not decrease with the new console. So how we can hit the balance with the margin and continue to spread the -- disseminate PS5 is important. And second point, this fiscal year and next fiscal year, the cost -- acquisition cost of the past is also incurred. So as the acquisition-related cost burden decreases, that will become a factor for increase in profit. So we have to think this in an integrated fashion. And in the era of PS5, we -- I do not think that -- I am not going to give up and renew the peak. So in the next mid-range plan, we would like to challenge and try to exceed the peak of the past.

The next person will be the last person to ask the question. Ayada from JP Morgan.

This is Ayada from JPMorgan Securities. On Games, you have been saying ¥123 million of the MAU and you had a great hit with free title. And I understand that these are titles to which you invest. Well, regarding those games, I think new movies have been added or you have a collaboration with Disney, which are different expectations toward growth from the past. From your perspective, these third-party titles, what are your expectations toward those titles? And as an investor, what are your expectations? And the profitability for Games for next fiscal year, you didn't mention about the add-ons. So what's happening there?

Like you say, those titles are contributing significantly. That's true. Collaboration with other companies is something that we can't comment. Well, those companies are attractive companies to which we would like to invest, and that's very -- it's a positive development for us. And that collaboration, we hope that, that will generate an upside for us. And add-on sales for next fiscal year, whether that is being reflected or not, well, the business plan hasn't been fixed yet. So at this point in time, it's hard for me to comment on that point. But the third-party titles will -- if they grow, that will be very positive for us, and we hope to utilize that momentum -- take advantage of that momentum.

Since it's time, we'd like to conclude the consolidated financial results announcement from Sony Group. Thank you very much.