The time has come to begin FY 2023 Financial Results announcement of Sony Group Corporation. I am from Corporate Communications. I'll be serving as master of ceremonies today. Let me introduce the people on the stage. First, Hiroki Totoki, President, COO and CFO; Naomi Matsuoka, Senior Vice President, Executive Officer in charge of Corporate Planning and Control, lead of group DE and high promotion and support for finance and entertainment area; Hayakawa Sadahiko, Senior Vice President, Executive Officer in charge of Finance and IR. These three will be explaining the results of FY '23 and forecast for FY '24 and fifth mid-range plan. After that, we are going to have Q&A. A total of 80 minutes is allocated. Now Mr. Totoki, the floor is yours.

Today, I will explain this content. Matsuoka and Hayakawa will talk about our results for FY '23 and our result forecast for FY '24. And I will talk about the fifth midrange plan, which started this fiscal year. Hayakawa-san, please go ahead.

Thank you. FY '23 consolidated sales were JPY13,020.8 billion, a new record high. Consolidated operating income was JPY1,208.8 billion. Net income was JPY970.6 billion, and consolidated adjusted EBITDA was JPY1,880 million. Furthermore, the JPY229.4 billion, operating income for the previous quarter was the highest ever for a fourth quarter. Due to the partial spinoff of our Financial Services business, which is scheduled for October 2025, from this earnings announcement, we are also showing without the Financial Services segment. On a consolidated basis, excluding the Financial Services segment, sales were JPY11,265 billion. Operating income was JPY1,335.3 billion, and operating cash flow was JPY1,177.8 billion. The performance by segment for FY '23 is shown on this slide. Next, I will explain our consolidated results forecast for the full FY '24. Our full year forecast is sales of JPY2,310 billion, operating income of JPY1,275 billion and net income of JPY925 billion. On a consolidated basis, excluding the Financial Services segment, sales are expected to be JPY11,400 billion and operating income is expected to increase 9% year-on-year to . The forecast for consolidated operating cash flow, excluding the Financial Services segment, is JPY1,400 billion, a significant increase of 19% year-on-year. The full year forecast by segment is shown here. Now I will move on an explanation of the overview of each business. First is G&NS segment. FY '23 sales increased a significant 17% year-on-year to JPY4,267.7 billion, mainly due to increased third-party software sales and the impact of foreign exchange rates. Operating income increased year-on-year to JPY290.2 billion, mainly due to the increased sales. Operating income for the previous quarter was JPY106 billion, a new record high for the fourth quarter in this segment. The FY '24 forecast for sales is JPY4,200 billion and operating income is JPY310 billion. We expect acquisition-related expenses, including…

Now I'd like to talk about our midrange plan. First, let me give a brief overview of our fourth midrange plan. Under the theme of our fourth midrange plan, Sony's evolution, we have been working to evolve our corporate architecture and the business portfolio to drive growth for the entire group. In April 2021, we transitioned from a large headquarters housing support functions for our Electronics business to Sony Corporation being a scale-down group headquarters. By doing so, we established a structure to promote the growth of the group in an equidistant relationship with each business. Regarding our business portfolio, we are making concrete preparations for a partial spin of the Financial Services business in October 2025 with the aim of achieving further growth in both the Financial Services business and our other businesses. Additionally, by concentrating capital allocation on the growth areas of the three entertainment businesses and the I&SS business, we were able to significantly increase the combined sales of these four business segments, creating a more growth-oriented business portfolio. Thanks to these efforts, the KPI, we set as a growth indicator for the fourth midrange plan period, 3-year cumulative consolidated adjusted EBITDA was JPY5.1 trillion, 19% higher than our initial target and 42% higher than the amount generated during the third midrange plan period. In addition, our ability to generate profits is steadily improving the average annual growth rate of consolidated operating income, excluding the Financial Service segment was 9.0% from FY 2020 to FY 2023. Now I'd like to talk about our fifth midrange plan. We are presenting the plan, excluding the Financial Services segment and , the head of that business, will provide an explanation of the midrange plan of the Finance Services segment at the business segment meeting scheduled for May 31. The themes…

The Presentation was given by Totoki, Matsuoka and Hayakawa. After this, from 4:35 Q&A with media and from 5:00, Q&A with investors and analysts will take place. We're allocating about 20 minutes of Q&A each. [Operator Instructions].

Thank you for waiting. We will begin entertaining questions from the members of the media. As was the case of the presentation, the people -- three people listed on the slide will be responding to your questions. [Operator Instructions]. The first question will be by .

Can you hear me?

Yes, we can.

I have two questions, if I may. Earlier, you talked about strengthening the shareholder returns, including that, enhancing enterprise view, I'd like to hear the view of Totoki-san. Enterprise value will be regarded as cash flow generation and discounted value in the future. As compared to the previous midrange plan, we'll be reducing investment and increasing returns to shareholders compared to the previous midrange plan. How are you going to enhance enterprise value, if there's any change or differences in the thinking? Please explain. Secondly, acquisition according to the media report. I'm sure that there's a limit as to what you can share with us, but is it true that you are making proposals and strengthening your entertainment business in the midrange plan, is there any consistency? Can you please comment on that, please?

Thank you very much for your questions. First, as to the thinking about enterprise value. Compared to the fourth midrange plan, I talked about the capital allocation earlier. CapEx will be slightly less this time. Also, we -- including the return of working capital during the fifth midrange plan period, as compared to the previous 3 years, basically, there'll be a better cash flow position. So we will be utilizing that or return to the shareholders, that is the basic thinking. Enterprise value has to be enhanced in a sustainable manner. Fourth midrange plan period, we have been making investment in advance for the growth of the future. We have sowing seed for the growth in the future. In the fifth midrange plan, we'll be harvesting from the seed that we have sown in the previous midrange plan so that we can enhance the enterprise value in the future. That is the basic thinking behind coming up with the midrange plan. And secondly, related to reported, and we have not made any announcement at all. So specific deal, I would like to refrain from making any comment about a specific deal. But on the other hand, lots of information are there. And at this point, our strategy including the thinking on the capital allocation, I would like to comprehensively explain to you our thinking. Game and Music and Pictures. With IP, we are going to generate synergy, which is a unique strength of Sony Group, and this is the core of our growth strategy. Sony Pictures is the hub of generating synergy, and as an entity, this has an important position. Therefore, in this area, if there is any good opportunity then appropriate value and return on the investment can be expected. On that assumption, we consider possibilities, which is only too natural. However, in the fourth midrange plan, the capital allocation results in the past 3 years -- 3-year strategic investments, excluding the share buyback, was JPY1.3 trillion, of which 3 quarters were allocated to three entertainment segments. Music is the largest followed by game and Pictures about the same amount. And the purpose of investment, IP acquisition is the largest in proportion. Roughly speaking, the next 3 years, the basic policy will be continued. That's what we have in mind. At the risk of being repetitive, the strategic investment for the fifth midrange plan, including flexible share buyback is JPY1.8 trillion. Within this amount, 3 years period for -- without focusing upon any particular segment, we'll be making strategic investment and flexible share buyback, that is our basic thinking. So I do hope that you can understand our basic stance. That concludes my explanation.

[Operator Instructions].

Can you hear me?

Yes, we can hear you.

And I do have two questions. The first one is as follows, and in , the restructuring reduction, and how much impact on the impact on FY '23 or '24? And then also, as per today's announcement, you made an announcement about some people changes and does that include all the restructuring activities? And then also, JPY1.2 trillion of strategic improvement you mentioned, can you give us a breakdown by segment?

Thank you very much for questions. First, the SIE, the structural reform, and I think there's a question on that. In FY '23, and we have the double-digit hundreds of millions of the structural reform expenses are recorded. And then also, that will continue into FY '24. So for the most part, I think we'll need the same level of cost and expenses. And in FY '25, there will be improvement. So for overall, in terms of cost improvement in FY '25 onwards, and we expect the cost improvement effects to materialize. And then as for the people changes, it's not really related and -- just announced, it's not directly related to the structural reform. And another -- the other question is about the strategic investment broken down by segment. And at this point in time, we have a general idea, but we do not have the granular breakdown by segment. And I think we need to make a decision at the opportune timing. Just looking back on the 3 years that have ended, and looking at the breakdown, like I said, JPY1.3 trillion over the 3 years and then is given to the three entertainment segments. And among three entertainment segments, the Music is the largest followed by game and Pictures. So that will help you sort of visualize the strategic investment coming in the next 3 years. That's all.

We'd like to take the next question from please.

I'm Tanaka from Asahi Newspaper. Can you hear me?

Yes. Please go ahead.

The first question is about the foreign exchange rate. The ForEx impact for the entire group, in total, for the sales and the income, what was the upward impact, the positive impact? And the weakening of the yen is accelerating. So how are you viewing this current trend Mr. Totoki? And the second question is about the image sensor, it's performing well, and I'd like to ask you the reason the smartphone market is shrinking, and especially FY 2023, the sales units are quite low, but the image sensor, Sony was doing well. So what's the reason for that?

Thank you for your questions. First, on the ForEx impact, the details will be explained by Hayakawa. But regarding the weakening of the yen, my view is the following. When it comes to the ForEx, there is no control over that. So we will have to adapt to the situation. But if there is a rapid change that is going to be unfavorable in managing business, that is my view. Hayakawa, please.

Regarding the ForEx in the previous years performance, the impact by that FY '23, the performance by segment, the material is showing the ForEx impact. So please take a look at that. Basically, last fiscal year, versus dollar, the weakening of the yen was seen. And also the dollar was weaker versus the euro. So on a consolidated basis, in income, JPY140 billion, positive impact from ForEx came to us. That's all from my side. Thank you.

Next on the I&SS business related question. As you said rightly regarding the FY 2023, the smartphone market itself was not very -- not quite strong. And in FY '24 and beyond, we believe that it will be recovering slowly. Our sensor business is performing well because the -- not because of the sales units of smartphones, but it's because of the main camera and large die sized such cameras. Regarding the wide-angle cameras, it has become larger in size. But at the same time, the wide -- ultra-wide angle as well as the telephonic cameras, they will become larger in size. And as a result, our sensor demand will become stronger. That's all.

We'd like to move on to the next question. Bloomberg, , please.

Furuka from Bloomberg. Can you hear me.

Yes, we can.

Thank you. It will be difficult to comment, I'm sure. But in addition to report on -- in Music also, joining hands with Integra, acquiring shares of . What is the fact and the deals? What is your thinking for the need of such deals? The second point, after that, recently, yen is depreciating. And overseas M&A will become difficult or -- are there opportunities to delaying M&A? And are they all the impact of the weaker yen upon M&A deal and are there concerns? These are my questions.

Thank you for your questions. Report -- as for the media report, these are not what we have announced. So I'd like to refrain from making any comments. I'm sorry for that. Now weaker yen, we will have the impact upon M&A overseas? Or is there going to be a delay or postponement of consideration of M&A? What's your question? M&A overseas, basically, this is out-out. Return is also in foreign currency. Therefore, it's not too difficult for us to do, but rather in each currency, we set hurdle rate. Acquisition base return is to be looked at with a hurdle rate. Looking at the hurdle rate and determine whether we are going to do that or not. That's all. Thank you.

And with limited time remaining. So we have one more question -- we have time for one more question. [Operator Instructions].

This is Hiroka from NewsPicks, and I hope you can hear me. And I have a question about image sensor business. And on the profit [Technical Difficulty].

And in addition to this, and the fifth midrange plan, we expect the free cash flow to increase or improve, and this will become a positive factor. And as for the OLED factory buyback, which could potentially become the next growth driver after imaging sensor, well, still, this business is still small in scale, and I don't expect that to make a significant contribution -- the same level of contribution as the imaging bar. But with this, I think there will be an opportunity to go in take on new challenges and going into new devices. So we would like to take on the challenge for the mid- to long-term perspective.

And now the time has come, we would like to conclude the Q&A session for the members of the media. The Q&A session for investors and analysts will start at 5:00 p.m.

[Operator Instructions]. Thank you very much for waiting. We now begin the Q&A with investors and analysts. I will be serving as a moderator. I'm from IR division. These are the three presenters who will be answering your questions, the same as the presenters from the media session. [Operator Instructions]. From JPMorgan, Ayada-san.

I'm Ayada from JPMorgan. I have two questions related to midrange plan. The first question on Game. Mr. Totoki, earlier -- that for the next 3 years, the focused KPI will be software and network service in the game segment. So for these two areas, for the next 3 years, what kind of path or growth are you expecting? For example, in software, the play title will be at the juncture this year, but Concord and other live services were introduced earlier. Do you think that there will be growth in this area, and beyond the next fiscal year onward? AAA titles, is that what you are expecting highly. Similarly, for network, it's not clear how many members you can expect. But what is your view for the next fiscal year? The second question, you talked about the CapEx and the depreciation period will be 5 years. On the other hand, the strategic investment, especially the studio acquisition and other acquisitions, related return timeline, what is your view on that? Listening to your presentation, you said that in the previous 3-year period, the return on the studio acquisition can be gained in the next fiscal year -- next 3 years, excuse me. So what is the timeline? Do you think that there will be 3 years or 5 years to get the return from the investments? And are you going to keep that in mind as you make investment? That's the second question.

Thanks for your questions. First, the software and network service. Software, the first party and third party, that's how we should distinguish them. The third-party software, we believe that we are going to move along with the market growth. So we will grow in line with the growth of the market. That is at the center of our plan. As for the first-party softwares, for FY '25 and '26, the tentpole live titles and live services will be launched. So for FY '25 and '26, so this fiscal year is 2024. So in '25 and '26 fiscal years, the first-party soft-related revenue will be larger than this fiscal year. That is our expectation that's incorporated into this plan. And another point is about network service. So all in all, MAU growth -- versus the MAU growth, we believe that our growth will be linear to that. So unless MAU grows, then our segment grow -- business will not grow, but MAU is slowly growing. That is our understanding. So in the previous year, we announced the price increase and impact -- positive impact from that will begin. So the market, as a whole, software growth is one, but we believe that our growth will be stronger in terms of value. That is our rough idea. And next, on the return on our investments and our view on that is the following, so studio acquisition, basically, the first-party software lineup needs to be ramped up. So for this reason, we are making investment in the area, and we are continuing to develop this area. And originally, we expect a solid return, but whether we can gain the originally expected return or not has been validated. In the previous year's track record, IRR on the studio acquisition was relatively high, all in all. But the issue is that based on -- the return is not yielded based on the original expectation because slippages. The brushing up of the titles and also, the quality may not be as high as expected by the users. So we have to brush up the titles. So there has been more slippages than we expected at the beginning. So we have to factor them in. For the next 3 years' period, how effectively can we make our portfolio, build out portfolio, that's going to be important. That's all.

We'd like to move on to the next question. BofA Securities. Hirakawa-san, please.

Hirakawa from BofA Securities, two questions. First, about game. In game, per user base is to be made. So in the -- you will come up with a record high in the next midrange plan. Active user base is 118 million, exceeding 59 million. But PS4, PS5, third-party burden is there as well. Why is it that the way of where profit generated is going to be different from the previous cycle in order to realize record high profit? What are you going to focus upon? That's my first question. Second question, I&SS, a good impact of the larger size, I understand, but the share increase from 2020 in China other than , you have increased market share. The real semiconductor is there and high-end -- entered into high-end area as well. And the share expansion is -- in China or you have come to a plateau in China. Can you please enlighten us as to that point as well?

Thank you very much for your questions. Firstly, PS4, in my presentation, I talked about the growth during the PS4 and PS5 and the growth in that generation, I have explained in different ways. In the past, PS -- compared to PS4, the way profit generated is as follows, at the time of PS4, basically, network service was expanded. PS5, we continue with -- we succeeded the expanded base. So the launch pad is already high. And the cruising speed is going to become the cruising speed based upon that launch path. But in that -- what was difficult to forecast is the impact of COVID-19, and the tailwind. Game market, whether this will lead to increase in the game market or it's a temporary tailwind, there was a discussion back then as well. And then in addition to that, specific titles, live service titles, big hit was a tailwind. So it was very difficult to see the actual underlying trend. But what we are focusing upon now is what we call platform health, for instance, MAU play time. Whether these are stable or not and whether these are expanding, these are the important indicators, and number of data points are set, and we analyze the data and maintain platform health and healthy growth. That is the core of our strategy. Therefore, cumulative sales unit is 59 million units or plus compared to MAU. Still, about half of the people are -- this on PS4. So console generation overlap will be handled well, and MAU will steadily increase. We will be managing in this way going forward. And then I&SS. Now vis-a-vis specific customer in China, you are not able to sell unless you have a license. So with the technology, it is not a market where we can compete freely with the technology that we have. So it's very difficult to analyze competitors' movement. It's not that we are operating in a free market. So what we do is to try and increase our market share in the market where we can compete freely.

Let's move on to Nakane-san of Mizuho Securities.

This is Nakane from Mizuho Securities. And I do have two questions about game. The first one is Bungee, the new title will be released in the next -- this year and the fiscal year, and that will be crucial. And in sales and profit, when are you planning to hit the breakeven? And also your cost, and I think which peaked last year, for the next 3 years and including this fiscal year, what sort of costs are you expecting spend? And then second question is the new August structures for game in Nishino-san and Atana-san? And then what are the what are the strengths that they have? And what are the key changes from their successors? And I'm sure they are going to talk about their resolution at the next meeting, but what's your expectation to -- from Totoki-san's perspective? And to sustainable growth and also margin growth, and there is a really productive comments about understanding that. So what sort of changes that led to these changes in the personnel? And if you could just talk about your perspective on this, that will be great?

So first, with regards to Banji, in FY '23, there's no profit contribution. And of course, we are developing new IP, new contents and this will become a really significantly large title. So we need to really carefully evaluate that. But in FY '24, and at this moment, we are not really expecting any contribution or profit contribution from it. But the development capability and then also operational capabilities, there will be significant contribution. And this upcoming release in July, and there's one title that we are planning to release in July, so we will take a wait-and-see approach and how that would b. And then also the recoupment of the cost of the acquisition. And currently, in the JPY52 billion based on the current exchange rate is expected. And this will gradually decline in phases. But for the -- in FY '23, the first half, of course, the costs will continue to be needed. Every year, there will be expected decline by 20% to 30%. And for the new org structure, the JPY52 billion is the acquisition cost that includes acquisition aside of Banji. And G&NS organization, and the reason why I picked these two individual, in platform business and in studio business, they have a really strong background and then talents and experience and then insights. And so what would be the expected changes under the new -- the organization. Now we have the two leaders at the top. And i.e. we will grow -- or has grown significantly in size and scale. And also the PS3, the business strategy and the need for that will continue to increase. So we need to be able to make sure that our decisions are made in a timely manner and a really granular manner. So that's why we have two leaders. And that's my expectation. And in both of them, we'll become a really excellent talent that will create the next generation of our business, and I have a huge hope and expectations for them. And also, and I made some really difficult comments previously, and to deliver a record high profit in the fifth MRP and now that we -- I was personally involved in SIE and I gained a firsthand experience and then connected a lot of people. And I believe that there are many talents in the organization. They are highly motivated. So -- and both of them will -- are quite motivated to deliver record high project. And I'm sure they are thinking a lot about this. And then from an objective perspective, and given the current situation, I don't think -- well, naturally, the record high profit can be delivered. That's all I have.

Since the time is running out, we will take only one question by each questioner from now on. Now Ezawa-san from Citigroup.

I'm Ezawa from Citigroup. So I will ask one question. Semiconductor, ROIC 10%, that's the plan for the new fiscal year. So from the profit plan-wise, the invested capital will increase to about JPY2 trillion. That is my understanding. So that's the plan for this fiscal year, but for the midrange plan, for the next midrange plan period, the capital invested may continue to be on the level of JPY100 billion increase on a yearly basis. Would that be the case?

Thank you for your question. The CapEx, I already explained that earlier. So the -- about 17% level of the fourth midrange plan will continue. As for the increase of the invested capital, basically, we have grown the sales significantly, which means that the business scale will grow as well. Accordingly, the capital invested will also increase naturally. The invested capital, the absolute value increasing is not the focus, but rather whether it is leading to the appropriate increase of the business as well as the margin increase, that will be the key focus, that will be more important. But of course, when we reach peak, then we will have to get return from the invested capital. So that's what we have demonstrated in the game business. And I believe that capital investment will become slower. So we will maintain the soundness of the financial status and maintain our competitiveness as we invest our capital to grow our business. That's all.

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

Katsura from SMBC Nikko Securities. One question. So about the capital allocation and the total payout ratio in the final year, 40% -- you are setting 40%. What is the background and your thinking behind this? In the past 3 years, what was the actual numbers in 3 years? And what is the background for coming to the target 40% total payout ratio?

Final year, the midrange plan, the 40% total payout ratio, as I talked about capital allocation later and explained at this point. For the next 3 years, operating cash flow will be increased, which will be the source for capital allocation. And the CapEx will not increase as much. And for strategic investment, we'll be active in making strategic investment. And rather, we will come to face where we'll be able to see results and we -- result from the investment made in the past. Hence, we'll be making a return to the investors, including but 3 years. Hayakawa-san could you please explain, give some supplementary comments.

Thank you coming Katsura-san. Total payout ratio in the previous midrange plan, FY '21 was 19%, and 19% for FY '22. Last FY '23, JPY200 billion of buyback, included 32%. Totoki said operating cash flow will increase in the next 3 years, and also investment, we were looking at the efficiency of investment -- will be investment. But well balanced capital allocation will be done and strengthened return to the shareholders. Therefore, in FY '26, we are going to achieve 40%. That is the plan and the background of thinking in that way.

With this, we'd like to conclude Sony Group Corporation's financial results announcement. Thank you very much for joining us today.