Earnings Call: Q1 2021

Aug 3, 2020

It is now time for us to start Sony Corporation's fiscal year 2020 Q1 earnings briefing session. I will be acting as the MC. My name is Kato from Corporate Communications Department. This briefing is held for the media analysts and institutional investors who we have notified in advance. The audio and presentation materials can be viewed on our website. Today, 1st of all, from the Executive Deputy President and CFO, Hiroki Totoki, we will give an explanation on consolidated financial results for FY 2020 Q1 and the forecast for FY 2020 and then have a question and answer session. It should last approximately 70 minutes. Totoki san, please. Today, I would like to begin by addressing the operating environment surrounding Sony. The spread of the new coronavirus disease, an increase in geopolitical risks such as the tension between the United States and China and the frequent occurrence of natural disasters in recent years are just a few. The things that are fundamentally changing society and economy well as people's values and lifestyles in a variety of ways. These changes will not be limited to short term and they are difficult to predict. And there's a saying that it's not the strongest of the species that survives nor the most intelligent, but rather the one most adaptable to change. Sony intends to adapt flexibly to the changes in the environment and increase the focus with which we manage each of our businesses. The fiscal year ending March 31, 2021 or fiscal year 2020 is an important year in which we are we expect to both recover from the impact of the spread of COVID-nineteen and formulate a strategy to address the business environment in the aftermath of the spread of the virus. We intend to improve the resilience of the Sony Group by leveraging our advantage, which is the diversity of our personnel and businesses and after changes and convert the crisis into an opportunity. Now I will explain the following. Fiscal 20 20 Q1 consolidated sales increased 2% compared to the same quarter of the previous fiscal year to JPY 1,968,900,000,000 and conservative operating income slightly decreased to JPY 228,400,000,000 from the same quarter of the previous year, which was a record high. Income before income taxes increased JPY 88,900,000,000 to JPY 319,900,000,000, partially due to an improvement in unrealized gains on securities investments in other income and expenses, net income attributable to Sony Corporation's stockholders for the Q1 increased JPY 81,100,000,000 to JPY 233,300,000,000 Excluding extraordinary items, operating income would have been would have increased JPY 2,200,000,000 from last year to JPY 225,200,000,000. And this slide shows the results by segment for the fiscal 2020 for the Q1. At the previous earnings announcement we held in May, we were unable to reasonably predict the impact of the spread of COVID-nineteen, so our consolidated results forecast for fiscal 2020 was undetermined. Today, we are disclosing the consolidated results forecast for fiscal 2020. Consolidated sales are expected to be flat year on year at JPY 8,300,000,000,000 and operating income is expected to decrease 225,500,000,000 yen to JPY 620,000,000,000. Income before income taxes is expected to be JPY 6285,000,000,000 and net income attributable to Sony's stockholders is expected to be JPY 510,000,000,000. Our forecast for operating cash flow excluding Financial Services segment is JPY 550,000,000,000. Our current forecast for 3 year cumulative operating cash flow, excluding the Financial Services, is approximately JPY 2,100,000,000,000. We plan to issue JPY 25,000,000,000 per share as an interim dividend this fiscal year compared to JPY 20 per share in the previous fiscal year. We have yet to determine how much the annual dividend amount will be this year, but our policy is to increase dividends in a steady manner over the long term. The fiscal 2020 forecast for each of our segments are shown on this slide. I will explain the details when I talk about each segment after this, but I'd first like to explain the operating loss in Corporate and Elimination. In the previous fiscal year, we recorded JPY 31,500,000,000 in extraordinary gains. While this year this fiscal year, we expect to increase expenses for mid- to long term growth initiatives and societal contributions such as investments across the Sony Group to explore and develop new businesses, including artificial intelligence and robotics as well as contribution to the Global Relief Fund for COVID-nineteen. The fiscal 2020 forecast includes an expectation that we will incur JPY 25,000,000,000 in restructuring costs across the Sony Group. In addition to continuing efforts to reducing costs, we are taking action to adapt quickly to changes in the operating environment brought on by the spread of COVID-nineteen. I will now explain the situation in each of our business segments. First is the G and S segment. The Q1 fiscal 2020 sales increased 32% year on year to 606,100,000,000 yen and operating income increased JPY 50,200,000,000 to JPY 124,000,000,000. Sales for the fiscal year are expected to increase 26% compared to fiscal 2019 to JPY 2,500,000,000,000 mainly due to a significant increase in game software and hardware sales. Operating income is expected to be JPY 240,000,000,000 flat compared with fiscal 2019 because the benefit of the increase in sales and an increase in profit from PlayStation Plus are expected to be offset primarily by an increase in costs related to introduction of PlayStation 5. Hardware, software and network services all benefited in the current quarter from the positive impact of stay at home demand resulting from the spread of the virus. In the software space, the first party title, The Last of Us Part 2, was a huge hit, and non first party titles, including free to pay titles, contributed significantly. Ghost of Tsushima, which we released on July 17, sold through 2,400,000 units in the 1st 3 days since launch, making it the fastest selling in house first party new gaming software IP for the PlayStation 4. In the network services area, PS Plus subscribers have reached about 45,000,000 as of the end of June. And at time when communication network environment was under pressure, the PlayStation Network did not falter or experienced any other issues and is continuing to deliver high quality entertainment experiences. We aim to continue to enhance and expand user engagement as we approach the launch of PS5 in the 2020 holiday season. Next is Music segment. Fiscal 20 quarter 1 sales decreased 12% year on year to JPY 177,100,000,000 and operating income decreased JPY 3,400,000,000 to JPY 34,900,000,000. For full year, sales are expected to decrease 7% compared to fiscal 2019 to JPY 790,000,000,000 and operating income is expected to decrease JPY 12,300,000,000 to JPY 130,000,000,000 In the recorded music space, revenue in most categories, including from package media and advertising supported streaming services, is being negatively impacted by the spread of COVID-nineteen. Overall streaming revenue only grew 6% year on year on a U. S. Dollar basis during the quarter. But audio streaming revenue, of which paid streaming accounts for a large portion, grew 17%. In the music publishing space, revenue from all areas except for streaming, such as music licensing from movies and television, is being significantly negatively impacted by the spread of COVID-nineteen. And in the Visual Media Platform space, revenue is being significantly impacted due to a variety of factors such as decrease in physical media production and the postponement and cancellation of live events, primarily in Japan. On the other hand, we're beginning to have success in initiatives expected to contribute to the financial performance going forward, such as the launch of Stagecrowd, a paid live video distribution service that serves as a one stop shop for ticket sales, merchandise sales and stage construction and strong sales of the mobile game app, Disney Twisted Wonderland. Next is Pictures. Fiscal 20 quarter 1 sales decreased 6% year on year to JPY 175,100,000,000 primarily due to a decrease in box office revenue in Motion Pictures and a decrease in Media Networks, partially offset by an increase in license revenue in television productions. Operating income increased JPY 24,400,000,000 year on year to JPY 24,700,000,000 due to a significant decrease in marketing expenses in Motion Pictures. Primarily due to decrease in theatrical releases resulting from the spread of COVID-nineteen, we expect fiscal 2020 sales to decrease 25% compared to fiscal 2019 to JPY 760,000,000,000. We expect operating income to be JPY 41,000,000,000, a decrease of JPY 27,200,000,000 compared to last year, which benefited from the contribution of hit titles. Although we have resumed filming in some countries, the severe environment in Motion Pictures and Television Productions is continuing. If we can restart production, we think we can recover our position in the television production area relatively quickly because demand for content from digital distribution services is extremely high, and we think we can leverage our advantage as a major independent studio. As for theatrical, theaters are either closed or admittance is limited, and we expect the release calendar to be very crowded when they do reopen. Since Motion Pictures generate profit over multiple years, starting with theatrical releases, the impact on our financial results of not being able to release them is expected to last 2 to 3 years. On the other hand, digital sales of products we have released theatrically in the past are strong. For Sony, the importance of theatrical releases is not expected to change going forward. But in order to maximize the long term value of our product, we will select the optimal distribution channel for our product based on the nature, scale and timing of the product. Next is the EP and S segment. For this quarter, sales decreased 31% year on year to JPY 331,800,000,000 primarily due to a decrease in unit sales of digital cameras and TVs. Operating income decreased a significant JPY 34,200,000,000 year on year and a JPY 9,100,000,000 operating loss was recorded due to the impact of the decrease in sales despite the reduction in operating costs across the entire segment. For full year, sales are expected to decrease 6% to JPY 1870,000,000,000 and operating income is expected to decrease JPY 27 300,000,000 yen compared to fiscal 2019 to JPY 60,000,000,000. Mobile Communications recorded JPY 11 1,000,000,000 in operating income during the quarter, and we expect it to generate a profit in the full fiscal year. The EP and S segment was the segment which was impacted by the spread of COVID-nineteen earlier and more significantly than any other segment. But the supply chain has almost fully recovered. And although progress varies depending on the product category and region, customer demand is beginning to recover as well. We are preparing for potential second and third waves of COVID-nineteen by transforming the structure of our business into a more resilient one through an overhaul of our operations and further streamlining as well as enhancement of our e commerce distribution channels. This segment, which will inherit the Sony Corporation trade name on April 1, 2021, is further accelerating its efforts to unify the management of the business under its umbrella and is promoting the evolution of the business by deploying products and services that enable reality, real time and remote activity through our audio, video and communications technologies. Next is Eye and Assessment Image and Sensing Solutions. Fiscal 20 quarter 1 sales decreased 11% year on year to JPY206,200,000,000 and operating income decreased JPY 24,100,000,000 to JPY 25,400,000,000 Fiscal 'twenty sales are expected to decrease 7 percent to 1,000,000,000,000 yen and operating income is expected to decrease 105,600,000,000 yen to 130,000,000,000 yen Now I will explain the state of our sensor business. Fiscal 2020 sales of image sensors for mobile products are expected to decrease compared to fiscal 2019 primarily due to a decrease in end user product market resulting from the impact of the spread of COVID-nineteen and significant reduction in component and finished goods inventory by the Chinese customer. Profitability is expected to be impacted by a decrease in gross margins and an increase in depreciation and manufacturing related costs associated with production equipment we purchased in the previous fiscal year when we expected growth as well as higher research and development costs. We do not expect to grow sales of mobile sensing products compared to fiscal 2019 because adoption by smartphone makers has been slow, and sales of flagship models, which already use our products, have decreased due to the shift in market conditions. Sales of image sensors to AV have also decreased due to the contraction of the sensor market for digital cameras resulting from the impact of the spread of COVID-nineteen. We expect the market to contract in 1 year as much as we had previously expected it would contract over the next approximately 3 years. In order to respond quickly to the challenges in the environment, especially for image sensors for mobile products, we will modify our strategy mainly in the areas of investment, research and development and customer base. We have already significantly reduced investment in capacity to supply demand in the fiscal year ending March 31, 2022 because we can supply that demand by stockpiling strategic inventory through utilization of our excess production capacity this fiscal year. The forecast for cumulative capital expenditures for the 3 fiscal years begun April 1, 2018, which we explained in the past, has been reduced 50,000,000,000 yen from approximately 700,000,000,000 yen to approximately 650,000,000,000 yen and we are carefully reviewing the timing of planned capital expenditures in fiscal 2021 and beyond. We will review the projects and priorities for research and development spending as well to ensure that they fit with the recent trends in the smartphone market and changes in our major customers' needs. However, in order to maintain and increase our future technological competitive advantage, we will not drastically reduce the number of projects or the budget. We intend to more proactively expand and diversify our customer base, which we're cautious to do previously due to production capacity constraints. Over the mid- to long term, we will work to expand the applications for image sensors and the market overall by introducing edge sensing products that use sensors equipped with AI processing functionality, and we will steadfastly work to grow this business. We plan to complete within approximately 1 year an enhancement of our business model to adapt to the recent changes in the environment, and we expect to return the business to the path of profit growth from the second half of fiscal 'twenty one. Last is the Financial Services segment. Fiscal 20 quarter 1 Financial Services revenue increased 33% year on year to 446,800,000,000 yen primarily due to a significant increase in net gains on variable insurance investments in the separate account at Sony Life. Operating income increased 1,100,000,000 year on year to 47,200,000,000 yen Financial Services revenue in fiscal 2020 is expected to increase 7% compared to fiscal 2019 to JPY 1,400,000,000,000, and operating income is expected to increase JPY 12,400,000,000 to JPY 142,000,000,000 On July 13, we completed our public tender offer for the shares of Sony Financial Holdings, SFH, not held by Sony. The shares of SFH will be delisted on August 31, and SFH will become a wholly owned subsidiary of Sony on September 2. The Financial Services business managed by SFH has a stable high level of profit and is a core business of Sony that plays a role in our long term growth strategy. By eliminating the listed subsidiary relationship between SFH and Sony, we intend to increase the speed of decision making, enhance management optionality and further improve the value of the business. In addition, by capturing the minority interest and realizing tax benefits, we expect to increase Sony's consolidated net income by approximately JPY 40,000,000,000 to JPY 50,000,000,000 per year going forward, and that is expected to contribute to increasing earnings per share, EPS and return on equity, ROE. In order to deepen understanding of our Financial Services business, we are considering what key performance metrics to disclose. Now I will briefly discuss the minority investments we made in Bilibili and Epic Games this fiscal year. At a time when digitization of the entertainment industry is accelerating, we plan to leverage these investments to expand the customer touch points for our diverse array of content as well as create new digital content and ways of enjoying that content that go beyond our business segments in partnership with these companies. Going forward, we intend to proactively pursue strategic investment opportunities to explore future growth. Next, I will explain our enhanced segment disclosure. Historically, Sony has proactively enhanced disclosure of information about our businesses. And from this fiscal year, we have decided to disclose on a quarterly basis the information shown here in the GNNS and Music segments, which are of particular interest to the capital markets. At the same time, we have terminated disclosure of certain items in the EP and S segment. For more details, please see our supplemental information. Today, we announced the establishment of a facility to repurchase up to JPY 100,000,000,000 in shares of Sony during this fiscal year. Like in the past, we view share repurchases as a strategic investment, and we'll decide to execute them based upon a comprehensive assessment of a variety of factors, including the availability of other investment opportunities, our financial condition and price at which our shares are trading. We aim to maintain strict financial discipline and a healthy balance sheet going forward as we optimize our capital efficiency with a focus on EPS and ROE. We also plan to maintain sufficient liquidity at a time when the recent operating environment is uncertain, and we think it is important not to miss any growth opportunities. In conclusion, I will show our capital allocation. This concludes my remarks. That was Totoki, Executive Deputy President and CFO. And from about 4:25, we will be conducting Q and A. The first 20 minutes will be dedicated to questions from the media, and the following 20 minutes will be questions from the sell side analysts. Those who have registered in advance to ask questions from the media and the sell side analysts, please connect to the designated phone number in advance. And those of you who have not registered in advance, you will be able to listen to the Q and A via webcast. Kindly wait a little while longer before we resume. We will commence the questions from the media shortly. Kindly wait a little while longer. Thank you for your patience. We will now start the Q and A session with the media. The respondents are: Executive Deputy President and CFO, Hiroki Totoki Senior Vice President in Charge of Corporate Planning and Control, Finance and IR, Naomi Matsuoka VP, Senior General Manager, Corporate Communications Department, Mami Imada. A question. Finally, limit yourself to 2 questions per person. Also, to prevent audio feedback, when asking a question, please turn the volume of devices around you off. And in the case audio is interrupted due to poor connections, Due to time considerations, we will have to move on to the next question. Now we will start the Q and A session. So I'd like to take the first question. Inomata san from NHK. Inomata san, did you ask your question? Thank you. Ino Mata is my name. Am I coming through? Yes, we can hear you. Two questions. Firstly, the full year forecast that you're announcing this time. So we will start on the coronavirus situation in the second half. Is that your assumption? Can you tell us more about this? And also, the second question is, you're preparing for the launch of Phase 2 5, but we will be in time for launch. We've been affected by the situation. Thank you for the question. Firstly, concerning the full year forecast, the impact of the coronavirus assumptions, what are they was the question. The earnings announcement we made in May, we used a general assumption for the whole company and did some simulation exercise. But this time, all the business segments have come up with their own figures and assumptions. And because business is all different and the geographic areas are different, the nature of business units. So this time, so we don't have a unified assumption for the group. And they are probably the most likely scenario that can be contemplated at this time. And your second question about PS5 preparations, is there any impact on the production? As things stand now, toward the holiday season, production is proceeding smoothly And regard to the development of the game software, the 1st party studio as well as 3rd parties to their business. As again, as things said now, there are no major issues or problems that are apparent at this point in time. Thank you. Thank you. I'd like to move on to the next question from Nikkei Shimizu san, please. Yes, I am Shimizu from Nikkei Newspaper. I have two questions regarding image sensors. There is a trade friction between U. S. And China, so there is a restriction on Huawei. So you said that the sensor forecast is going to come down in terms of sales. So what is the impact of this bilateral relationship? And secondly, as your future policy for Huawei, the risk for Huawei, I think, is going to remain. But are you going to make any changes to your partners? Do you have any policies regarding your partnership for in the supply chain? Thank you for your question. For image sensor, for the full year, what is the reason for the decrease in sales? And also and the second question is related to the supply chain. So first of all, for a specific company, I refrain from making any comments. So I do hope that you would accept and understand. But having said that, currently, the business environment surrounding us is deteriorating because of COVID-nineteen, especially the high end smartphone market is contracting. And it is going shifting towards mid- and low end zones. That's a volume zone now. I think that is a change that is taking place currently. And also, secondly, the friction between the U. S. And China, there is an impact from that. So from the risk perspective, our customer base needs to be expanded and diversified, and we will continue to focus on that customer base aspect. Thank you. Now going on to the next question please from Toyo Keizai, Takahashi san. I am Takahashi from Toyo Keizai. So first question about Game and Network Services. 1 quarter profit is JPY 124,000,000,000 which I think is quite high. And what about the contributing factors? Can you give me some details? Sales, JPY 600,000,000,000 in 2019, Q3, end of the year, I think there is are those factors, the holiday season. But compared to Q3, to what extent well, profit is much bigger and maybe it has to do with advertising. So what is the change is what I want to know. That's the first question. If you have 2 questions, can you ask the second one too? Yes. 2nd question about sensors. So high end smartphones, there's a shift to low and mid range smartphones and that has impacted profit, you said. If it's this year, 5 gs smartphones are going to increase. So I'm wondering if the high end is going to be weaker, just the general feel. So can you explain what's happening in a little more detail? That's my second question. Those are my 2 questions. Thank you for those questions. So games, in the Q1, high profit. And the factors behind that is, I think, what you are asking. Compared to the Q3, you said the 3rd well, comparison with the Q3 is quite difficult. So compared to the year on year, if I may explain year on year, then we can say that due to COVID, there is a stay at home demand. And for Q4, new titles had an impact, so add on and other software sales were contributing contributing. And the 1st party and third party titles were both doing well. 1st party, The Last of Us, Part 2, as I said before, is a big hit. And that's with regards to games. About sensors, changes in the market and how are the changes occurring? For one thing, all over the world, there is a poor sense in the market deterioration of the market and that is impacting the sensor sales. And also, higher priced products, well, it's you could say shifting to the moderate more moderate priced models overall. So for our image sensors, especially the high end image sensors that we sell, the high end models are decreasing in sales. So that's impacting our business. That's all. Thank you. Next question? Nagumo san from Nikkei Asian Review. Nagumo san, please. Thank you. About image sensors, the first question is you talked about sales decline in high end models. In the industry, image sensing industry, what did you say are the long term changes? What are the short term changes? Can you talk to us about the difference? And second question also about INSS. You'll be selective about R and D topics. Can you be more concrete and specific about that? Thank you for the questions. The long term versus short term changes you requested with our views. But currently, I think whatever we see now, we don't consider to be long term trend because at certain time, this impact of the coronavirus will somehow be absorbed so that the smartphone market as a whole is not declining all that large. So the transition or the shift that we're seeing currently is only temporary, we believe. But although they are temporary for this year and for the next year, more mid to low end products to sell, that's for sure. Therefore, MSMS is most often of that level of product would have to be our production. We have to make that switch. And for that, there will be a change because there is a change in product mix, we have to make adjustments in our strategy and modify our production strategy. But as far as the large trend is concerned, the phones smartphones going larger and using multiple lenses, that will continue. The performance of the cameras required for smartphones for video and the camera photos and the demand for the higher quality will continue. Therefore, we believe the demand should come back sometime in the future. Next question will be the last because we are running out of time. Nishida san, a freelance journalist, please. Thank you. I am Nishida. I can hear you. Thank you. Two questions. Regarding image sensor once again, this year or since last year, there are increasing number of lenses and that is favorable for Sony as you have been stated. But you said that high end models are coming down. So the trend for multiple lenses, is it slowing down temporarily? Or when you're moving towards the mid and low end, it's still multiple lenses. Could you talk about that? Second question regarding EP and S Business segment. You are in a recovery phase already, as you said, but especially, which is the genre in the market and geographical area that is having difficulties? And also, which are the product areas and the geographical areas that are doing favorably? Thank you. Regarding your first question, so multiple lenses is a positive for us. Well, high end and mid and low end markets, what is the trend in terms of multiple lenses? In the mid- and low end markets, there is no change in the trend for increased number of lenses. There are multiple image sensors used in the mid and low end models as well, and that trend has not changed that much. And for EP and S and also various sides, the trend has not changed. For EP and S, the areas that is having difficulties well, okay, let me talk about the area where there is a recovery already being observed. First of all, U. S, Europe and Japan well, Japan is doing very well. So those areas, it is in a recovery phase. And also in Asia and Latin America, there is a slow recovery. So emerging market is having a little bit of a struggle. And by product, TV, because of the stay at home demand, I think, there is a very good appetite for demand for TVs. But digital imaging is where there is a difficulty or challenge. But in May, we had a forecast at that time. But compared to that, the recovery itself is much faster. So we have hopes for the future. That is all. Thank you. Our time is now up, and therefore, we would like to close the session for Media. And those of you who are connected to the phone number to ask questions, after the asterisk, please press 2. And now we will have to change the respondents, and therefore, we will start the annual session at 4:50. Kindly wait a little while. We'll start the analyst question session soon. Kindly wait a little while longer. Thank you for your patience. We will now start the questions from the sell side analysts. I will be acting as the MC. I am Hayakawa in charge of IR. The respondents are Executive Deputy President and CFO, Hiroki Totoki Senior Vice President in Charge of Corporate Planning and Control, Finance and IR, Naomi Matsuoka Senior Vice President, Senior General Manager, Global Accounting Division, Hirotoshi Korenaga. Those of you who have a question, first, push asterisk and then the number 1 on your phones. And when it is your turn, we will call your name. Therefore, please state your name and affiliation before you ask your question. Kindly limit your questions to 2 questions per person. And to prevent audio feedback when asking your question, kindly turn the volume of the devices around you off. In the event that due to poor connections, the audio is disrupted. We will have to go on to the next question. Ayada san from JPMorgan, please. Thank you. Ayada is my name, JPMorgan. Two questions, please. Firstly, concerning games. In the first quarter, the 3rd party software and so micro transactions, they did very well for what reasons? And so talk about the momentum. For instance, June PlayStation sales and also Fortnite events, these sort of long time events, were there the factors that pushed the results up? Or were there also significant stay at home impact as well? So your sales were up, maybe difficult to break them down, but again, do you think that these results in the Q1 will continue with the impact in the Q2 and onward? And secondly, about again, image sensors, Mr. Chitoki earlier was talking about the second for the second half of next year. I'd like to put the business back to the path for profit growth, but to the extent that you can, what would be the assumption that require for you to be able to return to the path for growth? For instance, to be more profitable, the except that the market return with the strength of 5 gs and also high end smartphone demand, do you think will return and come back in the second half next year? Are they the requisite conditions or increasing the share and also reviewing the cost structure? Are they factors enough for you to be able to be more profitable in the next year? In other words, by making yourselves leaner, do you think you'll be able to return to profitability, better profitability? Thank you for the questions. First point concerning the first question is about the impact in the game business. The first quarter, the first party and third party, and there's a significant impact of the stay at home demand, particularly we had good results in April. After May, it's been more normalized, but still compared to last year and the same period last year basis, user activity has been very, very high. And in the Q1, we're likely to have based on the 1st party titles and third party free to play titles also because of various events held they were very active as well. I think those were the factors. But breaking this down will be rather difficult, but I hope you will understand. And about the image sensors, second half next year will be the time for profit growth. Yes, that will be our pursuit. But beyond second half next year in terms of that time frame, currently, especially the slowdown in the high end smartphones, but taking that long term view, I think this trend will slow down. And another point is currently, at this point in, mainly with the Chinese customers, they have a large inventory and inventory adjustment will happen. It's one aspect that's been affecting our results this year. I'd like to move on to the next question. Nishimura san from Credit Suisse, please. Thank you. I have a question two questions regarding image sensors. For image sensor, the production capacity and the capacity factor and also the projection for Q2, please give them. And then for this fiscal year, the operating income was decreased. But what was the impact of the capacity factor of the production facility? Second question, in image sensing mobile sensing, you were not able to grow as much as you expected. So I think year on year, you are expecting a decrease in sales. So is it just a delay? Or is it the users' design is demanding you to review or revisit your plans. Could you tell me about that? So first of all, regarding your business, the capacity and the capacity factor in the Q2. So the capacity for this quarter for fiscal 2020, at the end of this quarter, and that's KRW 133 per month at the master price. And also at the end of the second quarter, KRW 135 ks per month. So we will gradually increase the capacity. That's our plan. And also the number of wafers to be input, the Q1, the actual figure is average 3 months is 126,000 for mobile and also for digital camera. And there were some adjustments made for production. And also for the production for Q2 for that, the simple average for 3 months is 112 ks. So for mobile and digital camera, I think there's going to be more production adjustments. And then for Sensing segment, the sales is expected to come down. And what is the magnitude of the impact? Well, last year, actual was a little over JPY 230,000,000,000 and it's a strong JPY230,000,000,000. So generally, it's like onethree of that is the reduction in sensors or sensing products, that's onethree. So a big point about that is that as of last year, we felt that the growth can be expected. So we made the capital investment and also we have increased our R and D expenditures. And that has been the impact. That is all. Next question from Morgan Stanley Ono san. Thank you. Now first question is about games and second question is about pictures. Now games, Naturally, there's the PS5, and I don't think you'll give us any details. But from before, when you give guidance on games about PS5 price is not announced and you give some guidance, There are a number of scenarios and the highest probability, one that most likely would be looked at. And so this fiscal year, in your plan towards best estimation in coming up with a range for price or for volume, quantities. What kind of range do you have in your plans? To the extent that you can give us a hint, I would appreciate that. 2nd question about pictures. So the electrical release, there will be impacts over the next 2 to 3 years, as you mentioned. But what I want to ask you, so these are negative factors. But on the other hand, for example, the digital percentage will go up or there will be upside maybe on the TV side. So in this segment, the risk reward in terms of profit level in the next 2 to 3 years with the downside risk of theaters, what kind of changes do you see? For example, strategically, you could raise the weight of digital and the risk reward upside may not change that much or it will? So if you could give me your comments on these points. Thank you for those questions. First of all, gains. This fiscal year, the key points of our plan, I think that's what you're asking. And to the extent that I can talk about it, I will. That is, Q1, very strong results. Q2 and onwards, stay at home demand will settle down to an extent. That's how we view it. And also, PS5 introduction, marketing expenses certain expenses will be incurred. That will be an assumption. But with regards to the volume and price, right now, I cannot talk about that. So you have upside and risk both sides. But at this point in time, we feel that this balance is good, and we show a plan based on that. And as for Pictures, I think what you're asking is, well, the theaters are shut down and you have that impact And then there's possibilities of digital shifting. OTT players do have strong demand for content. So putting that into consideration, what is the view is, I think, what you are asking. And that will be explained by Matsuka san. So as you say, right now, there is the impact of coronavirus so that in terms of production and releases, there is an impact in pictures. But naturally, TV programs, well, there, there is a good demand continuing. And so we are an independent studio. And therefore, when responding to that kind of good demand, then the large movies that relate is being delayed and we believe we can catch up through the TV side. And then we will look at COVID spread situation. And in order to maximize value, see what should be the release and what should be the sales, what would be best. So strategically by responding strategically, we would be able to respond to downside risk to an extent, and we want to maximize value and profit by doing so. Let's proceed to the next question. Nakane san from Mizuho Securities. Nakane speaking. Can you hear me? Yes. Two questions about sensors. Firstly, the second half operations, total extent, I said the operations will be lower in the second quarter because there'll be but you'll be increasing strategic inventory. As that happens, June inventory was KRW 202,000. And what will be the inventory in the 2nd quarter? Can you give us some assumptions? And secondly, related to Airasan's question earlier, you would like to return to properties second half next year, but Toyksan said the high end model slowdown will stop and also inventory adjustment by Chinese customers also be over by then. So demand will be more brighter by that time. Next year, is your assumption that the capacity will not increase or the capacity will increase going forward next year? And also about the cost, I think the cost will increase in the amount to contain depreciation. So what are the measures for you to increase the profitability of the cost? Two questions received. And about these answers, second half operations, So inventory toward the end of the year and the operation status at the end of the year. Speaking about inventory situation firstly, In the first quarter, 2900 strength strong, 2900 strong was the level of inventory we had. But end of the year, I think there will be a slight increase on top of this, that's assumption. But the repurpose operations, debit less than 90% is the level of operation that we're assuming now. That's related to what I said earlier about increase in inventory. And the profitability return in the second half, what are the assumptions? Is assumption to see increasing capacity? Yes, a slight increase is within assumptions. But the timing of increasing of the capacity, I mentioned that in our speech, but we have to observe the demand situation going forward to adjust at time with which timing we should increase at which timing we should operate capacity. But basically, I think that occupancy will increase. Thank you. We have time constraints. So the next question will be the last one. Katsura san from SMBC Nikko Securities. Thank you. Kazura speaking. Two questions. First one, in EP and S segment, and I'm sure the details will be given in the briefing separately. But in the presentation material, you have the unit sales volume in the forecast. And I think the impact of COVID-nineteen is coming down. But if you look at the Q1, compared to your expectations, how was it in reality? And also going forward, I think you have JPY 25,000,000,000 for budget. So do you have any other comments that you can add to that? And also, Slide 24, regarding capital allocation, and you gave us an update. And JPY 1,200,000,000,000 or more of a strategic investment. So which one how much have you executed so far? And what is the remaining amount? If you could share the breakdown of that strategic investment. Thank you. Thank you for the question. Your first question in EP and S segment, 1st quarter and I'll try to summarize that quarter. Well, there was some initial simulation that we have done in May. So it's difficult to be accurate in making comparison, but it was much less predictable in May. So based on that simulation in May, actual performance of Q1 was much better, especially for TV. Because of the demand for stay at home, actually, the recovery pace was much better than we expected. So basically, the online sales was increasing. And also once the Sorcerer opened, the merchandise would be sold. So for the Q1, It was actually difficult to sell. We were short of inventory. So it was actually very good. But for digital allocation, most recently, there is a good recovery. So I think if you compare to Lehman Brothers' situation or compared to that time at least, the situation is very different and I think the recovery is much faster. That is my impression. However, regarding restructuring, we want to strengthen our financial status. So regardless of how we are going to prioritize ups and downs, I think we want to be resilient in what we do. And also regarding the capital allocation that you were asking about, so more than JPY 1,400,000,000,000. The ones that we have executed is EMI, wholly owned subsidiary and also SFH becoming wholly owned subsidiary. That was JPY 400,000,000,000. And then also in this interim period, we have already repurchased JPY 300,000,000,000 of our own shares share buyback. So just generally speaking, so this year, JPY 300,000,000,000 is what we're expecting, but it depends on what opportunities we're able to capture. So we are flexible about exactly what we do. But today, we have made an announcement about this repurchase operation that will be maximum of JPY 100,000,000,000. Thank you. It is now time to close this briefing session on earnings for the Q1 of fiscal 2020. Thank you for your participation.