Earnings Call: Q4 2021

Apr 28, 2021

Ladies and gentlemen, it's now time to start this Sony Group Corporation's financial results briefing for the fiscal year ended March 31, 2021. I'm Ida as the MC for this session. Thank you very much for coming. And today, that as we have announced beforehand, We have invited media members and analysts and institutional investors. And this, the conference will be streamed through the Internet from our site. Executive Deputy President and CFO, Mr. Totoki, will present this financial results of the fiscal year ended March 31, 2021. And later, we have a Q and A session, and the total program is about 70 minutes. Thank you very much. We now like to turn to Mr. Totoki. Thank you very much. So this is the topics that I would like to cover today. The consolidated results for the fiscal year ended March 31, 2021 and so forth. And the consolidated sales increased 9% compared to the previous fiscal year to 8,999,400,000,000 yen and consolidated operating income increased JPY 126,400,000,000 to JPY 971,900,000,000 both record highs, primarily due to the improvement of valuation gains and losses on investment securities and other income and expenses. Income before income taxes increased 392,900,000,000 year on year to 1,192,400,000,000 yen And net income attributed to Sony Group Corporation stockholders increased 589.6 1,000,000,000 yen year on year to 1,000,000,000,000 yen adjusted operating income, income before income taxes Net income attributable to Sony Group Corporation stockholders, which excludes extraordinary items, can be found on Page 4 through 10 of the materials. FY 'twenty consolidated operating cash flow excluding the Financial Services segment was 1,122,200,000,000 yen approximately 2,600,000,000 yen cumulative for the last 3 fiscal years, a level that significantly exceeds the target we established with a 3rd mid range plan. The cash flow of each of our business segment in FY 'twenty is shown on this slide. This slide shows the results by segment. Next, I will show the consolidated results forecast for FY 'twenty one. Sales are expected to be 9,700,000,000,000 yen And operating income is expected to be JPY 930,000,000,000 We have changed our accounting standards to International Financial Reporting Standards, IFRS, from FY 'twenty one. Therefore, the FY 'twenty results I will explain today are based on the U. S. GAAP, while our FY 'twenty one forecast is based on IFRS. As a result of the adoption of IFRS, the impact of the fluctuations in the market for financial instruments is expected to result in variances with U. S. GAAP in the results of our Financial Services segment and in consolidated other income and expenses. However, since we do not incorporate into our forecast any impact from the fluctuation in the market conditions, We believe that the variance in the forecast resulting from the difference in accounting standards are limited. This slide shows our forecast by segment for FY 'twenty one. I will now explain the situation in each of our business segments. First is the Game and Network Services segment. Sales in FY 'twenty increased a significant 34% year on year to 2,656,300,000,000. Operating income increased a significant 100 and 3,800,000,000 yen year on year to 342,200,000,000 yen a record high for the segment. The increase in operating income was primarily due to the increase in sales of same game software, network services, partially offset by an increase in selling general and administrative expenses associated with the launch of the PlayStation 5. FY 'twenty one sales are expected to increase 9% year on year to 2,900,000,000 yen And operating income is expected to decrease 17,200,000,000 yen to 325,000,000,000 yen Now I will explain in a little more detail the assumptions we made in the fiscal year forecast. As for hardware, supply has not been able to keep up with the extremely strong demand for PS5. Although, constraints on the supply of components, especially semiconductors are expected to continue this fiscal year. Our current target is to exceed the 14,800,000 units we sold in the 2nd year after the launch of the PlayStation 4. In order to meet the strong demand from our customers, we will continue to work to secure components and strive to do our utmost to produce and sell more units than target, primarily due to improvements in the profitability of the PS5. We expect hardware and peripherals together to contribute to the same level of profit for the full year as they did in the previous fiscal year. Next, I will talk about software. Total gameplay time of PlayStation users in March 2021 continued to be quite high at approximately 20% above March 2019, which had no impact from COVID-nineteen. We believe that this level of strong user engagement will continue in FY 'twenty one. Software sales in the Q1 ending June 30th 2021 are expected to be below the same period of the previous fiscal year when lockdowns were widespread worldwide. But we expect the same or greater revenue year on year from the Q2 ending September 30, 2021 onward. Regarding network services, we do not anticipate a significant increase in subscribers as was the case in the previous fiscal year resulting from stay at home demand. But we do aim to maintain and expand the number of subscribers to PlayStation Plus, which increased throughout the previous fiscal year. In terms of cost, we plan to increase development personnel and other costs in our in house studios by approximately JPY 20,000,000,000 year on year as we further strengthen our in house product produced software. On the other hand, we plan to keep cost in all other areas at a level similar to the previous fiscal year despite the increase in sales. To enhance our software offering, we intend to continue investing in partnering with external studios in addition to aggressively investing in our in house studios. As I just mentioned, we aim to strengthen the PlayStation platform through action such as the recently announced partnership with Heaven Entertainment Studios, which was established by J. D. Raymond, creator of the famous game Assassin's Creed and our additional investment in Epic Games. Along with the rest of the Sony Group, we will also work to enhance social and platform capabilities of games. Next is the Music segment. FY 'twenty sales increased 11% year on year to 9 139,900,000,000 yen mainly due to the growth of streaming revenue and Kimetsu no Yaiba, the movie, The Mugen Train, was a blockbuster hit. Operating income increased a significant 45,700,000,000 yen year on year to 188,100,000,000 yen chiefly due to the impact of the increased sales and recording of onetime gains of 11,900,000,000 yen from the transfer of businesses. In recorded music, streaming revenue for the fiscal year continued to grow at the high rate of approximately The profit contribution from Visual Media and Platform, which includes mobile game applications and anime, mainly in Japan, accounted for a little less than 30% of the operating income of the entire segment. FY 'twenty one sales are expected to increase 5% year on year to 990,000,000,000 yen and operating income is expected to decrease 26,100,000,000 yen to 100 and 62,000,000,000 yen The decrease in operating income is mainly due to a conservative view as to the profit contribution of mobile game applications this fiscal year while the previous fiscal year had onetime gains and historic blockbuster hit, Demon Slayer, that I mentioned earlier. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] On the other hand, in the recorded music and music publishing businesses, we expect continued profit growth As we capitalize on the growth of streaming revenue, we are steadily improving our ability to discover and nurture artists and continuously create hits, and we aim to continue to increase our profitability going forward. Opportunities for investment in the music segment are steadily increasing, and we are aggressively pursuing them. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] To capture more of the growth in emerging markets, we recently announced the acquisition of Somlibra, independent music label in Brazil. Like the acquisition of AWOL, an artist services business in the independent space that we announced in February. Regulatory approval is necessary, but we believe both these transactions will contribute to the further growth of the Music segment. Next is the picture segment. FY 2020 sales decreased a significant 25% year on year to 758,800,000,000 yen chiefly due to a significant decrease in theatrical releases and delays in TV show productions and deliveries resulting from the impact of COVID-nineteen. Despite the impact of the lower sales, operating income increased 12,300,000,000 yen year on year to JPY 80,500,000,000 mainly due to a significant decrease in marketing costs and strong home entertainment and television licensing revenues in Motion Pictures as well as a decrease in portfolio review costs in Media Networks. FY 'twenty one sales are expected to increase a significant 50% year on year to 1,000,000,000,000 yen This increase is mainly due to a resumption of theatrical releases in Motion Pictures and a recovery in TV productions and media networks. Operating income is expected to increase 2,500,000,000 yen year on year to 83,000,000,000 yen chiefly due to the impact of the increase in sales for the entire segment, including license revenue for the popular U. S. TV series Seinfeld, partially offset by an increase in marketing costs associated with the reopening of theaters. In Motion Pictures, theaters in major U. S. Cities are reopening. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] And from June, we plan to release into U. S. Theaters sequels to hit films like Peter Rabbit and Hotel Transylvania. Theatrical releases remain important to Sony. But taking into account the crowded schedule of release post theater reopening. We will be flexible when selecting the channel through which we will sell our product depending on the content, scale and timing of the works so as to maximize long term value of each work. In addition, license agreement negotiations for films and TV shows proceeding smoothly against the backdrop of increasing demand for content. As we announced the other day, [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] We have signed long term license agreements on good terms with Netflix and Disney for U. S. Distribution of theatrical releases from 2022. Next is the Electronics Products and Solutions segment. FY 'twenty sales decreased 4% year on year to 1,000,000,000,000 yen mainly due to a decrease in unit sales, of digital cameras and the impact of foreign exchange rates. Operating income increased a significant JPY 51,900,000,000 year on year to 139,200,000,000 yen mainly due to a reduction of operating costs, mainly in mobile communications and an improvement in the product mix for TVs and other products, partially offset by the impact of the decrease in sales. FY 'twenty one sales are expected to be JPY 2,260,000,000,000 and operating income is expected to be JPY 148,000,000,000 [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Excluding the impact of the change in segmentation resulting from the recent organizational change, we expect that sales will increase 9% year on year And operating income will increase 13,900,000,000 yen year on year. Throughout FY 'twenty, [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] This segment was significantly impacted by intermittent disruptions in the supply chain of components caused by the various factors such as COVID-nineteen. However, we were able to respond swiftly to these changes and secure a high level of profit. Moreover, the mobile communications business, which had been an issue for us, was able to record a large profit, which exceeded our initial expectations. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] From this April, the businesses within EP and S have been combined into the new Sony Corporation. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] The operating environment remains unpredictable, but the new management team, which is comprised of people who helped manage through the difficult operating environment the previous fiscal year. I expect to continue to manage this business with a high degree of resiliency to change. Next is the Imaging and Sensing Solutions segment. Fiscal year 'twenty sales decreased 5% year on year to 1,000,000,000,000, 12,500,000,000 yen primarily due to lower sales of image sensors for mobile. Operating income decreased A significant JPY 89,700,000,000 year on year to JPY 145,900,000,000 primarily due to an increase in research and development expenses and depreciation as well as the impact of the decrease in sales. Fiscal year 2021 sales are expected to increase 12% year on year to 1,130,000,000,000 yen and operating income is expected to decrease 5,900,000,000 yen to 140,000,000,000 yen In fiscal year 2021, we expect that our market share on a volume basis will return to a similar level as it was in the fiscal year ended March 31, 2020, thanks to our efforts to expand our market customer base in the mobile sensor business We'll manage the business in a more proactive manner while keeping an eye on risk. We plan to increase research expenses in fiscal year 'twenty one by approximately 15% or 25,000,000,000 yen year on year to expand the type of products we sell and to shift to higher value added motors from the fiscal year ending March 31, 2023. We expect image sensor capital expenditures to be JPY 285,000,000,000, part of which was postponed from the previous fiscal year. We plan to shift to higher value added products that leverage Sony's STACK technology in preparation for an improvement in the product mix from fiscal year 'twenty two and will concentrate our investment on production capacity necessary to produce them. The other day, we held a completion ceremony for our new Fab 5 building At our Nagasaki factory, expansion of production capacity is progressing according to plan, and we'll build, expand and equip facilities in line with the pace expansion pace of expansion of our business going forward. Shortages of semiconductors have become an issue recently, But with the cooperation of our partners, we have already secured enough supply of logic semiconductors used in our image sensors to cover production plan for this fiscal year. However, there is a possibility that the semiconductor shortage will be prolonged, So we are accelerating the shift to higher value added products that we have been advancing year to 4. We are also continuing to proactively pursue mid- to long term initiatives in the automotive and three d sensing areas, and we'll explain more details at the IR day scheduled for next month. Last is the Financial Services segment. Fiscal year 2020 Financial Services revenue increased a significant 28% year on year to 1,668,900,000,000 yen primarily due to an increase in net gains on investments in the separate account at Sony Life Insurance, partially offset by decrease in single premium insurance. Operating income increased significant 35,000,000,000 yen year on year JPY264,600,000,000 primarily due to an improvement in valuation gains and losses on securities at Sony Bank end. A decline in the loss ratio for automobile insurance at Sony Assurance, partially offset by an impairment charge against long lived assets in the Nursing Care business. New policy amounting for us at Sony Life in fiscal 2020 was below that of the previous fiscal year due to the impact of COVID-nineteen, but it has trended higher year on year from the Q2 ended March September 30, 2020. Fiscal 2021 Financial Services revenue is expected to decrease 16% to JPY1400,000,000,000 primarily because we do not incorporate into our forecast an increase in net gains and investments in the separate accounts at Sony Life resulting from strong market conditions year. As was the case in the previous fiscal year, operating income is expected to increase 5,400,000,000 yen to 170,000,000,000 yen primarily due to an increase in policy amounting for us at Sony Life. Now I would like to discuss the financial directions of 4th mid range plan, which starts this fiscal year. In previous mid range plans, we have prioritized improvement and enhancement of the profitability of each business. But in the 4th mid range plan, We aim to grow both sales and profit. We will adopt adjusted EBITDA as the group key performance indicator for the 4th mid range plan. EBITDA is a metric that enables us to confirm that all of the businesses in the Sony Group, Including Financial Services, which is now a wholly owned subsidiary, are expanding over the mid- to long term through cycles of investment and return, And it is often used to calculate corporate value. Our target for the cumulative total of the new next 3 fiscal years is 4,300,000,000,000 yen. For more details, including the definition of the adjusted EBITDA, please refer to page 23 of the presentation materials. Now I will update you on our capital allocation plan. During the 3rd mid range plan, we used the consolidated operating cash flow excluding the Financial Services segment In the cash we generated from asset sales, we invest 1,200,000,000,000 yen in capital expenditures, we invest 1,400,000,000,000 yen in investments, including share repurchases and issue under 70,000,000,000 yen in dividends. In the new mid range plan, We have established a capital expenditure target of 1,500,000,000,000 yen and a strategic investment target of 2,000,000,000,000 yen or more as we aim to grow our business over the long term beyond the duration of the plan. Regarding dividends, our policy is to increase dividends in a stable manner over the long term. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] We expect to fund our allocation of capital through consolidated operating cash flow excluding the Financial Services segment, Including cash leftover from before, if additional funds become necessary, we might also sell assets and borrow with a strict eye on financial discipline. Operating cash flow includes dividends from the Financial Services business, and we expect that the Financial Services business will contribute to the growth investment capacity capability of the Sony Group through a stable increase in its dividend as its own profit grows over the mid- to long term. Lastly, I would like to touch upon share repurchases. Today, we announced the establishment of a facility to repurchase up to 200,000,000,000 yen of the shares of Sony Group Corporation over the period of 1 year. In the previous fiscal year, we did not avail ourselves of the share repurchase facility we had in place because of a steady increase in growth investment opportunities the price of our shares, but we continue to view share repurchases as a part of the strategic investment, and we will implement them in an optimum manner. This concludes my remarks. Thank you very much. It was Mr. Totoki, the Executive Deputy President. And at 16:25, we would like media question and answer. At 16:50, we'll have a Q and A session for the analysts and business leaders, and then about 20 minutes each allocated to each Q and A session. And then so those the media members and investors and analysts who have already registered to ask questions, You have a designated phone number, and then please link to that number. If you have not made any prior registration, through the international streaming, you can listen to the Q and A session. So please wait a moment We'll soon start the question and answer session for the media. Please wait for a few minutes. Thank you very much for waiting. Now I would like to entertain questions from the media. The responder is Mr. Totoki, the Executive Deputy President and CFO and also, Matsuka, Senior Vice President in charge of Corporate Planning and Control Finance and IR and Mami Imada, the VP, the Senior General Manager at the Corporate Communications department. If you have a question, please push the asterisk and then push number 1. And Fen may turn through your the turn. We will name your name and please identify your the media and your name before you ask a question. The 2 questions per each person. Thank you for your cooperation. To prevent howling, please turn your device to off, especially the volume for the peripheral devices. And then if this connection stops the voice, Well, if that happens, we have to turn to the next person to ask questions because time is so limited. But if you like to stop your question and then cancel your question, please push 2 after the asterisk. So if you have a question, please push the asterisk and then number 1 after the asterisk. Thank you. The first question from Toyo Keizai, Mr. Takahashi. Please, now the floor is yours. I have two questions. First of all, the games. This year, the PS5, the units and volume was presented. But in that this number, For example, within this year, at certain time, there could be maybe the solution of a problem of the semiconductor. And then maybe the number might be different and maybe increased in conjunction to the EP and S. You also talked about possible impact by the semiconductor shortage. So is that the likely scenario, the shortage of semiconductor? That's the first question. The second one is capital allocation. Your outlook. Maybe on the IR day, you might give us more details. Capital investment in the facility and equipment, in the previous MLP that the semiconductor was the major focus of investment. But in the 4th MLP, where do you give emphasis In your capital investment, do you have any change in your policy? Strategic investment, some of the acquisition candidates were mentioned. What's your philosophy? And would that be different compared to MRP III versus new MRP IV? Thank you very much for your questions. You gave us the 2 questions. And then as to the first question, game and network service. NPS V, the launch and sales unit and EPS might be impacted by the shortage of semiconductor supply. The second question is about capital allocation and our capital investment in equipment. In the 3rd MLP, Semiconductor was forecast, but what about the MRP 4 in that investment strategy? That was my understanding of your question. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] So let me respond to this question by myself. As to the PS5, the sales scenario estimate, Of course, as I said earlier, the PS4 and should be more than the PS4 sales volume. That's what we aim at. But can we drastically increase the supply? No, that's not likely. So the shortage of semiconductor is one factor, but there are other factors actual impact on the production volume so that at present, we like to aim at the 2nd year sales That is our 14,800,000 units. That is the 2nd year of the PS4 sales. As to the EP and S, The semiconductor shortage might have some impact. Well, within this fiscal year, there are different devices, And the supply was rather limited or constrained. For example, we could find maybe second resource, whether by changing a design, we could cope with that. In EP and S, we took a flexible the maneuver. So in the fiscal 2021, that we like to flexibly adapt to the situation. To The second question about the capital allocation. Capital investment in capital allocation, as I explained to you in the MRP 4 in upcoming 3 years. JPY 1,500,000,000 of capital investment is scheduled. In that plan, about JPY 700,000,000,000 will be dedicated to semiconductor. So that when you think of the percentage in the compared to the MRP III. There's not a major change in this next MRP IV. Thank you. Next question please. From Asahi Newspaper, Suzuki san, please. Suzuki of Asahi Newspaper, can you hear me? Yes, we hear you. Thank you for your presentation. I have two questions as well. 1, EP and S. The image sensor, the semiconductor, a certain customer of China Because of its influence or impact, do you get enough inquiries from other manufacturers to compensate for or the particular Chinese customer. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] In I and S segment, certain Chinese customers, are we getting enough inquiries to offset that portion. Last year, what we tried to achieve is that [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] By FY 'twenty one, we try to recover the market share in volume, and the profitability should be recovered in 2022. But FY 'twenty one, recovery of market share and volume, as far as this is concerned, [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] We are getting a very good feel about it. So in FY 'twenty one, to a certain extent, we will strengthen CapEx. Thank you. Thank you. One more question About the electronics products, the improvement of the product mix, in what way Are you going to shift toward the high value added products? If you could elaborate more on this shift, I would appreciate it. EP and S product mix improvement. What is it specifically. I think that's the question. As you rightly said, basically, TV getting larger screens and shift towards high end products, [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Those were most conspicuous examples or achievements. Thank you. Thank you. Thank you. Next question, please. Nishida san, please. Thank you. Do you hear me? Yes, we do. Freelancer Nishita, two questions. 1, About game business, particularly in this fiscal year, download business revenue will grow because mainly of PlayStation 5 or a stay at home demand. In fiscal 2020 thereafter, what is the impact? What's happening to maintain download revenue. And number 2, Electronics Business. Mobile profitability is improving. Could you elaborate on the reasons for the profitability improve? And is there a possibility of product mix And others, if you can talk about something around this area. Thank you. Game and Network Service In fiscal 2020, download ratio, you said, we call it a digital ratio in our explanation. So let me well regard that as a distal ratio to explain this. Now here, stay at home demand was not small. And particularly in Q4, We are please take a look at the materials externally announced. It appears that the digital ratio is increasing. Partially because of the titles, at the beginning, stay at home demand, well, There was a lot of contribution from the older titles in Q1. But at that time, there were not many new releases. That was a big impact. And to answer your second question about the mobile profitability improvement. Why did it happen? Well, broadly, I think there are three reasons. The first is We have narrowed down on the areas for business. Well, broadly, it's now concentrating in Japan. With this, we saw an improvement of the profitability. And secondly, the high value added products have been forecast. In terms of volume, It's not so large, but again, high value added products do have high profitability. And also, another reason is the huge reduction of expenses. On this point, design, efficiency improvement. With that, we have reduced the expenses quite dramatically. And so these are mainly the three reasons that drove the improvement of the e mobile profitability. Thank you. Any other questions? After pushing the asterisk, please enter 1 if you have any question, please. From Nikkei, Mr. Bang, please. Thank you. I hope you can hear me. Yes. The first question is maybe abstract question. The net profit of 1,000,000,000,000 yen because of different factors, maybe it is important epoch making stage for your company. Compared to over 10 years ago, your sales mix has changed. As a funny group, Mr. Totoki became the leader, but what changed? Why do your profitability has becomes so much better compared to a dozen years ago. The second point is the strategic investment or capital allocation, as you mentioned. The content IT investment and some of the projects were announced. So high value added one through the net streaming. So acquisition, the value or valuation might have increased because of that. So of course, when you consider that you will choose the appropriate candidate proper pricing evaluation. So you have actually acquired at a good timing. Is that maybe some beneficial effect upon your good performance. Thanks for your question. As to the net profits of 1,000,000,000,000 yen was achieved on behalf of Sony Group. And what has made what kind of changes made it possible for you to achieve such a good result? Well, it didn't happen overnight. We have accumulated the steady steps, and that outcome turned out to be this 1,000,000,000,000 yen So maybe that €1,000,000,000 figure just stood out there. But these changes take place every 10 years. Every year, you make some progress every year and then accumulate. So when we reflect upon the last 10 years, of course, at the business the policy meeting that COO will present to you. Mr. Yoshida will give you more details. So maybe he will explain at the corporate the strategy strategic management meeting. As to the strategic investment focused on IT, well, attractive IP sorry, attractive IP, There's some merchandising chance and opportunities in scale or increase, and that reflects this valuation. And that's something you have to keep up with. It's inevitable. But on the other hand, a lot of attractive products and candidates might appear. So in terms of M and A and IP and then other things, This market, I think, has become quite activated or vigorous. So we like to find a good candidate, And we like to take active stance to try to continue investment as to the past investment. Well, the time is still premature to evaluate how we did it. But as to the past investment projects, The estimation or the quotation, although it was out of the deviated from the strategy, we didn't have such a case. So That was our reflection. Well, time is running out. So the next question will be the last one for this Q and A session From Newsweek's, Hiraoka san. Thank you. My name is Hiraoka from Newsweek's. Do you hear me? Yes. We hear you. My first question, as a midterm forecast, in the past, Operating cash flow and ROE were disclosed as an indicator, but now you are talking about adjusted EBITDA as a KPI. Operating cash flow and EBITDA are closer in concept. What's the difference between these two? Now what's the background of adopting EBITDA this time? Now at Sony, [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] There are many businesses with creativity. Those investments not included in the investment cash flow seems to be increasing, for example. Recruiting talents with creativity is one such example that can push up the personnel cost, and this is not exactly investment. From us, an investor's viewpoint as an advanced investment that may have the impact on your balance sheet, financial statements. Where should we focus? In at Sony, what's your idea on the investment. 2nd question about is about your game business. At least from PlayStation 2 to 3 and from PlayStation 3 to PlayStation 4, [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] As the generation is upgraded, the level profit level declined probably the hardware sales towards the end of its life cycle was down. And in the beginning, the cost was higher. Now from PlayStation 4 to PlayStation five. I think the level of profit remained at a high level. What's the difference from the past practice? Probably network service may be the main driver. But as you look back on this PlayStation's history. Could you comment on this? Thank you. I think you gave me 2 or 3 questions. First about KPI, from operating cash flow to ROE to adjusted EBITDA, Why did we change? In concept, they are very similar to each other. However, can be used in a different way. The operating cash flow, for example, in a certain period of time, You have to look at tax and working capital. These 2 may affect the cash flow. So there's a lag time period. So on a long term basis, we can have a good view. But if you look at a certain period of time. These two factors affect too much and it's difficult to use. Another thing is that because Financial Services is now wholly owned and they don't have the operating cash flow idea. So the Financial Services is consolidated now and then because of this, adjusted EBITDA would be easier to use and give us clearer view. That's why we chose EBITDA. Now ROE, when profitability was low And the capital efficiency had difficulties. Then [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] We had to look at ROE and used it as KPI. However, our profitability has improved and the balance sheet has improved. Therefore, ROE itself is now rather than calling it KPI, We just recognize the cost of capital as a hurdle rate to look at each one of the businesses. I think that's more important for us. Now about acquiring talents, excellent human resources. In order to attract them, we need investment. But with this, where do we look on our financial statements or balance sheet. There's a cash compensation and there's a stock equity based awards or [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] In order to attract good talents, we need to launch appealing projects program. There are various things. But for us, we want talented people to come. And we want to be such a company which attracts those talented people. The investment in human resources, The focus is not on the number of people. We want to target people with high talents in recruitment. I think going forward, that's the direction we are going. Now the past PlayStation, when there was a change of generation. The level of profit declined oftentimes. As you rightly said, because of the increase in network service and we carry on the customer base from the older generation to the new generation. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] So in case of PS4 and PS5, we secured compatibility, so the users can enjoy seamlessly. So this is what we intended to achieve. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Now hardware's profitability, we take that into consideration so that we shouldn't have a very drastic negative margin. And that's why this segment contribute to the group's overall profitability. Thank you. Thank you. Now it is time to conclude the Q and A session with the media people. To change the responders, the Q and A session with analysts will start at 4:50 p. M. We'll begin a Q and A session with analysts and investors shortly. Please wait just for a few minutes until resumption. Thank you for waiting. We would like to answer questions from investors and analysts. I will serve as the moderator. My name is Hayakawa with Finance and IR. The responders are Executive Director, Chief Financial Officer, Senior Vice President, Totoki Senior Vice President in Charge of Corporate Planning, Control and Finance and IR, Naomi Matsuoka, Senior Vice President, Senior General Manager, Global Accounting Division, Hirotoshi Korenaga. We're going to call the questioner. And when your name is called, please start speaking. We'd like to confine the number of questions to 2 per person. In order to avoid feedback, So did you ask a question? We'd like to have your cooperation. If your voice is severed because of the environment in the interest of time, we'd like to move on to the next person We would like to ask your question. We'd like to have your understanding. If you would like to cancel your request for a question, And then number 1, JPMorgan Securities, Ayada san, please. Thank you. Ayada with JPMorgan. I have two questions, if I may. Question 1 about INSS. Well, wafer, the input and capacity, what's the track record and also outlook About capacity at the end of the year, if you have the number, I will appreciate that. And relatedly, to Toki san earlier on, Said fiscal 2021, you have a good outlook prospect for recovery for volume. But with respect to improvement of product mix, what is your well view? In the second half, are you going to Have a larger products qualitatively, so if you see have any prospect. Question 2. In the MRP 4, the adjusted EBITDA of JPY 4,300,000,000,000, reshinking around it. If possible, in this fiscal year, based on the plan, the adjusted EBITDA, what is it? And pretax profit, that's €900,000,000,000 plus and D and A, that's €450,000,000,000 So perhaps I want JPY 4,000,000,000 or JPY 1,500,000,000,000, but I would like to ask you about the number. If it's JPY 1,400,000,000, JPY 1,500,000,000,000, then in terms of math, in 3 years, it will be flat, It appears. So in 3 years, the growth or beyond that, how do you look at the growth? So in terms of adjusted EBITDA, well, with respect to the balance will be growth. If you have any message to the market. I'd be appreciative to hear that. Two questions. The first question is with respect to INSS, the wafer input and the capacity and product mix improvement prospect, qualitative point in my understanding. And your second question, adjusted EBITDA. Based on this fiscal year's plan, what would be the level of EBITDA? So first, to answer your first question. Regarding capacity, in fiscal 2020, in Q4 at the end of Q4, the master well installation. It's about 139 ks. That was the capacity. And previously, it was 131 KSOs up. The plan was to start operating it in But because of, well, earlier preparation, we started operation partially. That's why we have this number. And in fiscal 2021, at the end of Q1, it will be 141,000 in our prospect. So what about the increased capacity? Well, increased the building for increase, that's just for some production line. So that doesn't mean it doesn't mean that there's going to be a huge increase in the capacity. With respect to the wafer input. In 4Q, the track record is the It was 128 ks. That's average. Well, simple math, it was expected, And our in house capacity is in full operation. And in fiscal 2021, in Q1, the wafer input. The 3 month average is 138 ks. And again, in house capacity is expected to be in full production. We have a lot of inquiries these days. In addition, in fiscal 2021, the well, in preparation for the shipment of new models of smartphone. We are increasing our production. With respect to the prospect of product mix improvement in fiscal 2021 in the second half of this fiscal year. 0.7 percent will small product will pick up. And so when it picks up in fiscal 2022, higher value added types will be launched. That is the prospect at this moment. So with respect to product mix improvement, that is the idea that we have. Also about adjusted EBITDA, this is just a ballpark. Please understand just approximation, but in fiscal 2021, it should be JPY 1,300,000,000,000 in fiscal 2021. But in a single year, We well, evaluation of that in single year given our mid- and long term plan. Well, we should look at it well, we should look at the total. So if you just look at the single year, we'll launch something. That kind of a discussion should not be done in my view. Thank you. Now we'd like to entertain the next question. SMBC Nikko, Mr. Katsura, please. Thank you. I hope you can hear me. Yes. Thank you. Music is something I have one question about. And the second one, I have a question on semiconductor. In music, As Mr. Totoki explained that the media and platform, the profit, about 30% of that is related to this Aniplex. But anyway, according to this year's plan, What is your assumption? They say that the more optimal solution will be chosen. But in this fiscal term, What's your philosophy and idea? That's my idea on this. The second question is related to semiconductor investment philosophy. For this fiscal term, as well as the upcoming 3 year plan of investment, could you please and that's what you have given us some of the ideas. But about 6 months ago or maybe 3 months ago or so, compared to that timing, more active stance. You have shifted to more active investment. Could you please So give us a background for that investment. By that investment, how there is a market share or the capacity share that we like chip. Well, the details will be explained at the IR meeting with regard to the MLP 4. Thank you. Thank you for your question. Music, where the percentage of media platform for 20 20%, about 30%. That's something we have indicated to you. When you break it down to that breakdown. Naturally, the theater version of the Limo Slayer is a big hit. So in 2021, it doesn't happen again. And mobile game as well, the content is very good. So there could be deceleration in that area. And those factors excluding those factors, And JPY 11,900,000,000 is income from the sales of the business, transfer of business. Taking that into account, year on year, JPY 14,000,000,000 or So is the reduction. So that is a reduction to be felt. So anyway, if any compare overall the income, Of course, the other part will enjoy the growth. That is thanks to the increase of the revenue from the streaming. And that's how we see the growth of the profit. As did I and SS, this is the area last year, 2020 fiscal 2020. There was original plan investment. And I explained to you earlier, But some of the investment plan was postponed to the future. As of now, 2022 and afterwards, the strong demand we expect. So in that sense, some of the capital investment 2020 and afterwards, sum to be implemented as well. So this is 2,083,000,000,000 yen 283,000,000,000 yen In 2020, the volume share is recovered, and we are almost achieved till 2022. Further, strength of ours will be achieved. In other words, we will get this profit and then the sales. And we need to have a capacity prepared to produce. So that's why we started to invest for the capacity building in additional facilities. And as of now, in the 4th term, The final year capacity and its size, we expect, it's not a simple increase of the capacity for investment, But rather, we are shifting to the high value added products. The process itself need to be increased and enhanced. Investment in there is quite voluminous. And then by enlarging the size, it might change. So when we talk about the relation between capacity and an investment, it's not a linear relationship. So we cannot specifically just talk about capacity because of the complexity. Next question, please. From Mizuho Securities, Nakane san, please. Nakane speaking. Thank you. Two questions. First, In the text about the games, what I wanted to ask, hardware, software, network. If you divide this, what will be the profit for each? And the backdrop the contributing factor is the improvement in hardware. PS5 and peripherals may give this uplift. When the volume is increasing, the gross deficit may increase. That will push down, we thought, the level of profit, but the network profit is not included. What would you say? 2nd, R and D is 610,000,000,000 yen, which is a large increase. You talked about iron, S and S, but any other areas that there will be an increase under MRP and the new MRP. Thank you very much for your questions. First about the KEMA network service, I couldn't really hear you clearly. So let me confirm. We improved the profitability of the hardware. When the PS5's unit sales increases, that may lower the profitability. Was that what you're asking? Including the peripherals, probably [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] You could achieve the profitability. That's what I thought. Now profitability profit contribution of hardware in FY 'twenty inclusive of the peripherals is positive. That's what we have been saying. Then the amount of the contribution in this fiscal 2021 will be about the same or even above the previous year's level. That's the assumption of the plan. Why is it the case? Compared to last year, PS5's profitability will improve. That's how we forecast. That's why this change will be brought about. Second question about R and D expense, your question about the R and D cost. On a consolidated basis, as you say, JPY 610,000,000,000 from the compared to the previous year, it is an increase by more than JPY 80 1,000,000,000 yen game network services, EP and S and I and SS, every segment increased. Game and network services. It's the development cost increased by 20,000,000,000 yen and that had the impact. Also, INSS to 25,000,000,000 or so increase is expected, and the remainder will come from EP and S. Thank you. Now we are running out of time. So the next question will be the last question. Morgan Stanley, Ono san. My name is Ono with Morgan. Thank you. 1st, well, this may overlap somewhat with Nakane san's question. KME Network, JPY 17,200,000,000 reduction in profit. The game development expense, that's about JPY 20,000,000,000. I think you said that in your comment. But the positive factors and negative factors in terms of scale, could you give us more hint add on content negatively factor game development, the in house software and also the hardware as Related with Nakano san's question. So that's my first question. Ono san, if you could also give us your second question. My second question, EP and S, JPY13.9 billion reduction in profit. Well, if possible, by product category, the sequence, what are the items, If you could explain that. Thank you. Thank you for your questions. Now with respect to Gaming Network Service, fiscal 'twenty reduction in profit, positive factors, negative factors. That's what you would like to know. Now we're including some With respect to hardware, basically, we are moving positively, the entire hardware. We ask you to look at it positively and including investment in studio, the development of games, we're going to increase that. So that's a part of investment that will increase. And 3rd party software reduction in profit, we do anticipate it somewhat. But again, last fiscal year Q1, I think, well, it just increased dramatically because of stay at home demand last year. So I think we have to discount it. I think that's a reasonable way to look at it. So that's the way we should look at it. And the end result of our calculation is that. I think that is some one way to look at it. Regarding currency, I think that should work positively. And EP and S, increase in profit by product category. Well, It's not all that complex from camera, the increased profit and revenue coming. Well, last year, because of pandemic, the negative impact was given on the digital camera. And here, we are on a path for recovery. And by country, it differs, but the pandemic, as it abates, There are strong products, and they will again grow. Thank you. Now thank you. Now it's time to close it. We would like to conclude the Sony Group Corporation's financial results briefing. Thank you for your participation today.