Earnings Call
Sony Group Corp (SONY)
Earnings Call Transcript - SONY Q4 2025
Unidentified Company Representative, MC
Thank you for joining our meeting despite your busy schedules. We are now starting Sony Group Corporation's Corporate Strategy and Earnings Announcement Presentation for 2025. I will be your MC. My name is from the PR department. Thank you again. First, I would like to invite the President and CEO of Sony Group Corporation, Mr. Totoki, who will discuss the Corporate Strategy for the company. Following him, Ms. Tao and Mr. Yamada will cover the FY '24 earnings and results as well as the FY '25 results forecast. After that, we will open the floor for questions. We expect the entire session to take about 90 minutes. Totoki-san, the floor is yours.
Hiroki Totoki, CEO
Ladies and gentlemen, thank you for being here today. First, I would like to take a mid to long-term perspective on Sony Group's business and our overall strategic direction. Over the past several years, we have significantly shifted our business focus towards entertainment. This decision was influenced not only by the strength and growth of our entertainment businesses but also by the ability of entertainment to evoke emotions, which lies at the core of Sony Group's purpose. Recently, we have made substantial investments in expanding content across categories such as games, music, film, and TV programs. This includes the expansion of our intellectual property, strategic investments in content, music catalogs, and growth areas such as Anime, alongside the development and application of innovative technologies to support content creation, all of which have transformed Sony Group and resulted in strong outcomes presented today. Notably, our entertainment business now represents approximately 61% of our consolidated sales. We've observed the resilience of our entertainment sectors during economic downturns, such as the COVID-19 pandemic. Our initiatives in entertainment content and creation technologies are progressing well, and we remain committed to growing these areas. Moving forward, we will maintain our momentum and focus on achieving our long-term creative entertainment vision, which was launched last year and outlines how we intend to deliver content through creativity and technology, creating limitless realities alongside creators, partners, and employees through collaboration across our businesses. Let's examine the entertainment sectors that will be key to realizing our creative vision. First is the game and network services segment, which is performing exceptionally well. We expect the growth of PlayStation 5, both in active users and per-user spending, to continue, thereby driving steady profits. We aim to leverage this momentum for sustainable growth while investing thoughtfully to shape the future of gaming. We predict consistent revenue and profit growth in our network services due to the rise in monthly active users linked to the steady expansion of our installed base. Specifically, we will focus on increasing revenue and profits from PlayStation Plus and enhancing the average revenue per user of the PlayStation Store through personalized services and pricing optimization. In the current fiscal year, we foresee further advancements in our studio businesses, fueled by a growing user base driven by new title launches from narrative-driven single-player titles like "Ghost of Tsushima" and live service games like "Marathon," as well as the ongoing success of established titles like "Helldivers 2" and "Destiny 2." Additionally, we aim to concentrate on high-margin peripherals like PlayStation Portal, where our newly launched beta cloud streaming feature enables users to play games more conveniently on the go. In the Music segment, we continue to focus on strengthening our position in the global market while enhancing profitability. Our strong partnerships with digital streaming platforms have helped Sony Music Group improve its core business offerings, which include major market repertoire centers, comprehensive label and artist services, tailored support for independent artists, DIY distribution, and music publishing. In FY '24, our music operations in Japan saw considerable success in promoting Japanese artists like YOASOBI on the global stage, and we plan to continue developing this area. Our strategy includes strengthening these crucial ecosystems and pursuing organic growth while also considering deliberate acquisitions in high-growth regions such as Latin America, India, and other parts of Asia. We are also exploring cutting-edge technologies like AI to create value while safeguarding artists' rights. The film industry is steadily recovering from the disruptions caused by COVID-19 and labor strikes that affected production levels. Our film division is rebuilding alongside Hollywood and has several new titles in the pipeline, including releases anticipated for 2026, such as a new Spider-Man movie titled "Spider-Man: Brand New Day," new adaptations of the Capcom game "Resident Evil," and the latest installment in the "Jumanji" series. Anime is expected to be a significant growth contributor for our Pictures segment, particularly as Crunchyroll, our anime-focused streaming service, expands its paid subscriber base and offerings. We view Sony Pictures Entertainment as a central hub for cross-company collaborations that are crucial to our creative vision. In recent years, we have recognized the value of effective cross-business collaborations, such as PlayStation Productions’ adaptations of popular game IPs like "Uncharted" and "The Last of Us" into film and television, with over ten titles currently in production. Moreover, we have many collaborations involving Sony Music artists and other divisions, as well as with our technologies and creative businesses. Looking ahead, we will pursue broader collaborations in Anime and, through our engagement platform initiative, will aim to create opportunities by connecting fan communities both within and outside Sony across various entertainment sectors and in our location-based efforts. Anime remains a major growth driver for Sony Group across diverse segments. At the heart of our efforts are the vibrant creator and fan communities in anime, which Crunchyroll will honor at its 2025 Crunchyroll Anime Awards in Tokyo later this month. Building on our successful Aniplex and Crunchyroll ventures, we have undertaken several initiatives over the past months to expand our anime presence, including an upcoming series adaptation of the popular PlayStation game "Ghost of Tsushima: Legends," produced in partnership with PlayStation Productions, Aniplex, Crunchyroll, and Sony Music Entertainment. We have also established Hayate, Inc., a joint venture between Aniplex and Crunchyroll focused on producing high-quality anime for global audiences, as well as a strategic alliance with Kadokawa Corporation to advance media mixes and global IP expansion. Additionally, we have formed partnerships with Bandai Namco Holdings, Inc. and Gaudiy, Inc. in the Web3 space. The anime market is projected to grow significantly at a compound annual growth rate in the high-single digits from 2023 to 2030, with Crunchyroll's core streaming business anticipated to expand at a CAGR in the high 10% range by 2030. We will focus on accelerating Crunchyroll's growth through enhanced service offerings and user acquisition. Our strategy includes broadening services for anime fans, encompassing e-commerce for anime merchandise, a mobile game library service, and Manga offerings. To further grow Crunchyroll's membership, which exceeds 17 million paid subscribers as of March 31, 2025, we are closely collaborating with PlayStation Network, which boasts the largest monthly active users in the Sony Group. Since February, new and renewing customers have been able to easily sign up for Crunchyroll’s paid services through PS5, which we believe will lead to increased membership. We will leverage the monetization capabilities of PlayStation Network to enhance Crunchyroll’s offerings. This integration is part of our engagement platform initiative introduced last year, aimed at creating business opportunities and synergies by connecting diverse fan communities across various entertainment sectors. Looking forward, we are in the early stages of exploring location-based entertainment opportunities to maximize the value of our IP across many sectors. Our past collaborative efforts integrating IP and technology showcase the future growth potential. Until now, I have outlined our growth strategies within the entertainment sectors, but our innovative technology is also essential for achieving our creative entertainment vision. In the Entertainment Technology and Services segment, we have refocused our business towards content creation. Building on the success of Alpha, we are broadening our imaging ecosystem as a growth driver, including expanded tools and solutions for cinematographers, live streaming, remote workflow for industry-leading creators, and image authenticity technologies for news agencies. We will also maintain our focus on growth areas like sports entertainment, having acquired KinaTrax last year to enhance our ability to utilize existing sports data, and we plan to expand alternative broadcasts that pick up real-time content to engage fans and attract new audiences. To support advances in entertainment, we will continue to revolutionize content creation technology, providing key solutions such as spatial content support systems, real-time visual effects, and 360-degree virtual mixing environments, which are now extending into sound design for films, gaming, and animation. Moreover, in the Imaging and Sensing Solutions segment, we foresee that Image Sensors will be key for capturing real-world content and elevating entertainment experiences. For mobile image sensors, a staple of our business, we anticipate the trend of larger sensor sizes will continue in the coming years. There remains high demand for advancements in sensor performance, including resolution, noise reduction, dynamic range, and power efficiency. We will aim to introduce a new generation of processes to facilitate the production of these innovative sensors. By combining this next-generation process with technologies like two-layer transistor pixels, we can continue providing differentiated sensors that meet customer expectations. As we seek further growth in the Imaging and Sensing Solutions sector, a major challenge will involve managing capital investments effectively and improving investment efficiency. We will explore a range of options to this end. Beyond mobile sensors, we aim to maintain stable profit generation through cameras and sensors for industrial applications and social infrastructure. For promising sectors such as automotive sensors, we are targeting mid- to long-term growth with optimal development costs, while carefully assessing market growth rates and business opportunities. In conclusion, the diversity of our business and workforce is crucial for realizing our creative vision. Sony employs around 110,000 individuals globally, fostering an environment rich in diverse perspectives, ideas, and strategies. The synergies derived from organically connecting various businesses and talent provide Sony with a unique competitive edge. As we advance, we will continue to evolve, unleash the creativity of our creators, and strive for a world filled with infinite realities and excitement. Thank you.
Unidentified Company Representative, MC
That was the presentation by Totoki. And now we'd like to proceed to the earnings announcement. Now I'd like to begin the FY '24 financial results and FY '25 financial results forecast. Allow me to introduce executives on stage. Sony Group, President and CEO, Hiroki Totoki; Executive Officer, CFO, Lin Tao; Senior Vice President, Sadahiko Hayakawa, Sony Financial Group Corporate Executive Officer, CFO, Kazuhiro Yamada. At first, Mr. Totoki please.
Hiroki Totoki, CEO
Now we'd like to proceed to explaining our earnings result and forecast. And from after, Lin Tao and Kazuhiro Yamada will be presenting. And Lin Tao has become CFO of our group from April 1st.
Lin Tao, CFO
Thank you very much. Consolidated sales excluding the Financial Service segment for FY '24 were ¥12,043.9 billion and operating income was ¥1,276.6 billion both record highs. Operating cash flow was ¥1,972.4 billion primarily due to an improvement compared to the previous fiscal year, year-on-year in the working capital of the G&SS and I&SS segments. Consolidated sales including the Financial Service segments were ¥12,957.1 billion. Operating income was ¥1,407.2 billion and net income was ¥1,141.6 billion. The results by segment for FY '24 are shown here. Today, at a meeting of our Board of Directors, we approved the plan for the execution of the partial spin-off of our financial service business. Pursuant to this disapproval, the financial results of the Financial Service business during the current fiscal year until the execution of the spin-off will be classified as discontinued operation in our consolidated financial statements. At the time of execution of the spin-off in October, an accounting treatment will be carried out to exclude the financial service business from consolidation, and if the assets and liabilities of the financial service business will be separated from the consolidated statements of financial positions. After the execution of the spin-off, the profit and loss of the financial service business will be recorded as operating income or loss in continuing operations in accordance with the equity method. In light of this, the results forecast for FY '25 will be presented for continuing operations only, and results forecast for Sony Financial Group will be disclosed at our earnings announcement before the execution of the spin-off and at Sony FG's earnings announcement after the execution of the spin-off. As we announced in our disclosure regarding the startup preparation for the spin-off in February of last year, at the time of the deconsolidation of the financial service business, we plan to carry out an accounting treatment in accordance with the International Financial Reporting Standards to transfer in one lump sum the accumulated other comprehensive income of the financial service business recorded in the equity section of the consolidated statements of the financial position to the profit and loss of the discontinued operation. Accumulated other comprehensive income for the financial service business as of the end of the past eight quarters has been trending as shown here. Although it is expected to fluctuate to a certain degree going forward, an accounting loss is expected to be recorded in the discontinued operation based upon the account recorded at the time of DNAV. This accounting treatment is merely a transfer between line items in the equity section of the consolidated statement of financial position, does not impair total equity and has no impact on the profit and loss of the continuing operations or our cash flow. Moreover, this transfer is an accounting treatment pertaining to the consolidated company that results from the deconsolidation of the financial service business and has no impact on the consolidated financial position of Sony Financial Group. For more details, please refer to the materials regarding the spin-off disclosed today. Now, I will explain our full-year results forecast for continuing operations for FY '25. The full year forecast is sales of ¥11,700 billion, operating income of ¥1,380 billion before reflecting the impact of any additional U.S. tariff. Now I will explain the impact of U.S. tariff policy. The situation surrounding our additional U.S. tariff is changing daily and the future is uncertain. But G&SS, ET&S, and I&SS segments, which are currently expected to be impacted, are responding quickly to the additional tariffs that have already been implemented and are considering responses to multiple possible future scenarios. Under the tariff rate, we assume we expect to be able to manage the impact on profitability of our continuing operations this fiscal year to approximately ¥100 billion, or less than 10% of the operating income forecast we just showed, by stockpiling strategic inventory in the U.S., adjusting product shipment allocation on a global basis, raising prices on certain products with an eye on market trends, and other means. We plan to continue to closely monitor the situation and take appropriate measures, and we expect to provide an update on the impact of our financial results at our first quarter earnings announcement in early August. The FY '25 forecast for operating income of continuing operations incorporating this impact is flat year-over-year at ¥1,280 billion, while net income is expected to decrease 13% to ¥930 billion, primarily because the valuation gains on equity securities and the decrease in tax expenses we recorded in the previous fiscal year will not recur. Our forecast for operating cash flow is ¥1,240 billion primarily due to a normalization of the working capital in G&SS resulting from the significant improvement in the previous fiscal year and expected increase in Motion Picture production costs. The forecast for each segment is shown here. Now I will provide an overview of each business. First one is G&SS. FY '24 sales increased 9% year-on-year to ¥4,670 billion primarily due to an increase in third-party software sales and the impact of falling exchange rates. The operating income increased 43% year-on-year to ¥414.8 billion, a new record for the segment due to an increase in all categories except for first-party software. User engagement in the FY '24 fourth quarter continued its strong momentum with the number of monthly active users across PlayStation in March increasing 5% compared to the same month of the previous year to 124 million accounts, and third-party software and network service revenue increasing year-on-year. Our full-year forecast for FY '25 is sales of ¥4,300 billion and operating income of ¥480 billion. In addition to the stable profit growth for the platform business from the expanded user base, we expect major first-party titles scheduled to release this fiscal year to contribute to sales and profit. To respond to the recently adopted U.S. tariff, we have been making preparations such as diversifying PS5 hardware production sites and stockpiling inventory in the U.S., and we expect to implement additional measures at the appropriate time after assessing any changes in the situation going forward. Next is the Music segment. FY '24 sales increased 14% year-on-year to ¥1,842.6 billion and operating income increased 18% to ¥357.3 billion, a new record high for this segment. On a U.S. dollar basis, the growth rate of streaming revenues for FY '24 increased 5% year-on-year in recorded music and 13% in music publishing. Our full-year forecast for FY '25 is sales of ¥1,850 billion and operating income of ¥355 billion. Primarily due to the negative impact of Forex, we expect operating income for the segment to be essentially flat year-on-year, but we expect the operating income of Sony Music Group, managing our overseas music business, to grow in the high-single digits on a U.S. dollar basis. Next is the Pictures segment. Despite a decrease in sales in television productions, FY '24 sales increased slightly year-on-year to ¥1,505.9 billion primarily due to Forex impact. Operating income was essentially flat year-on-year at ¥117.3 billion, primarily due to the impact of the lower sales as mainly offset by the positive impact of Forex. Our full-year forecast for FY '25 is sales of ¥1,500 billion and operating income of ¥125 billion. We expect operating income to grow approximately 10% year-on-year on a U.S. dollar basis, excluding the impact of Forex, primarily driven by Crunchyroll. Next is the ET&S segment. FY '24 sales decreased 2% year-on-year to ¥2,409.3 billion, primarily due to a decrease in unit sales of televisions and smartphones. Despite the impact of sales decrease and additional restructuring charges in FY '24, operating income increased 2% year-on-year to ¥190.9 billion, primarily due to operational expense reduction. The interchangeable lens camera market performed well in FY '24, primarily in the Chinese market, which benefited from subsidies and grew approximately 9% year-on-year on a unit basis. Our full-year forecast for FY '25 is sales of ¥2,280 billion and operating income of ¥180 billion. This fiscal year, we plan to operate our business conservatively, prioritizing risk mitigation because we anticipate disruptions to markets and supply chains due to the recently adopted U.S. tariffs. Next is the I&SS segment. FY '24 sales increased 12% year-on-year to ¥1,799 billion primarily due to the impact of Forex and increased sales of mobile sensors. Despite an increase in manufacturing expenses, operating income increased 35% year-on-year to ¥261.1 billion, primarily due to the favorable impact of Forex. The benefit of increased sales and improved manufacturing yields, both sales and operating income were record highs for the segment. Customer demand remained strong in FY '24 Q4 and design wins for 2025 models are progressing smoothly. Our full-year FY '25 forecast is sales of ¥1,960 billion and operating income of ¥280 billion. In FY '25, we expect to achieve growth in sales and profit, primarily due to an expansion of mobile sensor sizes, despite expected appreciation of the yen compared to FY '24. So far, we have not seen any changes in our customers' order prospects due to the additional U.S. tariff impact. Next is the Financial Services segment. Financial Services revenues for FY '24 decreased ¥838.6 billion year-on-year to ¥931.4 billion primarily due to a decrease in net gains on investments at Sony Life. Operating income decreased ¥43 billion year-on-year to ¥130.5 billion, primarily due to the recording of a gain from the transfer of a portion of the shares of Sony Payment Services, Inc. in the fiscal year ended March 31, 2024, and a decrease in profit related to minimum guarantees for variable life insurance at Sony Life due to market fluctuations in FY '24. Sony Life's new policy amount in FY '24 increased 11% year-on-year, continuing its steady growth. Next, I will explain Sony Financial Group's FY '25 forecast. Starting with this announcement, in lieu of the financial services revenue we had before, we are disclosing operating revenue excluding a portion of gains on investments as a sales metric. As for profit metrics, in lieu of operating income, we are presenting income before income taxes and adjusted net income, which is net income excluding unrealized gains and losses due to market fluctuations, gains and losses on sales of securities, and other one-time gains and losses. Of the profit metrics, we have established adjusted net income as the most important key performance indicator because we believe it more appropriately reflects the profitability of our business. For FY '25, we expect operating revenue to be ¥1 trillion, adjusted net income to increase ¥46 billion year-on-year to ¥107.5 billion, and income before income to decrease ¥70.8 billion year-on-year to ¥60 billion. During the current fiscal year, in order to strengthen Sony Life's financial position, which we have been working on, and to delve deeper and make significant progress reducing risks resulting from policy cancellation, we plan to replace yen-denominated long-term bonds and reinsure a block of our U.S. dollar-denominated whole life insurance policies, which have a high capital load. As a result, we plan to sell surplus U.S. dollar-denominated bond assets to cover our declining insurance liabilities, and income before income taxes is expected to decrease significantly for the next two years, mainly due to the impact of gains and losses on these sales. This series of measures is expected to significantly improve the ratio of duration matching of yen-denominated assets and liabilities, which account for the majority of our balance sheet, significantly reduce policy cancellation risk associated with U.S. dollar-denominated insurance, and increase our level of ESR to a certain degree. Driven by factors such as an increase in the new policy amount, Sony Life's adjusted net income is growing steadily, and distributable amount, which leads to shareholder value, is expected to remain stable. In preparation for the spin-off and listing, we will hold the Financial Services Investor Day on May 29th. In addition to providing more detail on the measures for improving our financial position that we explained today, we plan to discuss Sony FG's strength business plan and the listing structure for the spin-off, so please watch it. Finally, I would like to explain the progress of our fifth mid-range plan. The key performance indicators for the entire group in this MRP, growth rate of operating income of a continuing operation of 10% or more and a three-year cumulative operating income margin of continuing operations of 10% or more. In FY '24, the G&NS and I&SS segments were the main drivers of profit growth, leading to overall operating income growth of 23% year-on-year and an operating income margin of 10.6%, giving us a very good start at the first fiscal year of the MRP. The full-year operating income forecast for FY '25, which incorporates the impact of tariffs that we presented today, shows a two-year cumulative average growth rate of 11% and an operating income margin of 10.8%. Although the environment remains uncertain, we believe that we are on track to achieve our targets. Regarding capital allocation for the period of the current MRP, we have revised our forecast for cumulative three-year operating cash flow, which is our main source of capital from the initial plan of ¥4.5 trillion to ¥4.8 trillion taking into account the results of the previous fiscal year. We have made strengthening shareholder returns a priority for the MRP, so we intend to use the current increase in allocatable capital for greater shareholder returns. For FY '25, we have established a ¥250 billion share buyback facility and aim to increase the pace of our increase in dividends, raising the annual dividend by ¥5 per share year-on-year after the stock split to ¥25 per share. Our strategic investments budget of ¥1.8 trillion and capital expenditures budget of ¥1.7 trillion remained unchanged from the original plan. Given that the business environment is uncertain, including the impact of additional U.S. tariffs and concerns about a global economic slowdown going forward, we plan to operate our business this fiscal year under cautious and conservative assumptions. If there are significant changes in the business environment going forward, we plan to swiftly and flexibly revise the capital allocation plan we have presented this time. That is all for now. Thank you.
Unidentified Company Representative, MC
So that has been the briefing from Tao-san and Yamada-san. We would like to start the Q&A session for media at 04:45 p.m., and we will solicit questions from investors and analysts around 05:10 p.m. We are expecting each section to last 20 minutes. For online distribution, some of you have already submitted questions; please click the link to participate in the webinar. For information on raising questions and hosting announcements, please refer to the details we have already sent you. Please be patient until we resume. Thank you. It's a bit too early, but we'd like to answer to the questions coming from the media. People who are joining from online, if you have questions, please go to the Webex screen and raise your hands button. And if you have questions from this room, please raise your hands physically. In this room, please make sure that you use a microphone. Please give up to two questions maximum. Okay. If you have questions, please. Okay, so from this block please.
Unidentified Analyst, Analyst
I am Yoshida from Nikkei newspaper. I have two questions. The first question is directed to Totoki-san. Entertainment, the fusion of the entertainment businesses has been ongoing and also trying to have the live shooting of the game and also the animation is also booming. Well, for each segment, the speed of the collaboration or alliance among the different segments within this entertainment, how do you see that progress? And also Ghost of Tsushima, the first-party animation, first-party game animation, this is maybe one significant milestone. So yes, for the future, how many animations are you going to expect to produce? And also if you have any business target that will be disclosable, please? And the next question is to Tao-san. A ¥100 billion is your impact from the additional tariff and semiconductors have not been changed. But those ¥100 billion, the major segments, what kind of businesses are included in this ¥100 billion impact? And also into the future, maybe there are some factors for fluctuations such as Forex. What kind of valuable factors are you assuming for this impact?
Hiroki Totoki, CEO
Yes. Thank you. Thank you very much. To the first question about the synergy of the entertainment businesses that you talked about, you asked about the speed and the sense of the speed. Well, I think, yes, we have been accelerating the projects. Why? This is because, yes, it was a top-down direction. So for the entire group direction, we are trying to move with these projects. But now we are making a bottom-up approach to produce different projects. So now we are in this phase, which is the most important element. As business management, what we can do is trying to set up the environment. So synergy is only produced from the bottom-up approach. Once we start to see multiple projects based upon the bottom-up approach, that will be the designable and that will be the source of competitiveness. Well, yes, in terms of the acceleration, I'm sure that we are going to be able to accelerate. And of course, each business has to be strong and each segment has to have good materials or good production projects. So each segment has to be stronger, of course. Regarding the animation, I think this is not just limited to the animation, but right now over ten titles, we have already made them to TV programs and also to movies or films. Through the IPs, we are now producing those as art pieces. The pipeline is going to be bigger, and that is really important. Tao-san, please?
Lin Tao, CFO
Yes, regarding the tariff, let me answer to the tariff question. The ¥100 billion impact is assumed to be the official tariff rate, which has been announced in the hardware business is included in this. In terms of our portfolio, G&NS, games, and also ET&S and I&SS semiconductors. So those three segments, we are actually incorporating on par basis from these three businesses. In terms of the tariff, we are not just simply calculating the simple tariff to come up with ¥100 billion, but thinking about the currently available information and also looking at the market trends, we may pass on to the price and also shipment allocation. So we are taking a different approach in managing to come up to the ¥100 billion impact. That's what we are thinking.
Unidentified Company Representative, MC
Next question, please. Those who have questions, please raise your hand. The person in gray, the gray shirt, over here please. Yamamoto, a freelance writer.
Unidentified Analyst, Analyst
I have two questions to Mr. Totoki. The first is about LBE, location-based entertainment and the outlook. I, at the CS, I have today enjoyed the immersive entertainment, but the LBE, I think they are temporary mostly in the past. But how will this evolve in the future? What is Sony aiming to achieve? For example, entertainment technology and I think this will be a showcase at a contact point with the consumer. I think it's very important that you promote LBE. So I'm wondering whether you'll have more permanent LBEs instead of onetime or temporary. So what is your outlook? If any, please share that with us. And the second, if I may. The second question is about the creation of new businesses at Sony. There's Sony Acceleration Platform, which is being promoted to create new businesses. What is the outlook of the outputs outcome and what is your expectation going forward, please?
Hiroki Totoki, CEO
Thank you for the questions. First, about LBE. Well, to be honest, we are still searching for different possibilities, but we are doing a lot of terms not just in Japan but also overseas. Well, we take certain risks in some cases, or it could be that as a licensor, we are using the license for LBE simulator types of experiments. So that is what we're doing right now. However, as for myself, as you say rightly, in order to expand IP, this LBE will be a very effective tool, and it goes beyond generations. I think we can come up with things that people of all generations would love, because going to these events with family is something that we should be pursuing. But we cannot leapfrog and, for example, think of something like a theme park, investing and creating a theme park on our own. We're not thinking of any such thing. To reach that level, we have to think of which pathway to take, and we have to think about the optimum pathway. We also are trying to verify this together with partners, different partners, we have to work on this. So we are searching for such collaborations right now. And in regards to creating new businesses, well, a recent outcome in 2024 from April, Sony Thermo Technology, there is this device to cool down your body. And well, it's very hot in the summer these days. So this device itself is increasing in sales year-on-year. So as a business, it's already been established. And well, this week I received a report that they are growing their sales. So I'm looking forward to the future. SAP, well, rather than doing incubation on its own, they're trying to offer to companies aiming to become growers and provide the hardware or tools to do the incubation. Through such initiatives, both inside and outside of Sony, we want to create new businesses. If we can do that, that will make us very happy.
Unidentified Company Representative, MC
Any other questions? In the central center block, second from the right, the person in the very front row.
Unidentified Analyst, Analyst
Kogane Sake from Sankei Shimbun. I want to ask about strategy to Mr. Totoki. Based on Trump's tariff, automobile manufacturers and electronics manufacturers are shifting to manufacturing conditions in the U.S. Well, the business model, I think it's going to change going forward. Sony, I think has already started doing this in the entertainment segment. Are you thinking of producing in the U.S., for example, locally? Now even though you don't become a platformer, you may have a good IP, so maybe that might be very beneficial and advantageous to you.
Hiroki Totoki, CEO
Thank you for the question. Yes, producing manufacturing locally in the entertainment, rather than saying for the entertainment segment, I want to look at it from the hardware segment and the software segment. In entertainment gaming like consoles, of course, these hardwares can be produced locally. I think that would be an efficient strategy. But PS5 is being manufactured in many areas, whether it's going to be manufactured in the U.S. or not needs to be considered going forward. We're not in such a critical situation. In the entertainment segment, especially content creation, recently in movies, well, Mr. Trump is saying that he's going to have 100% tariff on films which are not produced, made in the United States, that was announced. But that is still pending, apparently. So these are some of the movements that we need to consider. Regarding entertainment, if you take films, pictures for example, of course, locations are being made in various areas and it is all put together as a story. During Hollywood productions, there are pictures that are filmed outside of the U.S. because Hollywood costs have gone up, skyrocketed. So it's not so much a U.S. problem, but rather it's an issue that is specific to the state of California. So as for content, we don't know how it will evolve. So we are paying close attention to trends. Now whether we're going to become a platformer or not. As I explained today, Crunchyroll itself is a platform, and SIE PlayStation is a giant platform for games. So we are general in content. We don't do general contents production, but we do have several platforms. So how can we strengthen that and expand that? That will be an important topic going forward.
Unidentified Company Representative, MC
Next question, please. Okay, so the central block, the person on the right-hand side, please?
Unidentified Analyst, Analyst
Thank you. Tsuchiya from Asahi newspaper. I have two questions to Totoki-san. The first question is a bit of the ambiguous broad question regarding the Trump's tariff and also Forex, it's getting yen appreciation. So do you feel any deceleration of the growth right now? That's the first question. And the second question is, yes, you talked about the spin-off of the Financial Service business. So not just limited to the Financial Services, but let's say the semiconductors and other segments. Do you plan to kind of spin off other segments? Do you have the idea that other segments to be spun off? Those are the two questions.
Hiroki Totoki, CEO
Thank you very much for the question. To the first question regarding the sense of growth or economic situation, yes, we have been watching how things are evolving, but do we have any major change right now? Well, as far as our business is concerned, we are not really seeing a big change. However, maybe yes, there is usually a little bit of time lag when we start to see some deceleration. So that's what we have to be watching for. And maybe the employment is going to be the first indicator, especially in the U.S. the employment situation is something we are watching for. That's our first answer. And to your second question about the business portfolio. Well, spin-off is tending to attract a lot of attention, but this is just one of the methodologies. What we want to do is most important more important. Well, yes, the business portfolio is always dynamic, not static, but it's always dynamic. What we have to think about is as entire Sony and also its business segments, how each segment is able to grow to the maximum level. That's something we have to consider. In the financial service business as a solution, we decided to spin off that business. Other business segments, do we have any plans? We do not have plans to spin off other segments. But as necessary, we must consider different options; maybe one of the options is on the table. So that's what I can say. But as of now, for the short term, are we thinking about any spin-offs? No, that's the answer.
Unidentified Company Representative, MC
My time is limited. So the next will be the last question. The person in the center, the front row, this person is from second from the left, my left.
Unidentified Analyst, Analyst
Toyo Keizai Umegaki is my name. I have two questions. I think it will be mainly Totoki-san, but the anime business, Aniplex and Crunchyroll, they are crossing over two segments. How much contribution are they making to your profitability? It's hard to see as an outsider. You spent a lot of time explaining about this today as well. So what is the size of the profit? How much growth are you expecting? Can you quantify to the best means possible? And well, it might be better to make it into one business segment because as a person like me who's looking into the business performance, it's easier for me to understand.
Hiroki Totoki, CEO
Yes. Thank you for your question and comment. Yes. Well, AniPlex is in the Music segment and Crunchyroll is in the Film segment. But well, we are not disclosing the performance of each company. However, to the best means possible in our explanation of the different business segments, we try to convey this to you, communicate this to you. Once it reaches a certain size, well, yes, I took your comment that it might be better to reorganize. Well, yes, that is one way of thinking. But not just for the sake of people understanding our business forecast, should we do such things. Instead, we have to think about the motivation of the organization and the expertise of the people working there. We always have to think about the optimum way. We will keep in mind such options but at this point in time, we do not have any plans to make any changes to the organization.
Unidentified Analyst, Analyst
And the second is about I&SS. Well, the profit has increased this year, but you talked about reviewing investments. So are there any thoughts on this? And also the automobile sensor, the mid to long-term growth, I think that you've included this. So what is your outlook of the market growth and the overall outlook? Thank you.
Hiroki Totoki, CEO
Well, about the investment, we are always thinking about this, but in my speech, I did touch on this briefly. We have to think of the long run and think about the sensitive evolution in the long run because we have to invest in manufacturing. And this investment, how should we implement the investment is something of importance to us. Are we going to do it 100% alone or are we going to invite an investment partner? There are different options, so at what timing we execute is something that we are always thinking about. We have to consider necessary investment and our capability. This is also the positioning of the market. We have to think about the optimum option. And about the automobile sensors, the automobile sensors as a market is growing, but yes, growth is significant in, as you know, Chinese OEM, EVs, electric vehicles. There, the competition is fierce, and it's only after surviving that competition that they may go overseas. But they are strict about pricing. The automobile sensor market is growing in size, but we have to keep an eye on these developments because it's not a business where you can expect a large margin and profitability. That being said, rather than saying our outlook has changed, we are updating the market trend and thinking about our business alliance and make adjustments in our strategy. That is the way we look at it. Thank you.
Unidentified Company Representative, MC
This concludes the questions from the media. We will now move on to questions from investors and analysts, starting at 5:10 p.m. Next, we'd like to move on to the question-and-answer session with investors and analysts. This is Kando from the IR Group. I'll be the moderator. For those of you participating online, please click the raise hand button on your Webex screen. If you have any questions in this room, please raise your hand, and we will bring a microphone. Two questions limited to each person. Anyone would like to ask a question? The second row on the right-hand side from the MCs and moderators side.
Unidentified Analyst, Analyst
The first question, in the strategic presentation, I think you are trying to increase the monthly users, and this is increasing quarter-by-quarter. This monthly active users, why is it increasing? And how do you plan to continue increasing that going forward? Can you please elaborate on that point? Especially in 2026 and 2027, I think the sales of the consoles are going to go down. Therefore, I want to know about this.
Hiroki Totoki, CEO
May I answer each one of your questions? So on the game and network service, I'd like to ask Tao-san to respond to that question. MAU, during the past 14 quarters, it has always been positive year-on-year. The generation evolving from PS4 to PS5, we've seen some changes. Rather than changing from one generation to the next generation, PS4 continues to be used actively. I think that is one of the most conspicuous differences. Going forward, every year, PS5's sales will continue to increase and the transition from PS4 to PS5 may happen. However, many of the users are new users. So in the future, MAU will continue to increase. I have that confidence.
Unidentified Analyst, Analyst
Thank you very much. The second question about the console sales. In Q4, the sales was 2.8 million, which was slightly less than Q3. But Q4, if you think about the tariff, I think maybe you should have brought it forward. But this Q4, 2.8 million units, when you compare that to your domestic plans and also the 2026 console sales, what kind of plans do you have for the 2026 console sales? Yes, the Q4 unit sales were as expected. Q3, as you know, was the holiday season. Of course, the sales were very high. Including promotions, we had new titles, and it was the most active season. Q4, in terms of the season, I think it was more composed. So the numbers, the units, were as expected. Now about this year's sales, this is a domestic image is 50 million unit sales is what we are anticipating. It's not that we have a very strong intention because there are a lot of tariffs and uncertain issues around the environment. So rather than looking for the unit sales, we want to look at the entire market and try to have a flexible approach to the shipment. Thank you.
Unidentified Company Representative, MC
Next question, please. Now the third row from the front on the right-hand side block. Thank you.
Unidentified Analyst, Analyst
I am Ayada from JPMorgan Securities. I have two questions. The first question is regarding the impact of the tariff, ¥100 billion. Well, yes, assumption let's say if the assumption going, it continues for the next fiscal year, this ¥100 billion impact is expected for the next fiscal year. So yes, it will be pushing down by ¥100 billion for the next year or by implementing some of the actions, you may be able to reduce this impact or maybe game ET&S, I&SS, sure those are the segments which are impacted by the tariff. But maybe thinking about the timeline of the actions, maybe there are some segments that have more difficulties in taking those measures and having a less impact. Would you please talk about that?
Hiroki Totoki, CEO
To that question, let me respond. We don’t have a specific simulation, but we are already implementing certain measures and may need to add others to minimize the impact. This is a reality we have to face. To take those actions, we typically need to cut fixed costs. Being competitive is essential, which means we might need to take necessary steps. The location of shipments also significantly affects this situation. We need to refine and adjust our supply chain for better flexibility. In terms of various SKUs for certain segments, if they aren't profitable, we may need to consider discontinuation or moving to a new model, or passing the extra costs onto prices. Some segments are harder to manage, particularly with I&SS, as we have less control over pricing. This means we might need to reevaluate our investment levels. If these conditions persist into the next year, we will have to look at additional measures. The second question is about G&NS. For this fiscal year, the operating income assumption reflects an increase due to both first-party profit growth and third-party game content, including add-ons. Regarding the first-party aspect, major titles are built on previous ones. For third-party content, expectations were not high at the beginning of last year. What has changed regarding expectations for that segment? Thank you. Regarding the first-party titles for this year's fiscal year, 'Ghost of Tsushima', 'Best Landing 2', and 'Marathon,' so those have been already announced. We have major multiple titles in this fiscal year. So in this regard, 'Stranding 2' and 'Ghost of Tsushima,' we have the sequels. So yes, we can expect a certain extent of the fans to also enjoy the new titles. Regarding 'Marathon,' this is a new genre, relatively speaking. So maybe we see a little bit of the risk. However, this is kind of a reasonable forecast to be incorporated. Regarding the third-party titles, we also have quite promising lineups of the third-party titles. So yes, the installed base of the console and MAU, we expect solid numbers in terms of consumption. So we believe this is reasonable. And also, GTA VI is not included in our forecast. Thank you.
Unidentified Company Representative, MC
Next question, please. Online, Nakane-san from Mizuho Securities, please.
Unidentified Analyst, Analyst
Can you hear me?
Hiroki Totoki, CEO
Yes.
Unidentified Analyst, Analyst
Nakane from Mizuho Securities. Thank you. I have a question to Tao Lin-san. You become CFO, and what issues do you have in mind? What do you want to do? What is your ambition going forward? For example, pictures and games. Well, pictures, ROIC is 6%, so it's the lowest and Quattro, it's quite visible, but the film making, and television production, I think, is quite tough in various ways. So Tao-San, how would you like to boost the ROIC? What policies are you thinking of? How will you address this issue? Is it first about gain? Well, under the new organization, PL cash flow has improved significantly. Well, Tao-san, you were the CFO there. And the top line is increasing. I do understand that. But operationally, what changes have taken place in generating profit and cash flow? Please talk about the changes made yet. I think well, you're spending SG&A to a certain extent. So operationally, I think there's room to make it more efficient to improve profitability. So what are the measures you have in mind for that purpose? Thank you.
Lin Tao, CFO
What I want to do? Well, my top mission is to ensure the healthiness of financial performance and work together with Mr. Totoki to achieve his goals. So the Sony Pictures about the structure, yes, I do understand that. And so we have Crunchyroll, which is distributing anime and it's a very important strategic company for us. As Totoki CEO explained, SIE and PlayStation Network know-how will be leveraged to create synergies. So I want to support the business in such a way. And second, about SIE, what has changed? Well, I think there are two major changes. One, still in units was the focus, but now they are focused on MAU. The management approach has changed. I think there's a major change in policy. This is due to CEO's strong leadership. The management is focusing on engagement in MAU. This is leading to profitability. The second change, the first-party studio, in the past, there were various issues and Totoki-san was temporarily the CEO and talked about various structural reforms. Compared to a few years ago, the financial discipline is in place. Well, we're still halfway, but there is still upside opportunity here. I think the mindset has changed significantly. That is all. Thank you.
Unidentified Company Representative, MC
Thank you. So let's move on to the next question. There is a person in the middle of the room raising his hand.
Kohei Okazaki, Analyst
Okazaki from Nomura Securities. I want to ask about game and I&SS, one question each. PlayStation 5, the production in the U.S., what kind of plans do you have? I think the ratio of production in China is higher, but if you're trying to diversify, please let us know. I think you have some inventory in the U.S. So how much have you been able to consolidate that? Next one is I&SS. I think the manufacturing process needs to change. Well, what will that be? Is it the mobile manufacturing, or could it be some kind of automotive equipment? I think you have made investments in the past. So compared to that past, how much investment are you planning, when?
Hiroki Totoki, CEO
On games, I appreciate your question. PlayStation and the peripherals are manufactured in four different countries, with a significant portion produced in China. However, we have diversified our supply chain and will also produce in other countries. Regarding inventory, while the specifics can change daily, we aim to maintain three months' worth for distribution. In terms of I&SS, we are reviewing the manufacturing process and planning to introduce new methods. The sensors need to advance and become more mobile, requiring greater precision. While these improvements won't be part of the current mid-range plan, they will be integrated into future plans by 2030. Further details will be disclosed when we update our mid-range plan every three years. Comparing the investment size to the past is challenging; this mid-range plan does show a decrease. However, if we consider the previous plan, we are likely approaching figures similar to two plans ago. The investment will also depend on the new fab starting operations in Kumamoto, and we will not proceed without a strategy in place. Our investments will be carefully aligned with demand, ensuring optimal gradual investment.
Unidentified Company Representative, MC
Our time is limited. So the next question is going to be the last question. SMBC Nikko Securities, Katsura-san, please.
Ryosuke Katsura, Analyst
Two questions. The first is regarding tariff, ¥100 billion and one-third for each segment. And game is a little bit smaller and semiconductor is a bit higher than what I expected. In the case of games, allocations are changing, that's what you explained. But I&SS, should we understand this as indirect impact? That's our first question. The next is operating cash flow. So the additional part will be returned on Slide 29, and that was what I heard. And yes, regarding the strategic investment, those will be on the shareholders' return but ¥1.8 trillion, which is the strategic investment. So as a first initial year, what will be the level and also the future thinking? Thank you.
Hiroki Totoki, CEO
Well, thank you very much. To your first question, I&SS as you expected it's indirectly influenced. The end products demand decrease is reflected onto their simulations. In terms of the capital allocation, Hayakawa-san, please.
Sadahiko Hayakawa, Senior Vice President
Yes, let me answer your question. Regarding the capital allocation, the strategic investment progress, yes, the capital allocation or last fiscal year, the execution, cash out already, and also made decisions, and that is counted as capital allocation progress. From the previous year, it's about ¥500 billion or maybe ¥510 billion that's being progressed. And the cumulative for the three-year, as was explained by Tao-san, ¥1.8 trillion, which is not changed, but the growth investment, we always try to see the opportunities for growth investment, and that is going to continue, and that is what we are going to invest. The operating cash flow, yes, we are going to create that to the shareholder returns. We have to have a good balance in terms of the capital allocation. So we are better at capital allocation. Thank you.
Unidentified Company Representative, MC
Okay. So with that, we would like to close this Sony Financial Group's corporate strategy and earnings announcement presentation 2025. Once again, thank you very much for your participation. So now all the speakers are going to the stage. Thank you.