Earnings Call Transcript - SONY Q3 2024

Operator, Operator

Thank you very much for taking time out of your busy schedules to join us today. As it is a scheduled time to begin, we will now start the Sony Group Corporation fiscal year 2024 third quarter earnings announcement. I'll be serving as MC. I'm EC from PR. First, I'd like to introduce the speakers. Representative Corporate Executive Officer, Chairman and CEO who is to become Representative Corporate Executive Officer and Chairman effective April 1, Kenichiro Yoshida, current Representative Corporate Executive Officer, President, COO and CFO to become Representative, Corporate Executive Officer, President and CEO on April 1, Hiroki Totoki. Senior Vice President, Corporate Planning and Control Lead of Group Diversity, Equity and Inclusion Support for Financial Services, Business and Entertainment area, Naomi Matsuoka. Senior Vice President in Charge of Finance and IR, Sadahiko Hayakawa. Corporate Executive Officer and CFO, Sony Financial Group, Kazuhiro Yamada. First, Mr. Yoshida will say a few words, followed by an explanation of the earnings results for the third quarter of the fiscal year ending March 31, 2025 and the full-year forecast by Mr. Totoki, Mr. Hayakawa, Ms. Matsuoka, Mr. Yamada. And then we'll move on to the Q&A session. After the Q&A session, there will be a photo session for the media with Mr. Yoshida and Mr. Totoki. The entire event is scheduled to last about 80 minutes. Mr. Yoshida, please.

Kenichiro Yoshida, CEO

Hello everyone. We recently announced our new management structure effective April 1. Hiroki Totoki will be appointed CEO of Sony Group Corporation. Based on his achievements until now and from the perspective of future long-term growth, I'm convinced that Totoki is ideally equipped to be the next CEO, and the board is in unanimous agreement. Today, I wanted to take this opportunity to join you and share a few words. Taking a brief look back. Since returning to Sony from the ISP So-net in December 2013, I served as CFO for four years and then CEO for seven years. I would like to once again express my gratitude to all of you for your feedback, including your encouragement and critical analysis throughout this period. I believe that Sony was nurtured by the capital markets. During my time as CFO, I often spoke within the company about moving from internal negotiation to external accountability. The aim was to verify the effectiveness of our management initiatives by asking ourselves whether they are explainable. There is a great deal that business leaders can learn from dialogue with the media, analysts, and investors, and I myself have learned much. If I were to mention one thing from my seven years as CEO, it would be our purpose that I defined in my first year. The keyword within this is KANDO, inherited from my predecessor, Kazuo Hirai. I think of our purpose as a promise. It is a promise that we make to each and every employee. It is based on the belief that you are the driving force behind KANDO. I trust that most Sony Group employees think that it is not Yoshida who achieved something, but rather we are the ones that did it and we are the ones that will continue to do it. I believe that this kind of intrinsic strength is vital for connecting our purpose to profit. Going forward, I myself, alongside our employees, intend to be part of the driving force behind KANDO and offer my support to Totoki and the new management team. That is all from myself. With that, I would like to hand over to Totoki.

Hiroki Totoki, CEO

Thank you very much. I am Totoki. I am now assigned as the President, CEO. And I look forward to taking over the company which Hirai and Yoshida have greatly added value to as CEOs and to working to create new value by realizing our creative entertainment vision and driving Sony's evolution and further growth. Now I will explain the contents shown here and then I will give a general summary at the end. Our first speaker, Hayakawa, please. Thank you.

Sadahiko Hayakawa, CFO

The consolidated sales excluding the financial services segment for the quarter increased 7% compared to the same quarter of the previous fiscal year to ¥3,695.7 trillion, and operating income increased 10% to ¥423 billion. Consolidated sales, including the financial services segment, increased 18% year-on-year to ¥4,409.6 trillion. Operating income increased 1% to ¥469.3 billion, a record high for the third quarter, and net income increased 3% to ¥373.7 billion. The results by segment for the quarter are shown here. Next, I will explain our consolidated results forecast for FY 2024. Consolidated sales, including the financial services segment, have been upwardly revised slightly from the previous forecast to ¥11.900 trillion; operating income has been upwardly revised 2% to ¥1.180 trillion; and operating cash flow has been upwardly revised 50%, mainly due to improvements in working capital to ¥1.660 trillion. Consolidated sales, including the financial services segment, have been upwardly revised 4% from the previous forecast to ¥13.200 trillion. Operating income has been upwardly revised 2% to ¥335 billion, and net income has been upwardly revised 10% to ¥1.80 trillion. The full-year forecast by segment is shown here. Now I will move on to an explanation of the state of each business. The first is games and network services. Sales for the quarter increased 16% year-on-year to ¥1,682.3 billion, primarily due to the increased sales of hardware and third-party software. Although we had the big hit of Marvel's Spider Man 2 in the same quarter of the previous fiscal year, operating income increased 37% year-on-year to ¥118.1 billion, a record high for the third quarter in the segment, primarily due to the impact of higher revenue from network services and third-party software as well as improved profitability of hardware. Promotion expenses per unit of PlayStation 5 on which the promotion was implemented in the current quarter decreased approximately 20% year-on-year, and we think that we are implementing an optimal sales program given the market environment. We are managing PS5 inventory at an appropriate level, with inventory at the end of December decreasing 46% compared to the same month of the previous year, significantly contributing to an improvement in cash flow. Taking into account the result of the quarter, we have revised upward our full-year forecast for sales by 3% to ¥4.610 trillion and operating income by 7% to ¥380 billion compared with our previous forecast. The number of monthly active users across PlayStation platforms in December increased 5% compared to the same month of the previous year, reaching 129 million accounts, the highest number in PS history. Total playtime also increased 2% year-on-year, marking the seventh consecutive quarter year-on-year growth. More than 40% of users who purchased a PS5 during the quarter were new users. Combined with a moderation in the decrease in the number of PS4 active users, this has contributed substantially to the increase of MAUs. Cumulative unit sales of PS5 from launch until the end of December are essentially the same level as the cumulative unit sales of PS4 for the same period since launch, even though PS5 had a higher price. Furthermore, MAUs after the same amount of time has passed since launch have increased significantly by approximately 1.4 times. This shows that the user base for the PS platform has significantly expanded from the PS4 generation due to the PS5's backward compatibility and various user engagement initiatives. As for PlayStation Plus, revenue in the quarter increased 20% year-on-year on a U.S. dollar basis, primarily due to an increase in average revenue per user, mainly due to a shift to higher tiers of service and the impact of price revisions. In this way, the momentum of the platform business is currently strong and we expect to see stable earnings growth going forward. Last November, we released a beta version of a cloud streaming feature on the PS Portal Remote Player. This means that PS Plus Premium subscribers can now play over 120 PS5 game titles on the PS Portal stream directly from cloud servers without going through a PS5 console. By leveraging the lessons from the beta test, we aim to further improve the streaming and gaming user experience so users can enjoy PS games anytime, anywhere and even more easily. At the Game Awards 2024 held on December 13, our first-party title, Astro Bot, won four categories including Game of the Year and Best Family Game, the most of any title. In addition, the live service game Helldivers 2, released in February last year, won the Best Ongoing Game and Best Multiplayer Game awards. The fact that titles in general we are aiming to expand in the future, including titles for families in live service games, have received these awards is a major stride towards building a broader title portfolio. In addition to the awards it received, Helldivers 2's large update, Omens of Tyranny, released in December, has been well received and user engagement has once again increased significantly. Next fiscal year, we plan to release games such as the major title Ghost of Yōtei and the sequel to the popular title Death Stranding, and we expect even further expansion in earnings from first-party software. Next is the Music segment. Sales for the quarter increased 14% year-on-year to ¥481.7 billion, primarily due to higher streaming revenue and the impact of the consolidation of eplusinc.in Visual Media & Platform. Operating income increased 28% year-on-year to ¥97.4 billion, mainly due to the impact of the increased sales. On a U.S. dollar basis, streaming revenues for the quarter increased 9% year-on-year, including a one-time factor in recorded music and 8% year-on-year in music publishing. We have revised upward our full-year forecast for sales by 3% to ¥1.790 trillion and operating income by 3% to ¥340 billion. During the quarter, new albums from artists such as Tyler the Creator became hits. Recently, Bad Bunny's new album, released from Rimas Entertainment on January 5, has become a huge hit, capturing number one on the Billboard 200 and making him the fastest male artist to reach 1 billion streams on Spotify. At the 67th Grammy Awards held on February 2, Beyoncé's Cowboy Carter won the award for Album of the Year. Beyoncé, who has been nominated for 99 Grammys over the course of her career, the most of any artist, was nominated in 11 categories this time and she won three categories including Album of the Year. The rise of streaming is creating more opportunities for music from local artists to become global hits. The Sony Music Group is working to enhance local repertoire by discovering and nurturing artists and songwriters at its locations in emerging markets, as well as by building and strengthening relationships with independent labels and artists in various regions through the Orchard and AWAL. In addition, in rapidly growing Latin America and India, we have further solidified our leading positions through strategic investments in leading labels and music catalogs in each region, such as Som Livre in Brazil, Rimas in Puerto Rico, and Eros in India. Furthermore, in countries and territories that are expected to grow over the midterm, we have acquired leading local labels in Greece and in the Czech Republic, and Sony Music Publishing has established a base in Thailand. Next is the Pictures segment. Sales for the quarter increased 9% year-on-year to ¥398.2 billion, primarily due to higher revenue from theatrical releases such as Venom: The Last Dance and the impact of foreign exchange rates. Operating income decreased 18% year-on-year to ¥34 billion, primarily due to an increase in marketing costs for theatrical releases. The full-year forecast is unchanged from the previous forecast. At this point in time, we expect the impact on the results of the segment from the wildfires in California in the U.S. to be minor. In motion pictures, there is still some impact from the strikes, such as the postponement to the fiscal year ending March 31, 2027, of the theatrical releases of the next Spiderman and Jumanji movies. However, production activity is recovering. In television productions, the production of new shows, which was impacted by the strikes, has almost stabilized. At Crunchyroll, streaming of the second season of the Anime series Solo Leveling, produced by Aniplex, began last month and it has become a huge hit in many countries and territories. Additionally, going forward, we aim to further strengthen our engagement with Anime fans around the world, including through the scheduled release of Crunchyroll Manga, a digital comic service for paid subscribers in North America. Now I'd like to explain our strategic collaboration with Kadokawa, which spans our three entertainment businesses. We have collaborated with Kadokawa on various projects in the past, but following the conclusion of a capital and business alliance agreement in December and the assumption of a third-party allotment of new shares in January, we have become its largest shareholder. Through this alliance, the leadership of both companies is even more committed to promoting collaboration, and we aim to create new value in various entertainment fields by combining Kadokawa's strengths in creating original IP with our technologies and global expansion capabilities. Next is the ET&S segment. Sales for the quarter decreased 4% year-on-year to ¥704.5 billion, primarily due to a decrease in unit sales of televisions, while operating income remained essentially flat at ¥77.1 billion. The full-year forecast is unchanged from the previous forecast. The year-end selling season trended generally as expected across the segment. Compared to the year-end selling season of the previous fiscal year, sales of televisions and smartphones, which are not pursuing scale and are focused on high-value-added products, decreased, but sales in other categories were essentially flat. Even the imaging market, where there were concerns of a slowdown, particularly in China, remained relatively stable, and the market scale on a unit basis for the quarter increased slightly year-on-year as was the case in the second quarter. The sales and profit in our imaging business decreased slightly year-on-year. We think this was mainly due to our launching two new products in the volume zone of full-frame cameras, including the Alpha 7C Mark II, in the same quarter of the previous fiscal year. Inventory as of the end of December for the entire segment increased slightly from the same month of the previous year to ¥350 billion. It is being controlled at an appropriate level. Assuming that the operating environment in this segment will remain severe into next fiscal year and beyond, we intend to implement further fixed cost reduction measures in the fourth quarter in order to increase resilience and strengthen our profit structure. Expenses for this are reflected in the current forecast. Since 2012, the market for interchangeable-lens digital cameras has seen the single-lens reflex camera market shrink at a faster rate than the growth of the mirrorless camera market, which is driven by Sony. As a result, the market as a whole continued its trend towards shrinkage until 2020, when the COVID-19 pandemic was also a factor. However, since 2020, the market has entered a stable re-expansion phase and by 2024 it recovered to a level approaching the peak in 2012 on a sales amount basis. In addition, the interchangeable-lens market is continuing to grow steadily, with the combined market size for cameras and lenses exceeding ¥1.200 trillion in 2024. Since the imaging market has a limited number of players because it requires the integration of multiple advanced technologies such as optics, mechatronics, and image processing, and since we have image sensors and 5G communications technology, we expect to generate high market share and profitability by continuing to offer products that meet the needs of creators. In addition to the stable sales growth of camera bodies, the creation of new markets and a business where recurring revenue can be expected are steadily expanding with the launch of a variety of lenses that expand the possibilities for creators, expression, and solutions and services that add value through software. Next is the I&SS segment. Sales for the quarter were essentially flat year-on-year at ¥500.9 billion, primarily due to a decrease in sales of mobile image sensors, offsetting the impact of foreign exchange rates. Despite the positive the impact of foreign exchange rates, operating income decreased 2% year-on-year to ¥97.5 billion primarily due to increased manufacturing costs and the impact of the decreased sales. We have slightly increased the full-year sales forecast from the previous forecast to ¥1.790 trillion, while the forecast for operating income is unchanged. The global smartphone market continued to slowly recover during the quarter, and mobile sensor sales were essentially in line with our expectations. Sales for the current quarter decreased year-on-year primarily due to a shift in sales from the second to the third quarter in the previous fiscal year resulting from the production yield issue on new mobile sensor products. However, cumulative sales for the nine months through the third quarter increased significantly by 15% compared to the same period of the previous fiscal year. Furthermore, the production yields on the same production products during the current quarter improved beyond the initial plan in the forecast as of November, reaching nearly normal levels. The average annual growth rate for the mobile sensor sales from the fiscal year ended March 31, 2022, to the fiscal year ending March 31, 2025 is expected to be 23% on an EM basis and 11% on a U.S. dollar basis. This steady growth is mainly due to rising unit prices resulting from larger sensor sizes and higher value added mobiles, and we believe that we can achieve a similar level of sales growth on a U.S. dollar basis in the fiscal year ending March 31, 2026. Regarding automotive sensors, a slowdown in the growth of the electric vehicle market, especially in the U.S. and Europe, has had an impact, but our expansion of our customer base and improvement in our product performance to date have been successful. The strong demand for EV manufacturing in China, as well as the shift toward higher pixel count sensors, have expanded our business. Although the proportion of automotive sensor sales to our overall segment sales is small, we expect high growth going forward. Now I would like to explain our response to the tariff policy in order to respond to the various geographical risks in our G&NS, ET&S, and I&SS segments which handle hardware. Over the past few years, we have been working to duplicate our supply chains and increase their flexibility. Furthermore, we have been preparing recently by doing such things as stockpiling a certain level of strategic inventory in the U.S., and we expect the impact on our financial performance this year of the additional U.S. import tariffs that have been implemented or whose consideration has been announced at this point in time to be minor. We intend to continue to respond flexibly and promptly to changes in circumstances and implement, at the proper time, additional measures that we are preparing in order to minimize the impact on our business and earnings. Last is the financial services segment. Financial service revenue for the quarter increased ¥406.7 billion year-on-year to ¥718.5 billion, primarily due to an increase in gains from investments at Sony Life. Operating income decreased ¥30.9 billion year-on-year to ¥46.4 billion, primarily due to the absence of significant gains related to market fluctuation recorded in the same quarter of the previous fiscal year at Sony Life. Insurance service results, which indicate the earnings potential of Sony Life, decreased 11% year-on-year during the current quarter to ¥41.3 billion, but they trended in a stable manner for the nine months through the third quarter, decreasing 4% compared to the same period of the previous fiscal year. Moreover, Sony Life's new policy amount for the current fiscal year is increasing smoothly at 12% year-on-year on a cumulative basis through the third quarter. Taking into account the results of the quarter, we have increased the full fiscal year forecast for financial services revenue to ¥390 billion to ¥1.300 billion, while the operating income forecast remains unchanged from the previous forecast. I will now speak about the financial initiatives at Sony Life. Assets such as bonds held on the balance sheet exceed insurance liabilities, resulting in an overhead situation. This situation means that rising interest rates will result in a decrease in net assets, so we are working to mitigate the situation this fiscal year. Specifically, we began selling a portion of the bonds we hold and trading derivatives through the third quarter, and we are considering selling additional bonds in the fourth quarter. The full-year results forecast incorporates the offsetting of the losses from these bond sales on the upside to profit from the market fluctuations through the time the current forecast was determined. Through these efforts, we intend to continue to steadily improve our financial position while closely monitoring the balance with profitability, preparing for the partial spin-off and listing of Sony Financial Group Inc., scheduled for October this year, are progressing smoothly, and we plan to explain our business strategy and listing structure in late May. In closing, I will make some remarks. Having completed the third quarter of the fiscal year ending March 31, 2025, the first year of our fifth mid-range plan, we believe we are making steady progress toward achieving our key performance indicators for the Sony Group set out in the plan. In our plan, in particular, we view it as a positive that G&NS and I&SS, which are driving the profit growth, have both been able to significantly increase profit since last fiscal year. Furthermore, regarding the enhancement of shareholder returns, which we are pursuing in our fifth mid-range plan, we completed the repurchase of the maximum ¥250 billion of our own shares decided in May of last year by November. So today we have established a new facility to repurchase a maximum of ¥50 billion with a deadline of May of this year. We intend to continue to implement repurchase opportunities, taking into account the state of such things as share price level and business investment opportunities. That's all for me. So therefore, speakers have given the financial results.

Operator, Operator

Now we'd like to entertain questions from the media and then followed by the Q&A by the analysts and investors. There are some people who registered online to ask questions. Please click the button for hand raising on the WebEx screen. Those in the hall who would like to ask a question, please raise your hand, and then, of course, the person in charge of the microphone will bring that to you. And we'd like to ask kindly that you would ask only two questions per capita. So now the floor is open to entertain questions. The person in the front row of the central block, please start asking the question.

Unidentified Analyst, Analyst

I'm Satoizaishinbu. I have two questions. The first question is about the fact, one for Yoshida and the other for Totoki. Yoshida has assumed the position of CEO seven years ago, and many M&As were implemented by Mr. Yoshida, and the financial service was decided to be split to a certain extent. How do you evaluate the progress state of this business portfolio structure? And the second one is the future for Yoshida and Totoki each. As a Chairman at Sony, what kind of role would you like to play within Sony, and maybe your future career plans or ideas? To Totoki, I have a sort of abstract question that is to say as a CEO of the company, what do you like to achieve in the mid-range plan? There are numbers of targets, but beyond that, what kind of company would you like to nurture Sony to become? So your ambition about the future of Sony.

Kenichiro Yoshida, CEO

Thank you for your two-part question. As to the first part of the question about the portfolio, how specifically I evaluate and assess it. Thanks for the question. As to the portfolio management, well, 2021, the Sony Group company, it was launched, and that was a key point. There are two purposes for that. One is group synergy has to be promoted further. The second purpose is that portfolio management should be done more carefully and thoughtfully, and there's a progress achieved. But Totoki will play the central role, including other members, the leaders, to consider and polish this further. My future role as a chairperson, of course, that I would like to support Totoki-san's team. That's all from me. Thank you. My future aim and ambition? Yes, this is about the entertainment division. I already told you about this. The ideal state that we like to achieve 10 years from now, what extent we can make progress? That's a challenging thing that I would like to aim to get as close as possible to the vision. What are the most important drivers? Of course, the human resource diversity we have and business diversity. By merging that, we can create something brand new. I believe in that, and I would like to really try that and achieve this vision. So that is the strongest wish I would like to achieve. Thank you.

Unidentified Analyst, Analyst

I have two questions as well. So based on Totoki's answer, there is some overlap with that. But in 2018 when you assumed the post in Yoshida, we had diverse people and diverse business, and you said the issue is can you make best use of that? So selection and focus is something that many companies have pursued. Management aiming for diversity, what does that mean? What's the significance of what you have achieved? That's my first question. The second question goes to Mr. Totoki. As President, CEO, and CFO to President CEO, now I think you are moving from execution to management. What do you think is going to be the difference in your role, a change in your role? And you have now the business CEO or Chief Officer. What's the significance of that new post that you're going to establish?

Hiroki Totoki, CEO

In terms of making use of diversity, it has already been shown that we have generated two major businesses. One is the PlayStation game business. The synergy of music and electronics led to that. The other one is Anime in the mid-1990s, the current Aniplex. Sony Pictures Japan and Sony Music, that synergy led to that. Under my leadership, Anime and games – they are very close. That will be the engagement platform. The diversity we have, we are going to try to convert that to value – that’s the action we're taking. For myself, becoming CEO comes with a big responsibility. I want to further expand on the value that Yoshida-san has created. I have a strong determination to achieve that. That's what I'd like to tell you. And the significance of having Chief Officer at the head office, we want to simplify the layers. We want a transparent, open, efficient, and lean head office. We want to do delayering. That’s our intent.

Operator, Operator

So now we would like to move on to the next question. The first row in this block, Hayato from Toyo Keizai.

Unidentified Analyst, Analyst

I have two questions. The first is to Totoki-san from April, you will become CEO. Under such instances, your company has grown significantly over the last years. But what do you think is a challenge still ahead of you, and how would you like to take that challenge? And so in MLP, ¥1.8 trillion for the gross investment. As a CEO, what is your policy for investment to the extent that you can disclose to us? Thank you.

Hiroki Totoki, CEO

Let me answer the two questions. What is still lacking? What is the challenge? There are many, as a matter of fact. Of course, there is no company or organization without challenges. Roughly speaking, we need to play the game globally. In terms of scale or profitability, we have not reached the top yet. Whether we are in a top position globally, there are still many things that need to be improved. Our headquarters in Japan has many Japanese, and I believe it's important to get a truly global aspect. The second point is regarding strategic investment during the mid-range plan and how we should proceed with that. The policy of investment has not significantly changed from what we have had. For the company, I think whether we can boost the value is important. The acquisitions are significant, but adding value post-acquisition is crucial.

Operator, Operator

We'd like to entertain the next question. Central Block in the second row, the person wearing a brown jacket, please. Thank you.

Unidentified Analyst, Analyst

I have two questions. First point that the question and request to Mr. Yoshida. So far, your investment plan was presented, and Totoki-san also covered that too. As the CEO of the company, you have prepared the investment plan. Which one do you evaluate high? The second question is to Mr. Totoki. As of now that in your management portfolio, there are some things which are going well, but some things were negative areas. In some cases, you must decide to divest or make a big change of restructuring. You might have to make that difficult decision. How and when will you make such a bold decision?

Kenichiro Yoshida, CEO

Thank you for your question. About the investment plan, I highly appreciate certain areas. The most impressive investment for me or for Sony's management is the acquisition of EMI Music Publishing in 2018. That acquisition was most impressive to me. $4 billion investment was made. But anyway, the negotiation was mostly done by Mr. Totoki personally. Music, of course, is the original starting point for Sony Company. The name Sony came from the Latin word 'sonus' featuring sound and tape recorder and Walkman and CD, those were the products we developed. As for the portfolio, it's not static; it's more about continuous monitoring. In some cases, when I look at the portfolio, it might underperform and would need bold changes. For instance, making decisions on spinning off the financial sector and when we announced that, both sides understood that it was necessary for future growth.

Operator, Operator

Next question. To the far right, second from the front, the person in black, please. Thank you.

Unidentified Analyst, Analyst

Question to Totoki-san. Two questions. Regarding responding to additional tariffs, you said you are building up strategic inventory. Any other measures? In November, you spoke about shipment changes and the price pass-through. Have you implemented any of these ideas? Secondly, do you have any plan to shift the headquarters outside of Japan?

Kenichiro Yoshida, CEO

First question, in terms of responding to tariffs, we are making preparations, but we haven't implemented drastic changes as yet. As for placing the headquarters outside of Japan, that's not in our plans. Tokyo is a great place, and we don’t feel any inconvenience. I think it will stay the same.

Operator, Operator

Time is running short, so the next question will be the last question. The person in a gray suit, please.

Unidentified Analyst, Analyst

My question is to Yoshida-san. Two questions. Mr. Yoshida, in 2013, when you returned from So-net to Sony, there was a deficit and management was not necessarily very healthy. As a CFO, you had to reduce the number of employees and deal with restructuring, and I think you were involved in that. What was your thought process when making those decisions? How do you reflect on your actions regarding restructuring when looking back? Also, as CEO, focusing on entertainment, what is your impression of what you have achieved?

Kenichiro Yoshida, CEO

Thank you. Since I'm appointed, let me answer. When I returned from So-net in December 2013, I decided to withdraw from PC and also proposed to spin off the separate TV business. The basic mindset then was that we wanted to contribute to Sony, and after that, there was a lot of effort for improvement that led to the current growth. Focusing on entertainment itself is related to KANDO introduced by Hirai. I fully agree with him. My efforts aimed to shift towards the entertainment division, which I believe are crucial for our future.

Operator, Operator

We would like to end this part of this Q&A session by media. Thank you. We would like to entertain questions from the analysts and investors. I would like to serve as the MCM KANDO of the IR Group. Thank you very much in advance.

Junya Ayada, Analyst

Junya Ayada of JPMorgan. I have two parts of questions. My first question is about the financial results in the third quarter for the game and network businesses. Active users reached a record high in this quarter. What was the driving force for such an increase, and is this sustainable growth? What do you think? My second part of the question is to Mr. Yoshida. Each of you played a role during the last decade when you reformed Sony. Looking ahead, how do you think you have developed the future generation of management human resources?

Kenichiro Yoshida, CEO

As for the third quarter, as you're aware, there's a seasonal influence so the figure should go up most of the season. We were fortunate that the consoles really sold well, with major interest exceeding our expectations. In addition to that, high-quality third-party software titles launched during the third quarter contributed to record MAUs. Regarding human capital, I believe that the experience gamed by the current leadership is critical for nurturing the next generation. Our focus should be continuous improvement.

Operator, Operator

Moving on to the next question. From the stage to the left, third row from the front, wearing a black jacket, please.

Yasuo Nakane, Analyst

Question to Yoshida-san and Totoki-san. Before becoming the group, you had split the TV subsidiary. So in terms of business management and decision-making, how do you balance centrifugal and centripetal control while reflecting on the difficulties you experienced?

Hiroki Totoki, CEO

In terms of group management, I believe both centrifugal and centripetal forces are needed. The crux for both is purpose. Management responsibility involves connecting purpose to profit. Finding the balance is essential, and I enjoy hands-on involvement. When things are going well, I try not to interfere.

Operator, Operator

So now we’d like to move on to the next question. SMBC Nikko Katsura-san, who joined online, please?

Ryosuke Katsura, Analyst

I have two questions. The G&NS and I&SS segments have made a strong start. What are the upside and downside expectations for FY 2025? And for the next generation talent, what is your expectation regarding their management style?

Kenichiro Yoshida, CEO

For G&NS, the MAU and network services play a major role, so we don't expect a rapid dip despite higher profit. There are strong titles coming out for next fiscal year, so we are optimistic. I expect next generation talent to have a speedier approach to change and a good grasp of technology. They will support innovative adjustments in management style.

Operator, Operator

Time is running short, so just one question per person from now on. Thank you for your understanding.

Kota Ezawa, Analyst

I just have one question. As Totoki-san mentioned, with the 10% profit increase in the scenario, you achieved a 23% increase already. Is this performance incidental, or were you expecting to overachieve? How frequently do you expect to update your mid-range plan?

Kenichiro Yoshida, CEO

Our mid-range business plan spans three years. Updating that plan may be premature. External factors could affect the performance, and we are focused on achieving stable growth.

Operator, Operator

This will be the final question. Third row from the front, from the stage to the left-hand side, the person with a beige jacket, please.

Unidentified Analyst, Analyst

When you talked about competing on the global stage, what about M&A? Are you going to be more aggressive than before? Regarding internal issues, what potential for growth do you foresee?

Kenichiro Yoshida, CEO

Competing globally doesn’t necessarily mean bigger M&A. We will study opportunities that meet our criteria. Regarding internal issues, our focus as management is understanding how to achieve growth and profitability across all segments.

Operator, Operator

With that, I would like to close the Sony Group Corporation consolidated financial results presentation. The photo session to follow will be for the media. So investors, analysts please leave the room. Thank you so much for joining us today.