It is now time for us to start Sony Corporation's Fiscal Year 2020 First Quarter Earnings Briefing Session. I will be acting as the emcee.

My name is Kato from Corporate Communications department. This briefing is held for the media, analysts and institutional investors who we have notified in advance.

The audio and presentation materials can be viewed on our website. Today, first of all, from the Executive Deputy President and CFO, Hiroki Totoki, we will give an explanation on consolidated financial results for FY 2020 Q1 and the forecast for FY 2020 and then have a question-and-answer session.

It should last approximately 70 minutes. Totoki-san, please.

Today, I would like to begin by addressing the operating environment surrounding Sony. The spread of the new coronavirus disease, an increase in geopolitical risks such as the tension between the United States and China and the frequent occurrence of natural disasters in recent years are just a few of the things that are fundamentally changing society and economy as well as people's values and lifestyles in a variety of ways, and these changes will not be limited to short term and they are difficult to predict.

And there's a saying that it's not the strongest of the species that survives nor the most intelligent, but rather the one most adaptable to change. Sony intends to adapt flexibly to the changes in the environment and increase the focus with which we manage each of our businesses.

The fiscal year ending March 31, 2021, or fiscal year '20 is an important year in which we expect to both recover from the impact of the spread of COVID-19 and formulate a strategy to address the business environment in the aftermath of the spread of the virus. We tend to improve the resilience of the Sony Group by leveraging our advantage, which is the diversity of our personnel and businesses adapt to changes and convert the crisis into an opportunity.

Now I will explain the following. Fiscal '20 first quarter consolidated sales increased 2% compared to the same quarter of the previous fiscal year to ¥1.9689 trillion, and consolidated operating income slightly decreased to ¥228.4 billion from the same quarter of the previous year, which is a record high.

Income before income taxes increased ¥88.9 billion to ¥319.9 billion, partially due to an improvement in unrealized gains on securities investments in other income and expenses. Net income attributable to Sony Corporation stockholders for the first quarter increased ¥81.1 billion to ¥233.3 billion.

Excluding extraordinary items, operating income would have been -- would have increased ¥2.2 billion from last year to ¥225.2 billion. Now this slide shows the results by segment for the fiscal '20 for the first quarter.

At the previous earnings announcement we held in May, we were unable to reasonably predict the impact of the spread of COVID-19, so our consolidated results forecast for fiscal '20 was undetermined. Today, we are disclosing the consolidated results forecast for fiscal '20.

Consolidated sales are expected to be flat year-on-year at ¥8.3 trillion, and operating income is expected to decrease ¥225.5 billion to ¥620 billion. Income before income taxes is expected to be ¥685 billion, and net income attributable to Sony's stockholders is expected to be ¥510 billion.

Our forecast for operating cash flow, excluding the Financial Services segment, is ¥550 billion. Our current forecast for 3-year cumulative operating cash flow, excluding the Financial Services, is approximately ¥2.1 trillion.

We plan to issue ¥25 per share as an interim dividend this fiscal year compared to ¥20 per share in the previous fiscal year. We have yet to determine how much the annual dividend amount will be this year, but our policy is to increase dividends in a steady manner over the long term.

The fiscal '20 forecast for each of our segments are shown on this slide. I will explain the details when I talk about each segment after this, but I'd first like to explain the operating loss in Corporate and elimination.

In the previous fiscal year, we recorded ¥31.5 billion in extraordinary gains. Well, this year, this fiscal year, we expect to increase expenses for mid- to long-term growth initiatives and societal contributions, such as investment across the Sony Group to explore and develop new businesses, including artificial intelligence and robotics as well as contribution to the Global Relief Fund for COVID-19.

The fiscal '20 forecast includes an expectation that we will incur ¥25 billion in restructuring costs across the Sony Group. In addition to continuing our efforts to reducing costs, we are taking action to adapt quickly to changes in the operating environment brought on by the spread of COVID-19.

I will now explain the situation in each of our business segments. First is the G&NS segment.

The first quarter fiscal '20 sales increased 32% year-on-year to ¥606.1 billion, and operating income increased ¥15.2 billion to ¥124 billion. Sales for the fiscal year are expected to increase 26% compared to fiscal '19 to ¥2.5 trillion, mainly due to a significant increase in game software and hardware sales.

Operating income is expected to be ¥240 billion, flat compared with fiscal '19 because the benefit of the increase in sales and an increase in profit from PlayStation Plus are expected to be offset primarily by increasing costs related to introduction of PlayStation 5. Hardware, software and network services all benefited in the current quarter from the positive impact of stay-at-home demand resulting from the spread of the virus.

In the software space, the first-party title, The Last of Us Part II was a huge hit and nonfirst-party titles, including free-to-play titles, contributed significantly. Ghost of Tsushima, which we released on July 17, sold through 2.4 million units in the first 3 days since launch, making it the fastest selling in-house first-party new game software IP for the PlayStation 4.

In the Network Services area, PS Plus subscribers have reached about 45 million as of the end of June. And at a time when communication network environment was under pressure, the PlayStation Network did not falter or experience any other issues and is continuing to deliver high-quality entertainment experiences.

We aim to continue to enhance and expand user engagement as we approach the launch of PS5 in the 2020 holiday season. Next is the Music segment.

Fiscal '20 quarter 1 sales decreased 12% year-on-year to ¥177.1 billion, and operating income decreased ¥3.4 billion to ¥34.9 billion. For full year, sales are expected to decrease 7% compared to fiscal '19 to ¥790 billion, and operating income is expected to decrease ¥12.3 billion to ¥130 billion.

In the Recorded Music space, revenue in most categories, including from packaged media and advertising-supported streaming services is being negatively impacted by the spread of COVID-19. Overall, streaming revenue only grew 6% year-on-year on a U.S.

dollar basis during the quarter. But audio streaming revenue, of which paid streaming accounts for a large portion, grew 17%.

In the Music Publishing space, revenue from all areas, except for streaming such as music licensing from movies and television, is being significantly negatively impacted by the spread of COVID-19. And in the Visual Media platform space, revenue is being significantly impacted due to a variety of factors such as decrease in physical media production and the postponement and cancellation of live events, primarily in Japan.

On the other hand, we're beginning to have success in initiatives expected to contribute to financial performance going forward, such as the launch of Stagecrowd, a paid live video distribution service that serves as a one-stop shop for ticket sales, merchandise sales and stage construction; and strong sales of the mobile game app, Disney Twisted-Wonderland. Next is Pictures.

Fiscal '20 quarter 1 sales decreased 6% year-on-year to ¥175.1 billion, primarily due to a decrease in box office revenue in Motion Pictures and a decrease in advertising revenue in Media Networks, but partially offset by an increase in license revenue in Television Productions. Operating income increased ¥24.4 billion year-on-year to ¥24.7 billion due to a significant decrease in marketing expenses in Motion Pictures.

Primarily due to decrease in theatrical releases resulting from the spread of COVID-19, we expect fiscal '20 sales to decrease 25% compared to fiscal '19 to ¥760 billion. We expect operating income to be ¥41 billion, a decrease of ¥27.2 billion compared to last year, which benefited from the contribution of hit titles.

Although we have resumed filming in some countries, the severe environment in Motion Pictures and Television Productions is continuing. If we can restart production, we think we can recover our position in the television production area relatively quickly because demand for content from digital distribution services is extremely high, and we think we can leverage our advantage as a major independent studio.

As for theatrical, theaters are either closed or admittance is limited, and we expect the release calendar to be very crowded when they do reopen. Since Motion Pictures generate profit over multiple years, starting with theatrical releases, the impact on our financial results of not being able to release them is expected to last two to three years.

On the other hand, digital sales of products we have released theatrically in the past are strong. For Sony, the importance of theatrical releases is not expected to change going forward.

But in order to maximize the long-term value of our product, we will select the optimal distribution channel for our product based on the nature, scale and timing of the product. Next is the EP&S segment.

For this quarter, sales decreased 31% year-on-year to ¥331.8 billion, primarily due to a decrease in unit sales of digital cameras and TVs. Operating income decreased a significant ¥34.2 billion year-on-year, and a ¥9.1 billion operating loss was recorded due to the impact of the decrease in sales despite a reduction in operating costs across the entire segment.

For the full year, sales are expected to decrease 6% to ¥1.870 trillion, and operating income is expected to decrease ¥27.3 billion compared to fiscal '19 to ¥60 billion. Mobile Communications recorded ¥11 billion in operating income during the quarter, and we expect it to generate a profit in the full fiscal year.

The EP&S segment was the segment, which was impacted by the spread of COVID-19 earlier and more significantly than any other segment, but the supply chain has almost fully recovered. And although progress varies depending on the product category and region, customer demand is beginning to recover as well.

We are preparing for potential second and third waves of COVID-19 by transforming the structure of our business into a more resilient one through an overhaul of our operations and further streamlining as well as enhancement of our e-commerce distribution channels. This segment, which will inherit the Sony Corporation trade name on April 1, 2021, is further accelerating its efforts to unify the management of the business under its umbrella and is promoting the evolution of the business by deploying products and services that enable reality, real-time and remote activity through our audio, video and communications technologies.

Next is in IS&S, Image Sensing & Solutions. Fiscal '20 quarter one sales decreased 11% year-on-year to ¥206.2 billion, and operating income decreased ¥24.1 billion to ¥25.4 billion.

Fiscal '20 sales are expected to decrease 7% to ¥1 trillion, and operating income is expected to decrease ¥105.6 billion to ¥130 billion. Now I will explain the state of our sensor business.

Fiscal '20 sales of image sensors for mobile products are expected to decrease compared to fiscal '19, primarily due to a decrease in end-user product sales by one of our major customers, the deceleration of the smartphone market and a shift to mid-range and moderately priced models in that market resulting from the impact of the spread of COVID-19 and significant reduction in component and finished goods inventory by Chinese customer. Profitability is expected to be impacted by a decrease in gross margins and an increase in depreciation and manufacturing-related costs associated with production equipment we purchased in the previous fiscal year when we expected growth as well as higher research and development costs.

We do not expect to grow sales of mobile sensing products compared to fiscal '19 because adoption by smartphone makers has been slow and sales of flagship models, which already use our products have decreased due to the shift in market conditions. Sales of image sensors to AV have also decreased due to the contraction of the sensor market for digital cameras, resulting from the impact of the spread of COVID-19.

We expect the market to contract in 1 year as much as we had previously expected it would contract over the next approximately 3 years. In order to respond quickly to the changes in the environment, especially for image sensors for mobile products, we will modify our strategy, mainly in the areas of investment, research and development and customer base.

We have already significantly reduced investment in capacity to supply demand in the fiscal year ending March 31, 2022, because we can supply that demand by stockpiling strategic inventory through utilization of our excess production capacity this fiscal year. The forecast for cumulative capital expenditures for the 3 fiscal years began April 1, 2018, which we explained in the past, has been reduced ¥50 billion from approximately ¥700 billion to approximately ¥650 billion.

And we are carefully reviewing the timing of planned capital expenditures in fiscal '21 and beyond. We will review the projects and priorities for research and development spending as well to ensure that they fit with the recent trends in the smartphone market and changes in our major customers' needs.

However, in order to maintain and increase our future technological competitive advantage, we will not drastically reduce the number of projects or the budget. We intend to more proactively expand and diversify our customer base, which we're cautious to do previously due to production capacity constraints.

Over the mid- to long term, we will work to expand the applications for image sensors and the market overall by introducing edge-sensing products that use senses equipped with AI processing functionality, and we will steadfastly work to grow this business. We plan to complete within approximately 1 year an enhancement of our business model to adapt to the recent changes in the environment, and we expect to return the business to the path of profit growth from the second half of fiscal '21.

Last is the Financial Services segment. Fiscal '20 quarter 1 Financial Services revenue increased 33% year-on-year to ¥446.8 billion, primarily due to a significant increase in net gains on variable insurance investment in the separate account at Sony Life.

Operating income increased ¥1.1 billion year-on-year to ¥47.2 billion. Financial Services revenue in fiscal '20 is expected to increase 7% compared to fiscal 19 to ¥1.4 trillion, and operating income is expected to increase ¥12.4 billion to ¥142 billion.

On July 13, we completed our public tender offer for the shares of Sony Financial Holdings, SFH, not held by Sony. The shares of SFH will be delisted on August 31 and SFH will become a wholly owned subsidiary of Sony on September 2.

The Financial Services business managed by SFH has a stable high level of profit and is a core business of Sony that plays a role in our long-term growth strategy. By eliminating the listed subsidiary relationship between SFH and Sony, we intend to increase the speed of decision-making, enhance management optionality and further improve the value of the business.

In addition, by capturing the minority interest and realizing tax benefits, we expect to increase Sony's consolidated net income by approximately ¥40 billion to ¥50 billion per year going forward. And that is expected to contribute to increasing earnings per share, EPS and return on equity, ROE.

In order to deepen understanding of our Financial Services business, we are considering what key performance metrics to disclose. Now I will briefly discuss the minority investments we made in Bilibili and Epic Games this fiscal year.

At a time when digitization of the entertainment industry is accelerating, we plan to leverage these investments to expand the customer touch points for our diverse array of content as well as create new digital content and ways of enjoying that content that go beyond our business segments in partnership with these companies. Going forward, we intend to proactively pursue strategic investment opportunities to explore future growth.

Next, I will explain our enhanced segment disclosure. Historically, Sony has proactively enhanced disclosure of information about our businesses.

And from this fiscal year, we have decided to disclose on a quarterly basis the information shown here in the G&NS and Music segments, which are of particular interest to the capital markets. At the same time, we have terminated disclosure of certain items in the EP&S segment.

For more details, please see our supplemental information. Today, we announced the establishment of a facility to repurchase up to ¥100 billion in shares of Sony during this fiscal year.

Like in the past, we view share repurchases as a strategic investment and we'll decide to execute them based upon a comprehensive assessment of a variety of factors, including the availability of other investment opportunities, our financial condition and price at which our shares are trading. We aim to maintain strict financial discipline and a healthy balance sheet going forward as we optimize our capital efficiency with a focus on EPS and ROE.

We also plan to maintain sufficient liquidity at a time when the recent operating environment is uncertain, and we think it is important not to miss any growth opportunities. In conclusion, I will show our capital allocation.

This concludes my remarks.

That was Totoki, Executive Deputy President and CFO. And from about 4:25, we will be conducting Q&A.

The first 20 minutes will be dedicated to questions from the media and the following 20 minutes will be questions from the sell-side analysts. [Operator Instructions].

And those of you who have not registered in advance, you will be able to listen to the Q&A via webcast. Kindly wait a little while longer before we resume.

Thank you for your patience. We will now start the Q&A session with the media.

The respondents are Executive Deputy President and CFO, Hiroki Totoki; Senior Vice President in charge of Corporate Planning and Control, Finance and IR; Naomi Matsuoka; VP, Senior General Manager, Corporate Communications Department, Mami Imada. [Operator Instructions].

So I'd like to take the first question. Inomata-san [ph] from NHK.

Thank you. It is now time to close this briefing session on earnings for the first quarter of fiscal 2020.

Thank you for your participation.