Sony (NYSE:SONY) Group Corporation (NYSE: SONY) announced robust financial results for the fiscal year 2023, setting a new record with consolidated sales of JPY 13,020.8 billion. The company's operating income reached JPY 1,208.8 billion, with a net income of JPY 970.6 billion. The PlayStation 5 sales hit 59.2 million units, and the Music and Pictures segments reported significant sales increases. Sony also provided a positive outlook for FY 2024, expecting continued sales growth and a focus on investment efficiency and shareholder returns.
Key Takeaways
- Sony's FY 2023 consolidated sales were JPY 13,020.8 billion, with an operating income of JPY 1,208.8 billion and net income of JPY 970.6 billion.
- PlayStation 5 sales reached 59.2 million units; the company forecasts selling approximately 18 million units in FY 2024.
- The Music segment's sales increased by 17%, while the Pictures segment saw a 9% increase.
- The Financial Services segment's revenue nearly doubled, although operating income decreased.
- Sony's fifth midrange plan emphasizes synergies across the group, especially in the entertainment and image sensor businesses.
- The company announced a stock split planned for October 2024 and a target total payout ratio of approximately 40% by FY '26.
Company Outlook
- FY 2024 expected sales of JPY 2,310 billion, operating income of JPY 1,275 billion, and net income of JPY 925 billion.
- Continued growth anticipated in the Music and Pictures segments.
- The company plans to prioritize investment efficiency and strategic investment selectivity.
Bearish Highlights
- IT&S segment sales slightly decreased.
- Operating income in the Financial Services segment fell due to various factors.
- Expectation of decelerated growth in the interchangeable lens and mirrorless camera market in the second half of FY '24.
Bullish Highlights
- Record-high consolidated sales and operating income in FY 2023.
- Strong growth in the Music and Pictures segments.
- Increased sales in the I&SS segment, driven by mobile image sensors and favorable foreign exchange rates.
Misses
- Sony did not provide a breakdown of strategic investments by segment.
- No comments were made on media reports or specific deals.
Q&A Highlights
- Sony discussed the impact of the weaker yen on overseas M&A and their approach to acquisitions.
- The company is focusing on software and network services in the game segment for growth.
- Sony aims for a 10% ROIC in the semiconductor business in the new fiscal year.
Sony Group Corporation closed its earnings call with a commitment to financial soundness and a strategic focus on shareholder returns. The company's forward-looking statements indicate a proactive approach to navigating market challenges while capitalizing on its strengths in the entertainment and technology sectors. With a stock split on the horizon and a goal of a 40% total payout ratio by FY '26, Sony is positioning itself for continued success and investor confidence.
InvestingPro Insights
Sony Group Corporation's (NYSE: SONY) latest financial achievements are not only a testament to its robust sales but also reflect its strong market position and financial strategies. With a market capitalization of $93.32 billion and a price-to-earnings (P/E) ratio of 17.24, Sony is demonstrating its ability to maintain profitability in a competitive industry. Notably, the company has a history of rewarding its shareholders, having raised its dividend for 8 consecutive years and maintained dividend payments for 45 consecutive years, a sign of its commitment to consistent shareholder returns.
InvestingPro Tips for Sony highlight that the company is a prominent player in the Household Durables industry, which aligns with its significant sales in the PlayStation and Pictures segments. Moreover, Sony's cash flows can sufficiently cover its interest payments, indicating financial stability and a sound debt management strategy. For investors looking for long-term value, Sony has shown a strong return over the last five years and is currently trading near its 52-week low, potentially presenting an attractive entry point.
For those interested in deeper analysis and additional insights, InvestingPro offers more tips on Sony. By using the coupon code PRONEWS24, readers can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, granting access to comprehensive financial data and expert analysis, including the 10 additional tips listed on InvestingPro for Sony.
Full transcript - Sony (SONY) Q4 2024:
Unidentified Company Representative: The time has come to begin FY 2023 Financial Results announcement of Sony Group Corporation. I am from Corporate Communications. I'll be serving as master of ceremonies today. Let me introduce the people on the stage. First, Hiroki Totoki, President, COO and CFO; Naomi Matsuoka, Senior Vice President, Executive Officer in charge of Corporate Planning and Control, lead of group DE and high promotion and support for finance and entertainment area; Hayakawa Sadahiko, Senior Vice President, Executive Officer in charge of Finance and IR. These three will be explaining the results of FY '23 and forecast for FY '24 and fifth mid-range plan. After that, we are going to have Q&A. A total of 80 minutes is allocated. Now Mr. Totoki, the floor is yours.
Hiroki Totoki: Today, I will explain this content. Matsuoka and Hayakawa will talk about our results for FY '23 and our result forecast for FY '24. And I will talk about the fifth midrange plan, which started this fiscal year. Hayakawa-san, please go ahead.
Sadahiko Hayakawa: Thank you. FY '23 consolidated sales were JPY13,020.8 billion, a new record high. Consolidated operating income was JPY1,208.8 billion. Net income was JPY970.6 billion, and consolidated adjusted EBITDA was JPY1,880 million. Furthermore, the JPY229.4 billion, operating income for the previous quarter was the highest ever for a fourth quarter. Due to the partial spinoff of our Financial Services business, which is scheduled for October 2025, from this earnings announcement, we are also showing without the Financial Services segment. On a consolidated basis, excluding the Financial Services segment, sales were JPY11,265 billion. Operating income was JPY1,335.3 billion, and operating cash flow was JPY1,177.8 billion. The performance by segment for FY '23 is shown on this slide. Next, I will explain our consolidated results forecast for the full FY '24. Our full year forecast is sales of JPY2,310 billion, operating income of JPY1,275 billion and net income of JPY925 billion. On a consolidated basis, excluding the Financial Services segment, sales are expected to be JPY11,400 billion and operating income is expected to increase 9% year-on-year to . The forecast for consolidated operating cash flow, excluding the Financial Services segment, is JPY1,400 billion, a significant increase of 19% year-on-year. The full year forecast by segment is shown here. Now I will move on an explanation of the overview of each business. First is G&NS segment. FY '23 sales increased a significant 17% year-on-year to JPY4,267.7 billion, mainly due to increased third-party software sales and the impact of foreign exchange rates. Operating income increased year-on-year to JPY290.2 billion, mainly due to the increased sales. Operating income for the previous quarter was JPY106 billion, a new record high for the fourth quarter in this segment. The FY '24 forecast for sales is JPY4,200 billion and operating income is JPY310 billion. We expect acquisition-related expenses, including expenses related to the acquisition of for this fiscal year to be approximately JPY52 billion, a decrease a JPY17 billion year-on-year. PlayStation 5 sales in the previous quarter totaled 4.5 million units, and in the full FY '23, 20.8 million units. As of the end of March, cumulative unit sales of PS5 reached 59.2 million units, approaching the 60 million cumulative units sold of the PlayStation 4, which had undergoing price cuts of a total of USD 100 in the same period since its release. We expect PS5 sales for this fiscal year to be approximately 18 million units. In terms of software, the live service game, Hell Divest 2 released in February, has been a hit that far exceeded expectations with cumulative sales for both PS5 and PC in 12 weeks since its release to the beginning of May, reached 12 million copies, surpassing the record set by God of War: Ragnarok in the same period after its release in 2022. The game has become our biggest title to date, and as a multi-platform title, it also contributed significantly to sales and profit last quarter. Following this success, we are looking forward to the release of live service games -- as the expansion content, Destiny 2: The Final Shape, which is expected to be released by on June 4 and Concord, which is scheduled to be released this year by , which we acquired in 2023. Thanks primarily to the growing of PS5 as well as the success of Hell Divest 2 and third-party free-to-pay titles, the number of monthly active users across PS in March remained high at 180 million accounts, up 9% year-on-year. Total play time on PS in the month of March increased 15% year-on-year. And for the entire fourth quarter of the FY '23, it reached the second highest level in history, second only to the fourth quarter of FY '20, which benefited from significant stay-at-home demand due to the pandemic. Looking at the console cycle, we think that PlayStation business model has changed significantly since the launch of the PS4. The business model up to and including the PlayStation 3 was focused on increasing the number of software units sold in relation to newly sold hardware for each console generation. After a transition period during the PS4 generation, the PS5 model has shifted to where playtime on platform has increased due to expansion of the user community beyond console generations. Due to this change in business model, during the PS4 for generation, we were able to significantly grow profits in this segment, thanks to rapid digitalization and the expansion of network services. In the PS5 generation, which has capitalized on the established user base, the trend is hard to see due to the impact of stay-at-home demand and acquisition-related expenses. But since the launch of the PS5, we have continued to achieve a high level of a more stable profit growth. As we enter the second half of the console cycle, we expect the number of new PS5 units sold to gradually decline. However, by steadily maintaining and expanding the consistently increased number of active users and user engagement while also strengthening control over business costs, we believe that we will be able to steadily increase sales and profits on the PS platform going forward. In addition to the stable earnings base on the PS platform, we are aiming to grow sales of first-party software, which we have been actively strengthening in recent years. And by doing so, we plan to achieve a new record high in profits in this segment during the fifth mid-range plan. Next is the Music segment. FY '23 sales increased a significant 17% year-on-year to JPY1,690 billion, mainly due to increased streaming sales and the impact of foreign exchange rates. Operating income increased JPY38.6 billion from the previous fiscal year to JPY301.7 billion, mainly due to increased sales, setting a new record for this segment for the fourth consecutive year and being the highest among our six business segments as was the case last fiscal year. The FY '23 profit contribution from visual media and platform accounted for approximately 10% of the segment's operating income. The FY '24 forecast for sales is JPY1,690 billion and operating income is JPY315 billion. Streaming revenue in the previous quarter continued to grow on a U.S. dollar basis with both Recorded Music and Music Publishing, each increasing 11% year-on-year. In terms of Recorded Music, an average of 31 songs were ranked in the top 100 on Spotify (NYSE:SPOT)'s weekly global song rankings for the whole of FY '23. Moreover, Beyonce's new album, Cowboy Carter, released on March 29, has become a hit, ranking #1 in the U.S. album chart immediately upon its release. Streaming revenue in Music Publishing has grown significantly with a CAGR of 38% over the 4 years since FY '20, thanks to an expansion of opportunity to monetize our music catalog, which have been available for a certain period of time. We have been strengthening our music catalog since making EMI Music Publishing a wholly owned subsidiary in 2018, and the number of songs we managed at the end of March was approximately 6.24 million, an increase of 1.7x over the past 10 years. We also maintained the top global market share in Music Publishing. The value of music catalogs as IP assets is expanding significantly, and we intend to further expand the monetization opportunities of these IP assets, primarily by maximizing synergies between the entertainment businesses. Next is the Pictures segment. Although there was a decrease in the number of television program deliveries, FY '23, sales increased 9% year-on-year to JPY1,493.1 billion due to an increase in the number of theatrical releases and the impact of foreign exchange rates. Operating income was JPY177 billion, essentially flat year-on-year. This was primarily due to an increase in marketing costs resulting from the increased number of releases, offset by the impact of the increase in sales. Our FY '24 forecast for sales is JPY1,480 billion and operating income is JPY120 billion. The negative impact on the profitability of the Hollywood strikes in FY '23 is estimated to have been approximately JPY118 billion caused by changes in the film release schedules and delaying the delivery of the television programs. We believe the negative impact of the strikes and on profitability will peak in FY '24, and we have incorporated approximately JPY34 billion as the impact into full year forecast. Regarding Crunchyroll, we are expecting it to contribute even more to the operating income of the entire segment due to the sales growth, primarily from an increase in the global plan subscribers and overseas distribution of anime products as well as reduced amortization expenses associated with the acquisition. In Motion Pictures, we have plans to release major titles in FY '24, such as the sequel to the popular Bad Boys franchise, Bad Boy Ride or Die as well as new titles from the Sony Pictures universe of Marvel characters, Venom the last stance and in Kraven The Hunter. Next, the IT&S segment. FY '23 sales were , essentially flat year-on-year. This was mainly due to a decrease in the unit sales of televisions, offset by an impact from the foreign exchange rates. Operating income increased JPY7.9 billion year-on-year to JPY187.4 billion, mainly due to the favorable impact of foreign exchange rates and the benefit of the cost reductions despite the impact of lower sales in televisions. Our FY '24 forecast for sales is JPY2,370 billion and operating income is JPY190 billion. In FY '23, the digital cameras and interchangeable lenses and -- generated increase in operating income, thanks to enhanced product appeals, and televisions and mobile communication reduced costs, enabling the entire segment to achieve a level of operating income that exceeded FY '22 results and our projection at the beginning of FY '23. Moreover, full year operating cash flow was JPY322.8 billion, the largest amount our 5-year business segment, excluding the Financial Services segment due to improved profitability and significant inventory reductions mainly in television. The market for interchangeable lens and mirrorless cameras, which is the main source of our sales and profit for this segment, showed a strong growth in the previous quarter, mainly in China and Japan and has continued to remain strong since April. We expect this market growth to gradually decelerate from the second half of this year -- this fiscal year onward, but we believe this will remain stable going forward. Next, the I&SS segment. FY '23 sales increased a significant 14% year-on-year to JPY1,602.7 billion, mainly due to increased sales of image sensors for mobile products and the impact of foreign exchange rates. Despite the impact of increased sales, operating income decreased JPY18.7 billion year-on-year to JPY103.5 billion, mainly due to an increase in expense, including depreciation and amortization expenses. Our FY '24 forecast for sales is JPY1,840 billion and operating income is JPY270 billion, which would be a record high for this segment. In the current smartphone product market, while unit sales in the previous quarter in China slightly exceeded the same period of the previous year, stagnation continues in the U.S. and in other parts of Asia, and believe the global recovery will be very slow. In this market environment, our mobile services business is expected to continue to grow due to larger die size sensors and higher added value and an expanded market share, and we plan to achieve year-on-year sales growth in the FY '24 of 10% or more for the third year in a row. In addition to the trend of increasing the die size of the wire angle camera sensors, smartphone manufacturers are working to increase the size improve the image quality and the performance of the actual wide angle and telephoto camera sensors, and we believe this will be the growth driver for the mobile sensor market over the next few years. To accommodate these trends towards larger die sizes and higher added value, we are focusing our sensor development on improving pixel performance and in characteristics. We are developing high-performance sensors while focusing on the number of manufacturing processes and productivity as well as improving production yields through pixel design. These efforts expected to contribute to future investment and efficiency and cost improvements. In addition, with regards to improving the yield of mobile sensor, which had been a top priority since the previous fiscal year, we have been making a progress at the pace that slightly exceeds our plan. As a result, we expect to be able to reduce the impact on profitability for this fiscal year, approximately JPY18 billion, almost half of the previous fiscal year. Last is the Financial Services segment. The Financial Service revenue for FY '23 was JPY1,770 billion, almost double year-on-year, mainly due to the impact of market fluctuation in Sony Inc. Operating income decreased a significant JPY144.5 billion year-on-year to JPY173.6 billion. This was primarily due to a decrease in the net gains related to market fluctuations for variable insurance and other products of Sony Life as well as recording of the gains on the stable sales of the real estate at the Sony Life and the recovery of -- related to authorized withdrawal in the previous fiscal year. These negative factors were primarily offset by the recording of the gain mainly from the transfer of the portion of the shares of the Sony Payment Services Inc. The FY '24 forecast for the Financial Services revenues were JPY900 billion, and operating income is JPY145 billion, a decrease of JPY28.6 billion from the previous fiscal year, which included the recording of the gain from the transfer I previously mentioned. Please note that this forecast does not take into account the impact of the market fluctuation in the Sony Life. Now I like to explain the fluctuations in operating income that have been particularly notable since the adoption of IFRS 17. This is the trend of the breakdown of Sony Life's quarterly operating income while insurance services results, which are the base profit for the business, have generally remained stable. Investment gain and losses have fluctuated greatly due to the changes in the market conditions. The majority of the investment gains and losses consist of realized valuation gains and losses. We are considering the measures to curve these fluctuations in gains and losses, including the transfer of the previously controlled insurance contracts to the external parties through reinsurance transactions. This includes our explanation of our financial results for FY '23 and the results forecast for FY '24. Next, Totoki, will explain our midrange plan. Totoki-san, please go ahead.
Hiroki Totoki: Now I'd like to talk about our midrange plan. First, let me give a brief overview of our fourth midrange plan. Under the theme of our fourth midrange plan, Sony's evolution, we have been working to evolve our corporate architecture and the business portfolio to drive growth for the entire group. In April 2021, we transitioned from a large headquarters housing support functions for our Electronics business to Sony Corporation being a scale-down group headquarters. By doing so, we established a structure to promote the growth of the group in an equidistant relationship with each business. Regarding our business portfolio, we are making concrete preparations for a partial spin of the Financial Services business in October 2025 with the aim of achieving further growth in both the Financial Services business and our other businesses. Additionally, by concentrating capital allocation on the growth areas of the three entertainment businesses and the I&SS business, we were able to significantly increase the combined sales of these four business segments, creating a more growth-oriented business portfolio. Thanks to these efforts, the KPI, we set as a growth indicator for the fourth midrange plan period, 3-year cumulative consolidated adjusted EBITDA was JPY5.1 trillion, 19% higher than our initial target and 42% higher than the amount generated during the third midrange plan period. In addition, our ability to generate profits is steadily improving the average annual growth rate of consolidated operating income, excluding the Financial Service segment was 9.0% from FY 2020 to FY 2023. Now I'd like to talk about our fifth midrange plan. We are presenting the plan, excluding the Financial Services segment and , the head of that business, will provide an explanation of the midrange plan of the Finance Services segment at the business segment meeting scheduled for May 31. The themes of the fifth midrange plan are Beyond the Boundaries and maximum synergies across the group, with the intention of continuing to implement the proactive initiatives we have been implementing to further realize synergies and achieve more growth for the entire group. During this midrange plan, no changes are planned to our strategy of working to increase corporate value through continuous growth. While further strengthening our efforts to realize group synergies, we plan to focus on implementing measures to achieve mid- to long-term growth in entertainment and image sensor businesses. At the same time, we expect the business environment to remain uncertain and volatile during the period of this midrange plan and beyond. In order to further increase our resilience to such environmental changes, we aim to work to strengthen our earnings base through the ongoing evolution of our business portfolio and to improve investment efficiency and business profitability. Consequently, for a period of this midrange plan, we have placed greater emphasis on profit-based growth KPIs and we have set up KPIs for the entire group, the growth rate consolidated operating income and operating income margin. Specifically, we aim to increase consolidated operating income during this midrange plan, primarily in G&NS and I&SS and achieve an average annual growth rate of 10% or more and a 3-year cumulative consolidated operating income margin of 10% or more. In addition, we have positioned as an important indicator, the sales growth of the game software and network services businesses in G&NS, the Music, the pictures and the image sensor businesses. We also plan to regularly report progress on the consolidated operating cash flow, which is the source of capital allocation. I will now discuss the main focus measures for each business under the fifth midrange plan. Further details will be provided by each business leader at the business segment meeting on May 30 and 31. In the G&NS segment, under the theme of console and beyond, aim to drive profit growth of the Sony Group by expanding the -- console base of PlayStation consoles, providing richer gaming experiences and growing our business through the two-pronged approach of expanding into PCs and enhancing the first-party software titles originating from our in-house studios into which we have invested. In the Music segment, we continue to aim to grow faster than the market by strengthening our efforts in emerging markets, increasing monetization opportunities for our music catalog and incorporating adjacent businesses such as merchandising. We also plan to accelerate the global expansion of Japanese anime and artists. In the Pictures segment, which -- a core elaboration between the three entertainment business, we aim to maximize the value of the IP assets held by the Sony Group. Furthermore, we aim to achieve profitable growth with Crunchyroll, a DTC service that deeply engages with animal fans and anime creators as a growth driver. In the ET&S segment, we plan to continue to control risks in businesses facing -- environments, such as televisions, while steadily growing our highly reputable and technologically differentiated imaging and sound businesses and accelerating expansion into the growth access businesses. Through this, we aim to continue to the business portfolio of the entire segment and generate cash that supports the Sony Group. In the I&SS segment, we intend to maintain our growth rate, primarily in mobile sensors and focus especially on increasing profitability, improving investment efficacy and reinforcing development and manufacturing during the period of the fifth MRP. We also plan to proceed with the launch of new growth businesses that will follow from mobile sensors such as automotive sensors, while maintaining financial discipline and the long-term proactive. Next, I'd like to take explain capital allocation during the term of the first midrange plan. 3-year cumulative consolidated operating cash flow, the main source of allocation is expected to be JPY4.5 trillion, significantly exceeding the results of the fourth midrange plan due to profit growth during the fifth midrange plan as well as the recovery of working capital that increased during the previous midrange plan. With regard to capital expenditures, we expect to spend JPY1.7 trillion, a decrease of JPY0.2 trillion from the previous MRP, taking into account that investment for image sensors is expected to decrease from the previous MRP period. With regard to strategic investments, we plan to allocate JPY1.8 trillion to business growth investments and flexible share repurchases. We will continue to work toward mid, long-term growth of our business through such means as acquisition of IP and M&A, but we intend to emphasize investment efficiency and be more selective in the strategic arena. The biggest change for capital allocation strategy under the previous midrange plan is that we plan to allocate any increase in free cash flow during the period of this midrange plan primarily to shareholder returns. With regard to shareholder returns, we plan to place emphasis on the total payout ratio, which we expect to gradually increase throughout the period of the fifth midrange plan aiming for approximately 40% in FY 2026, the final fiscal year of the plan. To this end, we set aside JPY250 billion of share buybacks for this fiscal year, the first year of the MRP, which exceeds the amount we acquired in the previous fiscal year. Regarding dividends, our policy is to continue to increase dividends steadily while accelerating the pace of dividend increases. In addition, with the aim of further expanding the investor base that holds our shares, at the Board Directors meeting held today, it was decided to implement a stock split with a record date of September 30, 2024, and an effective date of October 1, '24. These are the main points of our fifth range plan. At the corporate strategy meeting scheduled for May 23, CEO, Yoshida, and I will explain the direction of our group's businesses of the longer term. That's all for the explanation.
Unidentified Company Representative: The Presentation was given by Totoki, Matsuoka and Hayakawa. After this, from 4:35 Q&A with media and from 5:00, Q&A with investors and analysts will take place. We're allocating about 20 minutes of Q&A each. [Operator Instructions].
A - Unidentified Company Representative: Thank you for waiting. We will begin entertaining questions from the members of the media. As was the case of the presentation, the people -- three people listed on the slide will be responding to your questions. [Operator Instructions]. The first question will be by .
Unidentified Analyst: Can you hear me?
Unidentified Company Representative: Yes, we can.
Unidentified Analyst: I have two questions, if I may. Earlier, you talked about strengthening the shareholder returns, including that, enhancing enterprise view, I'd like to hear the view of Totoki-san. Enterprise value will be regarded as cash flow generation and discounted value in the future. As compared to the previous midrange plan, we'll be reducing investment and increasing returns to shareholders compared to the previous midrange plan. How are you going to enhance enterprise value, if there's any change or differences in the thinking? Please explain. Secondly, acquisition according to the media report. I'm sure that there's a limit as to what you can share with us, but is it true that you are making proposals and strengthening your entertainment business in the midrange plan, is there any consistency? Can you please comment on that, please?
Hiroki Totoki: Thank you very much for your questions. First, as to the thinking about enterprise value. Compared to the fourth midrange plan, I talked about the capital allocation earlier. CapEx will be slightly less this time. Also, we -- including the return of working capital during the fifth midrange plan period, as compared to the previous 3 years, basically, there'll be a better cash flow position. So we will be utilizing that or return to the shareholders, that is the basic thinking. Enterprise value has to be enhanced in a sustainable manner. Fourth midrange plan period, we have been making investment in advance for the growth of the future. We have sowing seed for the growth in the future. In the fifth midrange plan, we'll be harvesting from the seed that we have sown in the previous midrange plan so that we can enhance the enterprise value in the future. That is the basic thinking behind coming up with the midrange plan. And secondly, related to reported, and we have not made any announcement at all. So specific deal, I would like to refrain from making any comment about a specific deal. But on the other hand, lots of information are there. And at this point, our strategy including the thinking on the capital allocation, I would like to comprehensively explain to you our thinking. Game and Music and Pictures. With IP, we are going to generate synergy, which is a unique strength of Sony Group, and this is the core of our growth strategy. Sony Pictures is the hub of generating synergy, and as an entity, this has an important position. Therefore, in this area, if there is any good opportunity then appropriate value and return on the investment can be expected. On that assumption, we consider possibilities, which is only too natural. However, in the fourth midrange plan, the capital allocation results in the past 3 years -- 3-year strategic investments, excluding the share buyback, was JPY1.3 trillion, of which 3 quarters were allocated to three entertainment segments. Music is the largest followed by game and Pictures about the same amount. And the purpose of investment, IP acquisition is the largest in proportion. Roughly speaking, the next 3 years, the basic policy will be continued. That's what we have in mind. At the risk of being repetitive, the strategic investment for the fifth midrange plan, including flexible share buyback is JPY1.8 trillion. Within this amount, 3 years period for -- without focusing upon any particular segment, we'll be making strategic investment and flexible share buyback, that is our basic thinking. So I do hope that you can understand our basic stance. That concludes my explanation.
Unidentified Company Representative: [Operator Instructions].
Unidentified Analyst: Can you hear me?
Unidentified Company Representative: Yes, we can hear you.
Unidentified Analyst: And I do have two questions. The first one is as follows, and in , the restructuring reduction, and how much impact on the impact on FY '23 or '24? And then also, as per today's announcement, you made an announcement about some people changes and does that include all the restructuring activities? And then also, JPY1.2 trillion of strategic improvement you mentioned, can you give us a breakdown by segment?
Hiroki Totoki: Thank you very much for questions. First, the SIE, the structural reform, and I think there's a question on that. In FY '23, and we have the double-digit hundreds of millions of the structural reform expenses are recorded. And then also, that will continue into FY '24. So for the most part, I think we'll need the same level of cost and expenses. And in FY '25, there will be improvement. So for overall, in terms of cost improvement in FY '25 onwards, and we expect the cost improvement effects to materialize. And then as for the people changes, it's not really related and -- just announced, it's not directly related to the structural reform. And another -- the other question is about the strategic investment broken down by segment. And at this point in time, we have a general idea, but we do not have the granular breakdown by segment. And I think we need to make a decision at the opportune timing. Just looking back on the 3 years that have ended, and looking at the breakdown, like I said, JPY1.3 trillion over the 3 years and then is given to the three entertainment segments. And among three entertainment segments, the Music is the largest followed by game and Pictures. So that will help you sort of visualize the strategic investment coming in the next 3 years. That's all.
Unidentified Company Representative: We'd like to take the next question from please.
Unidentified Analyst: I'm Tanaka from Asahi Newspaper. Can you hear me?
Unidentified Company Representative: Yes. Please go ahead.
Unidentified Analyst: The first question is about the foreign exchange rate. The ForEx impact for the entire group, in total, for the sales and the income, what was the upward impact, the positive impact? And the weakening of the yen is accelerating. So how are you viewing this current trend Mr. Totoki? And the second question is about the image sensor, it's performing well, and I'd like to ask you the reason the smartphone market is shrinking, and especially FY 2023, the sales units are quite low, but the image sensor, Sony was doing well. So what's the reason for that?
Hiroki Totoki: Thank you for your questions. First, on the ForEx impact, the details will be explained by Hayakawa. But regarding the weakening of the yen, my view is the following. When it comes to the ForEx, there is no control over that. So we will have to adapt to the situation. But if there is a rapid change that is going to be unfavorable in managing business, that is my view. Hayakawa, please.
Sadahiko Hayakawa: Regarding the ForEx in the previous years performance, the impact by that FY '23, the performance by segment, the material is showing the ForEx impact. So please take a look at that. Basically, last fiscal year, versus dollar, the weakening of the yen was seen. And also the dollar was weaker versus the euro. So on a consolidated basis, in income, JPY140 billion, positive impact from ForEx came to us. That's all from my side. Thank you.
Hiroki Totoki: Next on the I&SS business related question. As you said rightly regarding the FY 2023, the smartphone market itself was not very -- not quite strong. And in FY '24 and beyond, we believe that it will be recovering slowly. Our sensor business is performing well because the -- not because of the sales units of smartphones, but it's because of the main camera and large die sized such cameras. Regarding the wide-angle cameras, it has become larger in size. But at the same time, the wide -- ultra-wide angle as well as the telephonic cameras, they will become larger in size. And as a result, our sensor demand will become stronger. That's all.
Unidentified Company Representative: We'd like to move on to the next question. Bloomberg, , please.
Unidentified Analyst: Furuka from Bloomberg. Can you hear me.
Unidentified Company Representative: Yes, we can.
Unidentified Analyst: Thank you. It will be difficult to comment, I'm sure. But in addition to report on -- in Music also, joining hands with Integra, acquiring shares of . What is the fact and the deals? What is your thinking for the need of such deals? The second point, after that, recently, yen is depreciating. And overseas M&A will become difficult or -- are there opportunities to delaying M&A? And are they all the impact of the weaker yen upon M&A deal and are there concerns? These are my questions.
Hiroki Totoki: Thank you for your questions. Report -- as for the media report, these are not what we have announced. So I'd like to refrain from making any comments. I'm sorry for that. Now weaker yen, we will have the impact upon M&A overseas? Or is there going to be a delay or postponement of consideration of M&A? What's your question? M&A overseas, basically, this is out-out. Return is also in foreign currency. Therefore, it's not too difficult for us to do, but rather in each currency, we set hurdle rate. Acquisition base return is to be looked at with a hurdle rate. Looking at the hurdle rate and determine whether we are going to do that or not. That's all. Thank you.
Unidentified Company Representative: And with limited time remaining. So we have one more question -- we have time for one more question. [Operator Instructions].
Unidentified Analyst: This is Hiroka from NewsPicks, and I hope you can hear me. And I have a question about image sensor business. And on the profit [Technical Difficulty].
Hiroki Totoki: And in addition to this, and the fifth midrange plan, we expect the free cash flow to increase or improve, and this will become a positive factor. And as for the OLED factory buyback, which could potentially become the next growth driver after imaging sensor, well, still, this business is still small in scale, and I don't expect that to make a significant contribution -- the same level of contribution as the imaging bar. But with this, I think there will be an opportunity to go in take on new challenges and going into new devices. So we would like to take on the challenge for the mid- to long-term perspective.
Unidentified Company Representative: And now the time has come, we would like to conclude the Q&A session for the members of the media. The Q&A session for investors and analysts will start at 5:00 p.m.
Unidentified Company Representative: [Operator Instructions]. Thank you very much for waiting. We now begin the Q&A with investors and analysts. I will be serving as a moderator. I'm from IR division. These are the three presenters who will be answering your questions, the same as the presenters from the media session. [Operator Instructions]. From JPMorgan, Ayada-san.
Junya Ayada: I'm Ayada from JPMorgan. I have two questions related to midrange plan. The first question on Game. Mr. Totoki, earlier -- that for the next 3 years, the focused KPI will be software and network service in the game segment. So for these two areas, for the next 3 years, what kind of path or growth are you expecting? For example, in software, the play title will be at the juncture this year, but Concord and other live services were introduced earlier. Do you think that there will be growth in this area, and beyond the next fiscal year onward? AAA titles, is that what you are expecting highly. Similarly, for network, it's not clear how many members you can expect. But what is your view for the next fiscal year? The second question, you talked about the CapEx and the depreciation period will be 5 years. On the other hand, the strategic investment, especially the studio acquisition and other acquisitions, related return timeline, what is your view on that? Listening to your presentation, you said that in the previous 3-year period, the return on the studio acquisition can be gained in the next fiscal year -- next 3 years, excuse me. So what is the timeline? Do you think that there will be 3 years or 5 years to get the return from the investments? And are you going to keep that in mind as you make investment? That's the second question.
Hiroki Totoki: Thanks for your questions. First, the software and network service. Software, the first party and third party, that's how we should distinguish them. The third-party software, we believe that we are going to move along with the market growth. So we will grow in line with the growth of the market. That is at the center of our plan. As for the first-party softwares, for FY '25 and '26, the tentpole live titles and live services will be launched. So for FY '25 and '26, so this fiscal year is 2024. So in '25 and '26 fiscal years, the first-party soft-related revenue will be larger than this fiscal year. That is our expectation that's incorporated into this plan. And another point is about network service. So all in all, MAU growth -- versus the MAU growth, we believe that our growth will be linear to that. So unless MAU grows, then our segment grow -- business will not grow, but MAU is slowly growing. That is our understanding. So in the previous year, we announced the price increase and impact -- positive impact from that will begin. So the market, as a whole, software growth is one, but we believe that our growth will be stronger in terms of value. That is our rough idea. And next, on the return on our investments and our view on that is the following, so studio acquisition, basically, the first-party software lineup needs to be ramped up. So for this reason, we are making investment in the area, and we are continuing to develop this area. And originally, we expect a solid return, but whether we can gain the originally expected return or not has been validated. In the previous year's track record, IRR on the studio acquisition was relatively high, all in all. But the issue is that based on -- the return is not yielded based on the original expectation because slippages. The brushing up of the titles and also, the quality may not be as high as expected by the users. So we have to brush up the titles. So there has been more slippages than we expected at the beginning. So we have to factor them in. For the next 3 years' period, how effectively can we make our portfolio, build out portfolio, that's going to be important. That's all.
Unidentified Company Representative: We'd like to move on to the next question. BofA Securities. Hirakawa-san, please.
Mikio Hirakawa: Hirakawa from BofA Securities, two questions. First, about game. In game, per user base is to be made. So in the -- you will come up with a record high in the next midrange plan. Active user base is 118 million, exceeding 59 million. But PS4, PS5, third-party burden is there as well. Why is it that the way of where profit generated is going to be different from the previous cycle in order to realize record high profit? What are you going to focus upon? That's my first question. Second question, I&SS, a good impact of the larger size, I understand, but the share increase from 2020 in China other than , you have increased market share. The real semiconductor is there and high-end -- entered into high-end area as well. And the share expansion is -- in China or you have come to a plateau in China. Can you please enlighten us as to that point as well?
Hiroki Totoki: Thank you very much for your questions. Firstly, PS4, in my presentation, I talked about the growth during the PS4 and PS5 and the growth in that generation, I have explained in different ways. In the past, PS -- compared to PS4, the way profit generated is as follows, at the time of PS4, basically, network service was expanded. PS5, we continue with -- we succeeded the expanded base. So the launch pad is already high. And the cruising speed is going to become the cruising speed based upon that launch path. But in that -- what was difficult to forecast is the impact of COVID-19, and the tailwind. Game market, whether this will lead to increase in the game market or it's a temporary tailwind, there was a discussion back then as well. And then in addition to that, specific titles, live service titles, big hit was a tailwind. So it was very difficult to see the actual underlying trend. But what we are focusing upon now is what we call platform health, for instance, MAU play time. Whether these are stable or not and whether these are expanding, these are the important indicators, and number of data points are set, and we analyze the data and maintain platform health and healthy growth. That is the core of our strategy. Therefore, cumulative sales unit is 59 million units or plus compared to MAU. Still, about half of the people are -- this on PS4. So console generation overlap will be handled well, and MAU will steadily increase. We will be managing in this way going forward. And then I&SS. Now vis-a-vis specific customer in China, you are not able to sell unless you have a license. So with the technology, it is not a market where we can compete freely with the technology that we have. So it's very difficult to analyze competitors' movement. It's not that we are operating in a free market. So what we do is to try and increase our market share in the market where we can compete freely.
Unidentified Company Representative: Let's move on to Nakane-san of Mizuho Securities.
Yasuo Nakane: This is Nakane from Mizuho Securities. And I do have two questions about game. The first one is Bungee, the new title will be released in the next -- this year and the fiscal year, and that will be crucial. And in sales and profit, when are you planning to hit the breakeven? And also your cost, and I think which peaked last year, for the next 3 years and including this fiscal year, what sort of costs are you expecting spend? And then second question is the new August structures for game in Nishino-san and Atana-san? And then what are the what are the strengths that they have? And what are the key changes from their successors? And I'm sure they are going to talk about their resolution at the next meeting, but what's your expectation to -- from Totoki-san's perspective? And to sustainable growth and also margin growth, and there is a really productive comments about understanding that. So what sort of changes that led to these changes in the personnel? And if you could just talk about your perspective on this, that will be great?
Hiroki Totoki: So first, with regards to Banji, in FY '23, there's no profit contribution. And of course, we are developing new IP, new contents and this will become a really significantly large title. So we need to really carefully evaluate that. But in FY '24, and at this moment, we are not really expecting any contribution or profit contribution from it. But the development capability and then also operational capabilities, there will be significant contribution. And this upcoming release in July, and there's one title that we are planning to release in July, so we will take a wait-and-see approach and how that would b. And then also the recoupment of the cost of the acquisition. And currently, in the JPY52 billion based on the current exchange rate is expected. And this will gradually decline in phases. But for the -- in FY '23, the first half, of course, the costs will continue to be needed. Every year, there will be expected decline by 20% to 30%. And for the new org structure, the JPY52 billion is the acquisition cost that includes acquisition aside of Banji. And G&NS organization, and the reason why I picked these two individual, in platform business and in studio business, they have a really strong background and then talents and experience and then insights. And so what would be the expected changes under the new -- the organization. Now we have the two leaders at the top. And i.e. we will grow -- or has grown significantly in size and scale. And also the PS3, the business strategy and the need for that will continue to increase. So we need to be able to make sure that our decisions are made in a timely manner and a really granular manner. So that's why we have two leaders. And that's my expectation. And in both of them, we'll become a really excellent talent that will create the next generation of our business, and I have a huge hope and expectations for them. And also, and I made some really difficult comments previously, and to deliver a record high profit in the fifth MRP and now that we -- I was personally involved in SIE and I gained a firsthand experience and then connected a lot of people. And I believe that there are many talents in the organization. They are highly motivated. So -- and both of them will -- are quite motivated to deliver record high project. And I'm sure they are thinking a lot about this. And then from an objective perspective, and given the current situation, I don't think -- well, naturally, the record high profit can be delivered. That's all I have.
Unidentified Company Representative: Since the time is running out, we will take only one question by each questioner from now on. Now Ezawa-san from Citigroup.
Kota Ezawa: I'm Ezawa from Citigroup. So I will ask one question. Semiconductor, ROIC 10%, that's the plan for the new fiscal year. So from the profit plan-wise, the invested capital will increase to about JPY2 trillion. That is my understanding. So that's the plan for this fiscal year, but for the midrange plan, for the next midrange plan period, the capital invested may continue to be on the level of JPY100 billion increase on a yearly basis. Would that be the case?
Hiroki Totoki: Thank you for your question. The CapEx, I already explained that earlier. So the -- about 17% level of the fourth midrange plan will continue. As for the increase of the invested capital, basically, we have grown the sales significantly, which means that the business scale will grow as well. Accordingly, the capital invested will also increase naturally. The invested capital, the absolute value increasing is not the focus, but rather whether it is leading to the appropriate increase of the business as well as the margin increase, that will be the key focus, that will be more important. But of course, when we reach peak, then we will have to get return from the invested capital. So that's what we have demonstrated in the game business. And I believe that capital investment will become slower. So we will maintain the soundness of the financial status and maintain our competitiveness as we invest our capital to grow our business. That's all.
Unidentified Company Representative: Next will be the last person to ask question. SMBC Nikko Securities, Katsura-san, please.
Ryosuke Katsura: Katsura from SMBC Nikko Securities. One question. So about the capital allocation and the total payout ratio in the final year, 40% -- you are setting 40%. What is the background and your thinking behind this? In the past 3 years, what was the actual numbers in 3 years? And what is the background for coming to the target 40% total payout ratio?
Hiroki Totoki: Final year, the midrange plan, the 40% total payout ratio, as I talked about capital allocation later and explained at this point. For the next 3 years, operating cash flow will be increased, which will be the source for capital allocation. And the CapEx will not increase as much. And for strategic investment, we'll be active in making strategic investment. And rather, we will come to face where we'll be able to see results and we -- result from the investment made in the past. Hence, we'll be making a return to the investors, including but 3 years. Hayakawa-san could you please explain, give some supplementary comments.
Sadahiko Hayakawa: Thank you coming Katsura-san. Total payout ratio in the previous midrange plan, FY '21 was 19%, and 19% for FY '22. Last FY '23, JPY200 billion of buyback, included 32%. Totoki said operating cash flow will increase in the next 3 years, and also investment, we were looking at the efficiency of investment -- will be investment. But well balanced capital allocation will be done and strengthened return to the shareholders. Therefore, in FY '26, we are going to achieve 40%. That is the plan and the background of thinking in that way.
Unidentified Company Representative: With this, we'd like to conclude Sony Group Corporation's financial results announcement. Thank you very much for joining us today.
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