Unknown Executive: Thank you very much for taking time to join us today. We will now begin the Sony Group Corporation's Corporate Strategy and Earnings Announcement Presentation. I am [ Ishii ] from Corporate Communications. I'll be serving as MC. First, Hiroki Totoki, President and CEO of Sony Group Corporation will explain our corporate strategy. This will be followed by Lin Tao, who will present the FY 2025 financial results and the full year forecast for FY 2026. Please note that to ensure our international participants can hear from the speakers directly, the English version of the presentation will be delivered via a prerecorded video. Afterwards, we will move on to the Q&A session. The total duration is scheduled to be approximately 100 minutes. Totoki-san, please.

Hiroki Totoki: Hello, and thank you for joining us. Today, I'd like to share a brief update on Sony's business, our corporate priorities and direction as we enter the final year of our current mid-range plan. It has been a truly exceptional year for Sony since our last corporate strategy presentation, a year marked by strong performance and record results across many of our key businesses as we continue to focus and build on our creative entertainment vision. And we continue to evolve our business portfolio as we seek new opportunities for growth and meet new challenges in a rapidly changing market. Two years ago, we kicked off the current mid-range plan, highlighting the evolution of our business direction in entertainment, IP, content creation and real-time creation technology. And we launched our creative entertainment vision, our long-term vision, which seeks to leverage the power of technology to empower creators deliver new experiences across both physical and digital space and maximize the value of IPs. Sony's purpose to fill the world with emotion through creativity and technology is at the heart of our creative entertainment vision and is driving success and potential growth opportunities across our Sony Group businesses, including our GMS segment, whose PlayStation platform now hosts over 125 million active users around the world, who enjoy their favorite titles wherever they are and connect with their friend through game play. Sony's Music businesses, which have enjoyed tremendous success and growth through their efforts to nurture and build strong relationships with a growing roster of outstanding talent, digital streaming platforms and global audiences. Our Pictures business, which continued to produce and distribute strong film and TV content and serve as an important hub for cross-company collaborations such as miniaturization productions, film and TV adaptations of game IP. Our ETN segment is expanding its sports business by advancing offsetting technologies and high engagement initiatives and investing in athlete performance tracking solutions while inspiring creators by enabling high-quality innovative content production. And underpinning that creativity at this very core is the evolution of image sensors in our I&SS segment. We also have anime, which cuts across several of our businesses and remains an important growth sector for Sony and a key part of our creative entertainment vision. Sony's strengths come from the synergies and collaboration effort that exist across Sony Group companies and with our strategic partners spanning production, fan engagement, marketing and global distribution to deliver anime at scale to worldwide audiences. The explosive worldwide growth of anime is demonstrated by last year's massive global hit film, Demon Slayer: Kimetsu no Yaiba Infinity Castle, which was produced by Aniplex and our partners and the rapid growth of Crunchyroll. Crunchyroll now serves more than 21 million paid subscribers globally as an anime distribution platform with a library of more than 50,000 episodes, including many of the most popular and current series from Japan, subtitles and in 13 languages. In addition, we enabled expanding global fund participation in voting through MyAnimeList for the first time for the upcoming Crunchyroll Anime Awards through our partnership with Gaudiy. And this fall, Crunchyroll will host its first year Crunchyroll Annual Future Forum in New York, bringing together leaders across anime, gaming, music, film and emerging technology to strengthen relationships with Japanese publishers and creators globally. During this MRP, we also continue to shape our world portfolio. Last fall, we completed the partial spin-off of the financial service business. And in March, Sony Corporation entered into definitive agreement with TCL, forming a strategic partnership for BRAVIA TVs B2B flat panel displays, home theater and home audio components, strengthening the resilience of each of those businesses. All the while, we have continued to invest and lean into areas where we see ongoing growth and competitive advantage. Building on the strategic partnerships announced with Bandai Namco Holdings last summer, we are further strengthening our position in anime, an important growth sector for us in addition to other areas. Our recent agreement with WildBrain to acquire their stake in Ping Holdings increased Sony's ownership stake to 80% to expand its beloved and globally recognized brand and ongoing investment in music, following major deals to acquire the Pink Floyd and Queen catalogs, Sony Music Group recently announced a partnership with GIC, the Singapore sovereign wealth fund to further build our music IP investments. Together, these strategic decisions reflect the ongoing evolution of Sony Group's business direction towards entertainment, IP and creation technology, which now represents 67% of Sony's consolidated sales. Overall, it was a very strong year in terms of performance we will change direction on a few strategic initiatives, pivoting better pushing us moving forward. We decided to wind down our Pixomondo visual effects business and focus on new technologies. We downwardly revised our projections and recorded an impairment loss against long-lived assets at [Fung ]. And due to Honda's reassessment of its EV strategy, we discontinued the development and production of Sony Honda Mobility's Filer models. This strategic shift were made on the back of strong fiscal year 2025 performance to position the company for future growth. You will hear more details on each of these moves as well as our financial results from our CFO, Lin Tao, shortly. And now I would like to turn to the topic of AI. When we think about further growth at Sony Group, AI is one of the most important themes for us to consider, especially the potential it holds for us across Sony Group businesses to unlock new value creation and capture new opportunities for growth across our entertainment businesses. Let me start by stating a core principle that guides our thinking about AI. Human creativity must remain at the center. AI is a powerful tool, but it's not a replacement for artists or creators. It is an amplifier of human imagination and catalyst for new possibilities. Great content comes from deep personal experiences unique perspectives and a strong inner motivation to express something meaningful. [indiscernible] to such stories, characters and worlds that of a deep emotional connection. We believe the most memorable experiences will always be created by humans and enjoyed by people. AI can assist in that process, but it will not replace human imagination, creativity and emotions. AI brings new opportunities to the world of entertainment, not only in terms of efficiency, but in empowering creators to expand their creativity. Additionally, we believe AI will make it easier to take on more innovative and ambitious projects, projects that were previously difficult to pursue due to constraints of cost and time. For example, this shift represents a significant opportunity for PlayStation as a platform as more diverse and innovative content is created and overall game industry continues to evolve. PlayStation can connect more fans with more games, further strengthening its value. At Sony Pictures, we are scaling AI and other advanced technology across workflows to accelerate production time lines and increase output and have invested more than $50 million to date in AI capabilities across production planning, content protection, enterprise productivity, data analytics, innovation and 3D conversion. Sony Music is encouraged by the increased number of companies who agree that intellectual property rights need to be respected and therefore, want to negotiate licenses for new products with them. These partnerships will lead to business expansion that will also benefit consumers and creators. To drive such efforts, Sony Music is actively pursuing an industry-wide standard to label AI content for further transparency with consumers. Alongside our own efforts, we are currently engaged in a collaborative pilot initiative with Bandai Namco Holdings to explore how generative AI and the latest technologies can most effectively contribute to realizing a creator's vision in the realm of video production. Through these explorations, we have identified massive gains in speed and productivity per person as well as how to concretely address the shortcomings of generative AI based on the understanding of the strengths and weaknesses of the models. One example of the weaknesses is the lack of consistency and controllability, which is demanded by creators and those involved in production. We have accumulated know-how to resolve such issues by utilizing various AI models as well as fine-tuning models with technology and proprietary data to consistently generate output of intended style with accuracy and cost that will be necessary for deployment. On the other hand, we have also identified opportunities where AI can produce highly sophisticated and realistic outputs, which were not feasible before due to production time constraints. We hope to contribute to the overall growth of the industry through such collaborations and by combining Sony's expertise in audio, video processing, spatial and 3G technology with generative AI to create a creative first production environment that is safe and secure to use while maximizing their artistic sensitivity and output. Now I would like to introduce Hideaki Nishino, President and CEO of Sony Interactive Entertainment, to say a few words about how we see AI strengthening our efforts in one of our most important growth areas, games.

Hideaki Nishino: At PlayStation, our goal is always to be the best place to play and the best place to publish. We see AI as a powerful tool to help us in this mission. For our players, this will mean gaming experience like never before, more immersion, more adventures and fresh ways to enjoy their favorite characters. For our publishers, this will mean a more efficient production environment and a better discovery to ensure their games reach the right audience. AI is lowering the barriers to creation, accelerating the development cycles and enabling more creators to enter the market. As a result, we expect to see a meaningful increase in the volume and diversity of the content available to the players. Our platform's low will be critical in ensuring players find the right content in an increasingly crowded landscape. Our studios and their IP will also continue to be a key differentiator. When players have more choice, they will gravitate towards trusted franchises they know will deliver the high-quality experiences. Within our studios, game developers are automating repetitive workflows, improving software engineering productivity and accelerating areas like quality assurance, 3D modeling and animation through new AI-powered tools. For example, our teams created a tool we call [indiscernible], that quickly animates 3D facial model based on the performance capture. Importantly, we're not replacing human performers, but rather optimizing how we process the data from these live captures. With Mockingbird, animation work that would have taken hours can now be completed in a fraction of a second. We've already seen the teams at [ Noida ], San Diego Studio and other adaptive tool including in these titles like Horizon Zero Dawn Remastered. Another example is a tool we built for animating hair. This is often a labor intensive process given the volume of strands that must be created. Our teams have accelerated this process by taking videos of real hair styles and having an AI tool output a 3D model with hundreds of strand models. These practical applications allow our teams to spend less time on manual, high effort task and to instead invest their time into building richer worlds and game play for our players. AI tools in the hands of our teams will enable not only efficiency but also new types of experiences for fans. For example, Gran Turismo's AI-powered racing agent, Sophy, has added a level of competitive game play or even our most seasoned drivers. Taking this further, our world-class creatives have already shown the ability to create amazing prototypes where NPCs with their own personalities can create a living dynamic world for the players to explore. As AI capabilities evolve, the role of our creators will remain unchanged. The vision, the design and the emotional impact of our games will always come from the talent of our studios and performers. AI is meant to augment their capabilities not to replace them. AI is also already a part of our platform business. To take one example, over the last 3 years, AI-powered tools ensure the transactions were routed efficiently over the payment networks generating over $700 million of incremental revenue. We are building on this success with ongoing projects that will use machine learning to provide the best value possible to our customers. As AI brings more choices to players than ever, the value of our platform will lie in its ability to recommend and personalize at scale. We've already seen how AI models can outperform manual curation, and this will continue to improve. Our AI capabilities will evolve into a consumer-centric experience that not only suggests the next game a player might enjoy, but also the next game play moment subscription, accessory or merchandise that best reflects their passion. Beyond the store, our recently updated PlayStation Spectral Super Resolution available on the PS5 Pro uses machine learning to enhance image clarity, delivering 4K visuals at high frame rates. With PSSR, games like SAROS and Ghost of Yotei have never looked sharper. Through our investments in AI and machine learning, we will continue to push the [indiscernible] forward. We believe AI will unleash the creativity of our studios, power a more curated platform and enhance the PlayStation experience for both players and creators. With our global player base, deep library of IP and integrated ecosystem, AI is a powerful tool for us to deliver a truly cutting-edge entertainment experience.

Hiroki Totoki: Thank you, Nishino-san. I would like to now turn to our Imaging & Sensing Solutions, I&SS business. Sony's imaging sensors have evolved as electronic [ eye ] that accurately capture the real world, driven by our relentless proceed of fundamental advancement that go beyond competing on specifications alone. Our #1 priority is to deliver the best possible imaging experience for our customers. To do so, we scrutinize and optimize every aspect of the sensor from the pixel structure, stacking and layering technologies through to the [indiscernible] processes and final packaging. Sony possesses deep expertise cultivated over many years in analog domain spanning design, development and manufacturing together with our comprehensive ability to integrate and refine these elements as a whole. This is our competitive strength, and it's not something that can be easily replicated. Starting from our core mobile applications, we are developing higher density by advancing process technologies with enhanced fabrication precision, together with stacking technologies to further improve performance. At last year's corporator strategy presentation, I discussed our direction for pursuing growth in the I&SS business and improving profitability with a strong focus on financial discipline. As part of that effort, today, we announced the signing of a nonbinding memorandum of understanding with TSMC to form a strategic partnership for the development and manufacturing of next generation image sensors. Under the proposed partnership, we intend to establish a joint venture with Sony being the majority and controlling shareholder to set up development and production lines in Sony's newly constructed farm in Koshi City, Kumamoto. As part of our partnership, we intended to explore emerging new opportunities in fiscal AI applications, such as automotive and robotics, paving the way for future growth innovations and expanding technological advancement. I'd like to close today by addressing the technological and geopolitical disruptions which together have greatly impacted international supply chains and drastically upbranded traditional ways of doing business around the world. One such technological disruption is the current memory shortage, which is being driven by surging AI infrastructure demand and is impacting entire industries including gaming, smartphones, laptops, memory cards and other products. Our businesses are managing this issue very carefully. As I will be able to contain a negative impact of increased memory cost in the current fiscal year and is engaged in ongoing negotiation with suppliers to miss demand beyond the current fiscal year. In our I&SS business, while a volume-driven low-end smartphone market is impacted by the rising cost of memory, our main customer base and demand in the high-end segment remains strong. We will continue to monitor and proactively manage the situation and you will hear more about this in the upcoming earnings presentation. Looking ahead, we are optimistic about the environment in which we are operating and the strength and diversity of our businesses and employees in driving continued success for Sony. At the same time, we are very aware of the seismic changes taking place in the world in which we all live and work. With ongoing unrest in the Middle East and unpredictable shifting tariff pressures we are navigating a period of geopolitical complexity that present us with new challenges and uncertainty across market, partnerships and supply chains. In this environment, adaptability will be crucially important. We cannot rely on assumptions that have supported us in the past, and we remain ready to pursue innovative ways of finding growth in the future. Thank you. I will now hand the meeting over to Lin Tao.

Lin Tao: Hello, everyone. Today, I will explain the content shown here. Sales of continuing operation in FY '25 increased 4%, compared to the previous fiscal year to JPY 12,796 billion and operating income increased 13% to JPY 1,447.5 billion, both record highs. Net income decreased 3% to JPY 1,039 billion, primarily due to the absence of a decrease in tax expense from the dissolution of a subsidiary recorded in the previous fiscal year. The financial results by segment are shown here. When you look at the factors causing the change from our February forecast, for operating income. You can see that we recorded approximately JPY 190 billion in items not included in our previous forecast, including impairment losses on assets at Bungie and [ Pixel ] models as well as losses related to the downsizing of the business of Sony Honda Mobility. Excluding these items, operating income significantly exceeded our forecast overall, primarily due to an increased profit in G&NS and I&SS segment. Our consolidated results forecast for FY '26 is sales of JPY 12.3 billion, operating income of JPY 1.6 billion and net income of JPY 1.160 billion. We expect operating cash flow to be JPY 1.500 billion. The results forecast for each segment is shown here. Now I will turn to an overview to each business. First is the G&NS segment. In FY '25, sales were essentially flat year-on-year at JPY 4,685. 7 billion as the decline in PS5 hardware sales was offset mainly by foreign exchange rates and higher revenue from network services and third-party software. Operating income increased 12% year-on-year to JPY 463.3 billion and reached a record high for the segment, primarily due to a higher sales and the positive impact of exchange -- foreign exchange rates. Despite the impairment of assets at Bungie, excluding the JPY 138.4 billion in onetime items, operating income increased 45% year-on-year. For FY '26, we forecast sales of JPY 4,420 billion and operating income of JPY 600 billion. Compared to the result of FY '25, excluding onetime items, this operating income forecast is essentially flat year-on-year. That is because we have incorporated an increase in investments of the next-generation platform in the FY '26 forecast. Excluding these factors, we expect steady double-digit growth in the profit generated by our current business. The number of monthly active users across the PS platform in March increased 1% compared to last March to 125 million accounts, a record high. And total play time in the fourth quarter ended March 31, 2026, increased 1% compared to the same quarter of the previous fiscal year, with user engagement remaining solid. Cumulative PS5 unit sales as of the end of March exceeded 93 million. This expanded installed base contributed to stable profits from software and network services. We plan to base our PS5 hardware sales in FY '26 on the volume of memory, we can procure at reasonable prices and we expect hardware profitability to be essentially the same as FY '25. If circumstances change going forward, we plan to manage the impact on profitability by flexibly adjusting among other things, unit sales and promotional plans. In our studio business, earnings from Bungie's title portfolio did not reach our expectations. So we downwardly revised our business plan and impaired the full amount of the fixed assets related to Bungie except for goodwill. Player receptions to Marathon is strong, with the game receiving a metacritic score of 82 and more than 90% of the player review on Steam being positive. Engagement metrics such as retention also remain at a high level. Going forward, we aim to improve the performance of the game by working to retain highly engaged core users through the introduction of additional content, further improvements in the game play experience and expansion of the user base. We have many appealing first-party titles scheduled in FY '26, including SAROS released in April and Marvel's Wolverine slated for release in September. We expect the contribution to earnings of first-party titles to exceed FY '25. Next is the Music segment. In FY '25, sales increased 15% year-on-year to JPY 2,120.1 billion. Operating income increased 25% year-on-year to JPY 447 billion, primarily due to the impact of the higher sales and the revaluation gain recorded in connection with the acquisition of an additional equity interest in Peanuts Holdings, even when excluding these onetime items, Operating income reached a record high. For FY '26, we forecast sales of JPY 2.140 billion and operating income of JPY 400 billion. Excluding onetime items, we expect the amount of operating income to be at the same level as the previous fiscal year primarily because growth in streaming revenue is expected to be offset primarily by the absence of the prior fiscal year hit title, Demon Slayer: Kimetsu no Yaiba The Movie Infinity Castle. In FY '25, U.S. dollar basis streaming revenue increased 9% year-on-year in recorded music and 14% in music publishing. We expect the mid- to long-term average growth rate of the music market to be in the mid- to high single digits, and we intend to continue to invest in high-quality music catalogs going forward with the aim of growing stable earnings. Due to the release of Michael, a biopic about Michael Jackson Sales at SMG have increased due to a significant increase in streams of music by Michael Jackson, whose music catalog SMG jointly owns. We expect that streams in other countries will also increase as the film is released theatrically around the world, including in Japan. Next is the Pictures segment. In FY '25, sales were essentially flat year-on-year at JPY 1.993 billion. because lower revenue from theatrical release films was offset primarily by increased Crunchyroll revenue resulting from higher paid subscribers and the hit Demon Slayer. Operating income increased approximately 13% year-on-year, excluding the impairment losses on the asset of [ Pixel ] model, which operates VFX and virtual production business and related shutdown costs. However, including these factors, operating income decreased 11% year-on-year to JPY 104.9 billion. For FY '26, we forecast sales of JPY 1,630 billion and operating income of JPY 145 billion. At SPE, we are continuing to work to create and strengthen franchises by adapting appealing fan-supported IP into films. Recently, SP and PlayStation production announced the film adaptation of Bloodborne game IP owned by SIE and preparation of the film adaptation of Helldivers have begun. In addition, we plan to release Spider-Man: Brand New Day in July 2026 and Jumanji: Open World in December 2026. The trailer for Spider-Man released in March surpassed 1 billion views in the first 4 days after its release, a record high in the film industry, reflecting exceptionally strong anticipation from fan worldwide. Next is the ET&S segment. In FY '25, sales decreased 6% year-on-year to JPY 2,265 billion, and operating income decreased 17% to JPY 158.6 billion, mainly due to the impact of lower sales. For FY '26, we forecast sales of JPY 2,250 billion and operating income of JPY 150 billion. Market conditions in Q4 trended essentially in line with our February forecast despite geopolitical risk in various regions and concerns about a macroeconomic slowdown. The financial results for the segment and our inventory level were also essentially in line with our forecast. In this segment, we expect to contain at approximately JPY 30 billion, the impact of the increase in memory prices on our FY '26 forecast through procurement, design and sales actions in various regions. If memory prices deviate from our current assumptions going forward, we aim to maintain profitability by flexibly adjusting our sales strategy with an eye on foreign exchange rates and the competitive environment. At the end of March, Sony entered into a definitive agreement with TCL regarding a strategic partnership in the home entertainment field. Based on the memorandum of understanding we signed in January, the definitive agreements codify, among other things, an outline of a new JV that will operate the business, the business domain covered by the JV, the enterprise value of the business in question and the consideration to be paid for the transfer. The JV is scheduled to commence operation in April 2027, and we have incorporated approximately JPY 20 billion of expenses in the FY '26 operating income forecast, including project implementation costs necessary to execute the partnership, system migration costs and personnel-related costs. Excluding the impact of these expenses and the impact of memory market conditions I mentioned earlier, we expect FY '26 operating income to improve across our business. led by the imaging business. Last is the I&SS segment. FY '25 sales increased 20% year-on-year to JPY 2,051.5 billion, mainly due to higher average selling prices and higher unit sales of mobile sensors. Operating income increased 37% year-on-year to JPY 357.3 billion and reached a record high, primarily due to the impact of the higher sales despite the recording of onetime restructuring costs, including losses on the sales of our equity interest in an overseas subsidiary and asset impairments. In FY '26, we forecast sales of JPY 2,070 billion and operating income of JPY 400 billion. In Q4, the impact of memory market conditions gradually became more apparent in the smartphone market, especially in the low end but our mobile sensor sales exceeded our forecast, primarily due to strong shipments to our major customer. In FY '26, we're taking a cautious view of the growth of the sensor market due to our view that the trend towards larger-sized sensors for smartphones will moderate. And the uncertainty regarding the impact of memory market conditions will remain. As a result, we have incorporated into our FY '26 forecast a slight year-on-year decrease in the overall sales of mobile sensors. Given this operating environment, we plan to emphasize efficiency when managing our business in FY '26, including through fixed cost control and yield improvements. In FY '25, Q4, we increased our effort to address low profitability business compared to our initial plan and we have reflected the benefit of those efforts in our FY '26 operating income forecast, which is essentially flat compared to the previous fiscal year if restructuring costs are excluded. In our next mid-range plan period, we expect sales of this segment to return to growth, driven by a renewed acceleration towards larger-sized sensors. During FY '26, we intend to establish the infrastructure necessary to support this growth, and we plan to make thorough preparations. As explained earlier by Mr. Totoki in the corporate strategy part, Sony and TSMC have today entered into a memorandum of understanding to pursue a strategic partnership for the development and manufacturing of next-generation image sensors. This partnership aims to significantly enhance the future technological competitiveness of image sensors, including through increased density, by combining the advanced design expertise of Sony, a leader in the image sensor industry and the process and manufacturing technologies of TSMC which boasts the world's largest semiconductor production scale. From a financial perspective, we believe that this partnership will improve the cash flow of the I&SS business, reduce invested capital and improve profitability by lowering investment in production facilities and mitigating equipment procurement costs. Furthermore, we anticipate that this partnership will increase the flexibility of our capital allocation across the Sony Group. Now I will explain the impact on our consolidated results of the discontinuation of the launch of Sony Honda Mobility's EV model and the downsizing of the business, which we announced in March. As a result of the discontinuation Sony Honda Mobility expects to record additional losses in FY '25 and FY '26, resulting from items such as asset impairments and compensation payments to business partners. We account for Sony Honda Mobility under the equity method, and we recorded an additional JPY 44.9 billion loss in all others in Q4 based on our share of the business. We have incorporated JPY 30 billion of additional losses in our FY '26 results forecast. But a portion of that amount is expected to be offset by a decrease in running costs due to the downsizing of Sony Honda Mobilities business. In FY '25, the G&NS Music and I&SS segments. The profit growth driver of Sony Group achieved record high profits and business momentum remained strong. In FY '26, we expect the profit-generating capability of each of our business to further improve compared to the previous fiscal year despite the uncertain business environment. And we think that we have been able to demonstrate the high level of resilience of our business portfolio. Finally, I will explain the progress of our fifth mid-range plan. The group-wide financial targets under the current mid-reach plan are an average annual consolidated operating income growth rate of 10% or more and the 3-year cumulative operating income margin of 10% or more. Based on the FY '26 operating income forecast presented today, we expect the average annual operating income growth rate to be 16% and the 3-year cumulative operating income margin to be 11.7%, both exceeding our targets. Regarding capital allocation for this mid-range plan period, we revised our forecast for 3-year cumulative operating cash flow, our primary source of funds from JPY 4.8 trillion to JPY 5.7 trillion considering the previous fiscal year results. In the mid-range plan, strengthening shareholder return is one of our key initiatives. So we plan to allocate the additional capital primarily to higher shareholder returns. For FY '26, we have established a share repurchase facility of JPY 500 billion. We also intend to accelerate the pace of dividend increase, raising the annual dividend amount JPY 10 from the previous fiscal year to JPY 35. This concludes my remarks.

Unknown Executive: That was the presentation from Totoki Nishino and Tao. The media Q&A session will begin at 4:55 p.m. and the investors and analysts QA will begin at 5:15. Each Q&A session is scheduled to last approximately 20 minutes. [Operator Instructions].

Unknown Executive: We would now like to begin the Q&A session. Those on stage are Hiroki Totoki, President and CEO. Lin Tao, CFO, Corporate Executive Officer. Hirotoshi Korenaga, Senior Vice President in charge of Accounting. Naoya Horii, Senior Vice President in charge of Corporate Planning and Control. We will take questions from the media. [Operator Instructions] [ Yoshida-san ], please ask your question.

Unknown Attendee: Yes, I am Yoshida from Nikkei. I have 2 questions. The first question about the establishment of the joint venture with TSMC, which was just announced in the equity market, the low synergy with the entertainment area. So the possibility of spin out has been pointed out. But Sony, so this MOU agreement is based on Sony being the major or controlling shareholders. So I would like to hear the background. And I would like to hear from Totoki-san about the stock prices. So with the surge of the semiconductor memory prices and not seen as an AI title, the stock prices have been going down these few days and the stock prices have not really made a rebound. But based on what you have just explained, do you think you now have a good explanation to the market?

Hiroki Totoki: Thank you for the questions. About the joint venture establishment with TSMC, our I&SS business, the possibility of spinning that out, we have never talked about that openly, though that was a speculative story. So what we have been saying about I&SS is this burden of CapEx to reduce the burden of CapEx and increase profitability at the same time need ingenuity. And I have been saying that a number of times. And last fiscal year, I talked about the fab-light strategy, which we want to pursue. And the JV with TSMC is the first step towards this fab-light strategy. Up until now, I we have been an [ IDM ] doing the -- from the development and research of image centers to the fabrication. But in the future, we want to work with partners in the manufacturing of fabrication. So that's why we have signed this MOU with TSMC. And so what we announced today is in alignment with what we have been saying until last year. The second question, about the share prices. Rather than being unique to Sony, I think this is -- really pertains to the entire sector. First is the shortage of memory. So that's why growth is really -- might be inhibited. And also, there might be a deterioration in the cost structure. So that is the first point. And with the advancement of AI, generally speaking, the entertainment industry -- content production become easier with AI, leading to an increased number of content in the market. So people will be -- we will be taking -- competing over the user's time -- so maybe the enter time -- so there might be anxiety that the entertainment business cannot grow as before. What we have explained today explained our stance towards the situation and what we are working on and what we have achieved so far. So we have given the direction. Having said that, AI itself will continue to grow very quickly, and I think new business models will also come up. And we need to be able to respond flexibly to the developments. What -- how the market sees us is not -- the market perspective is not something that we can change by ourselves. But as we have been doing up till now, we will try to give a highly high resolution and high quality information. Thank you.

Unknown Executive: So you'll take the next question. From [ NHK, Tamura-san ], please.

Unknown Attendee: And for myself, I'd like to ask about the business you have in the United States. And you had alluded to about the adaptability from the CEO, Totoki-san. So in the United States, there has been the tariffs. So 10% tariffs, it has been decided that it is illegal so that in the United States, there is uncertainty regarding the direction of the tariffs. So about the Trump administration's tariff business, how do you see it? And especially after this court judgment about the tariffs.

Hiroki Totoki: Thank you for the question. And as you have alluded to, so this reciprocal tariffs, yes. So the stance for that and how do we see into the future? It's quite difficult to say, and the uncertainty has increased. But from our side, we can say that our external activities about the intelligence and we do as early as possible to get the accurate as possible information and so that we can have the first insight into the future. And then we will take quick action, and we repeat such response. And having said that, even if we foresee the assumption is that is only for the short term and it changes quite rapidly. And that is the geopolitical situation that we are in now. And so as much as possible that we would do what we will not be too much decided by what we think is right now, but we'll be quite flexible in getting to this issue.

Unknown Executive: Next question, please. [indiscernible] business, [indiscernible], please.

Unknown Attendee: Two questions. At the joint venture with TSMC. Well, I think that the logic will be TSMC and others. And Sony, it will be doing the images, and Sony will be finishing up. But the [ Pixel ] part, I think that your capability differentiating capability would be the image capability. But I think that you have been constantly talking about the difficulty of having very precise images and fabrication precision. But with joint venture, I think is there not such concern that this will be a challenge? And what is your expectation towards the joint venture? Is it financial expectation or others? That's my first question. And the second question about AI and the increase in content, and it will be a race against others in terms of capturing the users' time. And so LBE and other entertainment experience, I think that this in itself is also important in terms of capturing the users' time it's not just LBE but other new entertainment experience. What is your take on this currently?

Unknown Executive: Well, about the joint venture with TSMC. Well, up until now, we have been doing the pixels and TSMC was doing the logic. But the pixel part, well, about the pixels, too, I think that this requires development capability and process technology. So these are 2 separate things. Well, like IDM, we have tried to integrate this horizontally, vertically. But with this TCMC joint venture, what will be strengthened is that we'll have the world's top-class semiconductor process technology. So because of TCMC's capability, I think this will be a major evolution on our part. And another thing is that as a result, there will be a greater scalability towards the future. Well, image sensors, in order to supply image sensors in the past, we had to rely on the supply capability of our fab. So this was a limiter. But in addition to mobile image sensors, physical AI, the sensors will be playing a major role in physical AI, too. So considering this future demand, we have to prepare ourselves. And therefore, this joint venture will have great significance on this front. But TSMC also has this expectation towards future demand and capturing future demand through this joint venture. And the financial impact is there, but on the one hand, but with TCMC, we want to secure a solid position as the #1 sensor supplier. And so please understand that this is what we're aiming towards. And another about the competition of trying to capture the users' time with the increase in entertainment content. LBE is a new entertainment experience, engagement. fun engagement will be deepened as a result of LBE. And the technology needed for this and the business model required is being promoted right now. And we are doing experiments, POC on this front. And other -- we are entering into partnership with different companies to promote this business model. That is the current status. Thank you.

Unknown Executive: We would like to move on to the next question. [ Nishita-san ].

Unknown Attendee: I have 2 questions. The first question about Sony and Honda. So this is depreciation based on the equity method. So this business will be changing due to Honda. So do you intend to ask Honda to bear more burden -- and about -- next is about memory shortage. There won't be -- there will be a big impact on gaming consoles. And for the entire industry, I think there might be a problem with supply because the game consoles prices are going up. So maybe the PS5 will be fine. But looking at the coming 1 to 3 years, the gaming console prices, how would that be impacted? Would you give us a breakdown on that?

Unknown Executive: Thank you for the question. About the first question about the joint venture of Sony Honda -- of course, the revision of Honda strategy was one big cause for this. However, the electric vehicles, the environment surrounding the EVs have changed, especially in North America, and we fully understand that. So the 3 companies discussed on who will be burdening what. So we made this comprehensive decision. So we don't need -- HSM will not be claiming for any more damages to Honda. So the numbers that we have told you today are definitive, more or less definitive. And about your second question about the memory shortage, -- of course, the memory prices going up would increase the cost of the BOM. So the cost of manufacturing will go up. And if that leads to passing on price -- cost to prices, there would be a big impact on the gaming console prices. And as we explained earlier, for calendar year 2026, the necessary volume has been secured. And another point and about the -- and we have, to a certain extent, agreed on the price itself. So the console prices and promotion profitability. So we would like to strike a balance on our promotion with our promotion budget, and that cost is already factored in. About the upcoming generations, future generations, gaming consoles, we have not yet decided on at what timing we will launch the new console at what prices. So we would like to really observe and follow the situation. The memory prices, looking at the current circumstances, the memory prices is expected to be very high also in FY '27 because there will still be a shortage in supply. So under that assumption, what can we will like to think about -- think carefully what we can do. The -- how can we reduce the other costs of the hardware other than the semiconductor. And also, we might think of new ways of selling the product. So we would like to think about -- we will do various simulations, including changing business models to come up with the best solution and strategy. But having said that, even under this situation, we have 125 million active -- monthly active users enjoying games on our platform. So that itself is growing. So it's not that the demand has gone down. So I think we can think of ways to get through this.

Unknown Executive: Yes. So due to a limited amount of type, so the next person would be the last question. From [ Televio Goa from TV Tokyo].

Unknown Attendee: Yes. My name is [ Goto ] from [ TV Tokyo ]. I'd like to ask Totoki-san the CEO, so that the price increase, so the PlayStation 5, you said that it is fine that you're not going to have the price increase. That's the first question. And the second question is about the expected business results. So there is uncertainty in the geopolitical situation, but you would have the record high net profit. So how do you assess the risk in the background? So what kind of assumption do you have in order to make that record high net profit?

Hiroki Totoki: Thank you for the question. And about PS5, as we have said, we had just had the price increase so that for the next price increase, we don't have that in plan. And we would keep this current price so that we would manage the business based on this current price. And about the expected business, the uncertainty about that in geopolitical sense, yes, in a geopolitical sense, we have several factors that are uncertainty, but we have the best estimation so that we would manage risk so that we would keep the forecast that we have -- we intend to make and in various ways so that we evaluate risk and we have policies against risk so that for the next year and this year also that we have the record high profit, keep on having the record high profit.

Unknown Executive: It's now time to end the Q&A for the media. For the investors and analysts, we would start at 17:15. [Break]

Unknown Executive: We'd now like to begin at the investors Q&A session. I am [indiscernible] from IR. I'll be emceeing this session. Those onstage remain unchanged. We will begin the Q&A. [Operator Instructions]. BofA Securities, Hirakawa-san, please.

Mikio Hirakawa: Hirakawa from BOF Securities. Two questions. So first about AI. econd is about mobility. First, AI as you've explained, we've got to understand that platform will become more important in AI. And I think that this will appeal to people's emotion. But for other areas like the piracy, might be piracy, but people who can enjoy to a certain extent with AI, such a market will exist. And Disney, well, they dissolve this, but they try to monetize with AI players. And at Sony, especially when it comes to AI, is it a possibility that you try to monetize by tying up with AI? What is your position currently? That's my first question. The second question about mobility business. In this mobility business, as Totoki-san has said, in the U.S., the environment surrounding EV vehicles has changed significantly. And from smartphone to mobility, I think that this is still effective. And in the future, well, [indiscernible] be discontinued, but I think there might be future opportunities. And this Sony Mobility, this experience, how can you leverage on this going forward?

Hiroki Totoki: Well, about your first question. I'm using AI what kind of monetization can we do? Well, we, on our part have been undertaking different initiatives. On this front, we need to think about partners and it might be difficult, and there might be pushbacks for us to reveal everything that we're doing to our partners. And therefore, we have to be careful in addressing this issue. Therefore, for example, like Disney, tying up with AI players and monetizing. Well, if you ask if we are not thinking of any such things well, we understand that there are different options available but it's not a specific player that we have in mind. But instead, we are thinking of different types of AIs that can provide service. We want to tie up with different types of AIs going forward. Now if we specify a specific player to work with, it might be appealing to a certain extent. But on the other hand, this might confine our action. We want to have a good balance. That is our current thinking. About mobility. As you say, our biggest challenge is STV, software-defined vehicle. The way of producing cars has changed significantly. And what can we do in this context? What's the motivation to start this joint venture? Autonomous driving will become possible in the future. Then the indoor of the vehicle will have a value as an entertainment space. So we wanted to do different experiments to this end. The knowledge we acquired here is valid. Well, the way of making cars, well, it's not a distant future, but I think will change significantly. And the users' demand will also change. Therefore, the people who have acquired this experience with -- between Honda and Sony, they will return to their companies, and we want to leverage this talent and think about how we can use this asset that we have with us. I think that the people who have gone through this experience should be actively leveraged within our group. I want them to play an important role within our group. And in the future, in various ways, we want to engage with mobility. That is all. Thank you.

Unknown Executive: We would like to now move on to the next question. JPMorgan Securities. Ayada-san, please.

Junya Ayada: This is Ayada from JPMorgan Securities. I also have 2 questions. The first question is about game and network service. What is the long-term growth upside? What is Totoki-san's view on the growth upside of game and network service? So profit is going up, but maybe the MAU is struggling to grow. And also, the first party is also fluctuating year-by-year. So if the profitability is to increase in the long term, what are the factors supporting that? Do you think MAU will still grow in emerging countries? And also, as you said in the presentation, if the platform engagement goes up with AI, maybe that would increase the ARPU. Or are there other things you can do in the first-party game area? So please tell me about the upside of gaming. And next is about catalog investment on music business. Compared to other major players, you have been very active in investing in music catalogs. In the catalog investment market, AI, there's a risk of AI-generated music. So this trading market, the valuation of the catalog in this market, so what would be the impact on that? If you have any take on that, please share with it. Is the valuation going up or down? Or is there no impact here? And based on this, you also told us that you will be actively investing in catalog going forward. Would there be -- with AI -- spread of AI give an impact on your stance on this investment.

Hiroki Totoki: Thank you for the question. About the first point, the long-term future upside of Gaming and Network Services. So that was a long-term question. So I would like to explain from the perspective, long-term perspective. Myself, I believe we need an evolution in the gaming content. Maybe -- so I think there's a high possibility that AI will bring about this evolution. Why I think so? The gaming industry is becoming very mature. And the large portion of the market share is really relying on large franchises of major publishers. Before COVID, I thought it was Fortnite, came into the market. This was a large-scale live service game. So that was a very innovative event in the industry. For the entire gaming industry, Fortnite was certainly a tailwind. For the entertainment market, innovativeness, the niceness is novelty is extremely important. And when we talk about large franchises, they are spending like JPY 50 billion on AI, and they will be developing games, and this will take 5 to 6 years the number of titles will be limited. So it will be very risk -- so it's very difficult to take risk. However, if the bar goes down, there will be more possibility of new games coming up. So that would lead to the industry becoming more active. Of course, there's a flip side. There might be some disruption. So that might be a concern, too. But this new wave and innovation, I think, will lead to the further expansion of the market. This is what I believe. So how can we grasp this opportunity? And what kind of -- and what kind of business model should we develop to respond to that? So really grasping this opportunity is something that we need to do, the most important thing. About your second question about the music catalog. The GenAI, the AI-generated titles have come into the hit chart. But the percentage overall percentage of AI-generated music is still very low. When we talk about catalogs, for evergreen catalogs, we don't think the prices of evergreen catalog titles are going down. So they are still very popular as investment targets. The pieces -- music pieces generated composed by AI, would they compete against evergreen catalogs? I don't think that is really conceivable. The reason being, the evergreen catalogs are based on individual experience. So they are really listened to for a long period of time, and these listeners go to live music performances and that is something which AI cannot offer by itself. However, AI's advancement is extremely fast. So we need to be able to respond very flexibly to such changes. What kind of business model should we develop so that we can increase our resilience. And maybe you remember that at one time, there was a strong focus on distribution. And music DIY platform for distribution was really debated very actively. Back then, the label service were seen to be to -- seem to disappear. So that's seen as this intermination, but that has not happened. And back then, we acquired a DIY platform company while holding a label service, we were building such platform at the same time. And through -- and the insight this offers is very important. So what business model -- so not only protecting the existing businesses, we need to really go and grasp the new opportunities. Thank you. That was all.

Unknown Executive: So next question. From SMBC Nikko Securities, Katsura-san, please.

Ryosuke Katsura: Yes. This is Katsura from SMC Nico Securities. So I have 2 questions about capital allocation and SMS. So first about the capital allocation. Well, the strategic investment in the 2 years' time, what has been the level of strategic investment? And in the environment, how do you see that in the entertainment business or the multiple is going down across the industry, but there is another view that there is opportunity, but your stock price is going down drastically. So the capital allocation is going up, but CFO also has said that, that is going to be given back to the shareholders. So how do you think about that? That is the first question. And for the mid-range plan, this is the last year of the mid-range plan. So that from yourself, can you tell about what you think for the next mid-range plan? So the second SMS and TSMC joint venture. And so from the [ METI ] announcement, JPY 80 billion investment subsidy. I think that was the number. And for the semiconductors, the business surrounding the semiconductors is a national security kind of a challenge and against such background. So how do you think about that? And with the TSMC, you have the joint venture and the -- I think it is a good combination for gaining up the share, but the profitability. So you have not gone past the past peaks. So in the mid- to long-term range, how do you think about it? That's the second question.

Unknown Executive: Thank you very much for the question. And about the capital allocation, so CFO Lin Tao would answer, and then I would follow up with that. And about the second question, I will be answering that. So okay. So I'll ask CFO, Lin Tao, to answer.

Lin Tao: About the strategic investment in the midrange plan, so JPY 1.8 trillion frame has been set. And as of now, so they already decided about JPY 1 trillion, a little bit over JPY 1 trillion level. We had already implemented. So JPY 1.8 trillion, a strategic investment frame, we have not changed that, and we are giving back to the shareholders so that the capital allocation the operating cash flow, the capability is higher now than the past. So that for the -- we are having the strategic investment, but we can also give back to the shareholders. return to the shareholders. I think we have that kind of power now.

Hiroki Totoki: And all right. So about the next mid-range plan, how do we think about it? So the next mid-range plan. Well, we are now working on that. So I don't think we can say anything in a concise way, but about the geopolitical we had discussed. But those conditions change very rapidly so that we cannot say anything certain now. But one thing we can say is that until now, we had implemented various investments and how we had varied results and went well, some well. And from these results, we can have the lessons learned, and we would have the rational price. So for those investments that we like to continue it. And based on that, if we can have free cash flow that generated that is our mission to generate more free cash flow, having invested in the strategic areas and then to return to our shareholders. And about the joint venture and in the geopolitical situation about the national security and economic security. With TSMC, so in Japan, TSMC is having the attractiveness to expand in this country, Japan. So that's how I see it. And from that kind of a perspective and also in the extension of that perspective, I think this joint venture had come about. So as you have understood, TSMC is not a company that likes to have joint venture and TSMC would like to control themselves. That has been their style up until now. And in various ways, so the joint venture that we have with us is giving us various opportunities. And for TSMC as well, it's going to be a big challenge. That's how I see it. And at Sony, we would like to take this opportunity to have a fruitful outcome. And about the ROIC, it's good, but the profitability is not so good. Was that your question, but then -- so the fixed cost or the variable cost, I think that's the difference. And well, I think with the variable cost, then the margin will go down, that is right, as you have said, but the risk would go down as well. So in -- since it's a trade-off, but in this trade-off, to have the optimal answer. And as a total, we want to not squeeze the margin, but to get lessen the burden of investment. So that's the basic way of thinking from us. Thank you.

Unknown Executive: We are running short of time. The next question now will be the last. [Operator Instructions] Nakane-san from Mizuho Securities.

Yasuo Nakane: Nakane from Miso Securities. One question, right. Well, about your activities to improve operation. For example, about R&D, last time, it was JPY 760 billion versus JPY 700 billion this fiscal year. So what is the change? And how are you trying to optimize? Can you explain? And also, I think that in the different business segments, similar things are happening. For example, pictures ROIC is low and also game where the demand environment is changing. I think operation optimization is being carried out. But it's difficult to see from outside. It would be the [ SGM ]. Any improvements that you see and what you would like to do going forward? And any typical examples that you can share with us, please?

Hiroki Totoki: Thank you. About R&D expenditure. Well, that is the question that you've asked. But we have to think about the R&D teams from a cyclical point of view. The environment is changing our business direction is changing. So in line with that, R&D needs to change, to be aligned. I think over the past 2 years, we have focused on this and is scrutinized what is being done. And as a result, even if we take on a long-term perspective, this R&D, we saw that competitiveness could not be maintained or we did not see an exit from this group. So for such items, we tried to review. And based on that, we have put together next fiscal year's budget. So please take it as is. This is a result of scrutiny. And also, the different initiatives being taken at the low ROIC business. What we're going to do about that? Well, we do have discussions to that end -- but within different business and industries, it's difficult to just compare based on ROIC. So if you compare yourself to other companies, we could say that our ROIC or margin is inferior. And if we see that, that is the case, we understand we have to take measures. For example, structural reform. We have not made announcements, but in different business segments, we are constantly carry out structural reform and we overall try to maintain our competitiveness and boost our profitability. As for KPIs, it's difficult to say, but as for ROIC, for each segment, we have the ROIC numbers. So this has been disclosed. I hope that you refer to those numbers. That is all. Thank you.

Unknown Executive: Thank you very much. As I first said, we would like to thank you for taking part in our presentation today. Once again, thank you very much for your attendance. [Statements in English on this transcript were spoken by an interpreter present on the live call.]