Ladies and gentlemen, it's time to start this meeting to announce the earnings results of Sony for fiscal '17 in Q4..

Executive Vice President and Corporate Financial -- Chief Financial Officer, Hiroki Totoki; and Corporate Executive and Corporate Planning and Control and Accounting, CIO, Kazuhiko Takeda; and Corporate Executive in charge of Finance, Atsuko Murakami..

Today, Mr. Totoki will give you the results for fiscal '17 on a consolidated basis and also present to you the forecast for fiscal '18, and then his speech will be followed by questions and answers. And altogether, we'll be spending 45 minutes..

With that, Mr.

Totoki, please?.

I am Hiroki Totoki. I assumed the role of CFO as of April 1. It's nice to meet you all. .

Today, I would like to explain these 2 topics in the next 15 minutes. Fiscal '17 consolidated sales were JPY 8,544,000,000,000, an increase of 12% year-on-year, and consolidated operating income was JPY 734.9 billion, 2.5x that of the previous fiscal year..

Net income attributable to Sony Corporation's stockholders was JPY 490.8 billion, 6.7x that of the previous fiscal year. As a result, we were able to achieve the financial targets that we set at the Corporate Strategy Meeting in February 2015 of JPY 500 billion or more operating income and 10% or more of ROE in fiscal '17..

As we announced earlier today, the fiscal '17 year-end dividend will be JPY 15. Combined with the JPY 12.5 interim dividend already paid, the full year dividend amount per share is JPY 27.5. .

As is shown in this slide, there are several extraordinary items included in the operating income for fiscal '16 and fiscal '17. Excluding these items, operating income would have increased at JPY 237.6 billion, an increase of 50%..

This slide shows the results by segment for the full fiscal year. .

Next is the consolidated results forecast for fiscal '18. Consolidated sales are expected to decrease 3% year-on-year to JPY 8,300,000,000,000, and operating income is expected to decrease 9% to JPY 670 billion.

In addition, due to the public listing in April of Spotify, a portion of which shares are owned by one of our group companies and the sale of approximately half of the shares we owned from the listing date until now, we expected to record an approximately JPY 100 billion gain in Other income, including both the unrealized valuation gain and realized gain, net of related expenses.

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Net income attributable to Sony Corporation's stockholders is expected to be JPY 480 billion. Assumed ForEx rates are JPY 105 to the U.S. dollar and JPY 125 to the euro.

We estimate that the year-on-year negative impact on the operating results of the 5 electronic segments resulting from these ForEx change will be approximately JPY 38 billion, primarily due to the depreciation of emerging market currencies..

The fiscal year forecasts for each segment are shown on this slide. .

Now I will turn to the situation of each of our businesses. First, I will talk about the Game & Network Services segment. Fiscal '17 sales increased 18% year-on-year to JPY 1,943.8 billion, primarily due to an increase in PS4 software sales. Operating income increased JPY 41.9 billion to JPY 177.5 billion, primarily due to increase in sales..

We expect sales in fiscal '18 to decrease 2%, primarily due to a decrease in the unit sales of PS4 hardware, but we expect operating income to increase JPY 12.5 billion to JPY 190 billion, primarily due to an increase in sales of PS4 software. .

From today, we started to disclose the new information shown in this slide in the Supplemental Information for the consolidated financial results available on our IR website..

Next, I will talk about the Music segment. Fiscal '17 sales increased 24% year-on-year, and operating income increased JPY 52 billion to JPY 127.8 billion. This increase in operating income was primarily due to the continued strength of the mobile game application, Fate/Grand Order, and an increase in streaming services revenue.

Operating income of mobile game applications accounted for a little over 30% of the operating income of the segment and was double that of fiscal '16..

We expect sales in fiscal '18 to decrease 6%, primarily due to a change in accounting standards and the impact of foreign exchange rates. Operating income is expected to decrease to JPY 112 billion, primarily due to the absence of JPY 10.5 billion gain on the sale of real estate recorded in the previous fiscal year..

Next, I will talk about the Pictures segment. In FY '17, sales increased 12% year-on-year, and operating income improved to JPY 41.1 billion due to the absence, among others, of JPY 112.1 billion impairment charges of goodwill that we recorded in previous fiscal year. .

Welcome to the Jungle, the profit from the film slate exceeded our original forecast..

We are beginning to see the fruits of the Motion Picture group's forecast on content IP and financial discipline under the leadership of Tom Rothman, who has been running the Motion Pictures business since February of 2015..

In fiscal year 2018, sales are expected to decline by 5%, mainly due to the impact of foreign exchange rates, and operating income is expected to be JPY 42 billion, basically flat year-on-year..

Next is the Home Entertainment & Sound segment. FY 2017 sales increased 18% year-on-year, and operating income increased JPY 27.3 billion to JPY 85.8 billion. The increase in sales and operating income was due to a shift we made to high value-added models, such as 4K Bravia OLED TVs and also due to the positive impact of foreign exchange rates.

And we expect sales to decline by 6%, and operating income to be essentially flat year-on-year at JPY 86 billion..

Next, I will explain about the Imaging Products & Solutions segment. In fiscal 2017, sales increased 13% from the previous year, and operating income increased JPY 27.7 billion to JPY 74.9 billion. .

The increase in sales, and operating income was basically due to an enhancement of high value-added products, such as Alpha series mirror-less cameras and our interchangeable lens lineup and also, due to the positive impact of foreign exchange and the absence of the negative impact we had in the previous year of the Kumamoto earthquakes. .

For fiscal 2018, we expect sales to be JPY 660 billion, and operating income will be essentially flat year-on-year at JPY 75 billion..

Next will be about the Mobile Communications segment. In fiscal year 2017, sales declined by 5% from the previous year, down to JPY 723.7 billion.

Operating results deteriorated JPY 37.8 billion to a loss of JPY 27.6 billion due to the decrease in sales and the recording of a JPY 31.3 billion impairment charges against long-lived assets in the fourth quarter of the year..

In light of the sales results of the smartphone business and changes in the business environment since January of 2018, we have downwardly revised our future profitability forecast. As a result, the forecast for future cash flows has decreased and therefore, we recorded the impairment..

We expect fiscal 2018 sales to decrease 12% because our smartphone unit sales forecast of 10 million units is significantly below the previous fiscal year due to our efforts to improve profitability. Primarily due to the impact of the -- these declines in sales, we expect to record an operating loss of JPY 15 billion..

I would now like to say a few words about the importance of 5G wireless technology in the context of our strategy for smartphone business going forward.

By enabling high-speed communication, low-latency and simultaneous connectivity, 5G, which is expected to be commercialized in the near future, this is a technology which we view as having immense potential since it can connect all portable devices to the cloud. .

In order to fully utilize this leading-edge technology, we need to retain in-house our fundamental research capability and capability to create related applications. By continuing to work on 5G in our smartphone business, we are aiming to develop 5G technology as a competency that can be used across the entire Sony Group..

Next, I will talk about the Semiconductors segment. The fiscal 2017 sales increased 10% year-on-year, and operating results improved JPY 171.8 billion to a profit of JPY 164 billion.

The improvement in operating results was primarily due to the recording of several extraordinary items in fiscal 2016 and 2017 and an increase in unit sales of image sensors year-on-year. .

As is shown in this slide, adjusted operating income would have increased JPY 76.3 billion..

We expect the fiscal 2018 sales to increase 2% to JPY 870 billion, and operating income to be JPY 100 billion.

Although sales are expected to increase due to an increase in unit sales of image sensors for mobile use, we expect operating income to decrease primarily because extraordinary gains of approximately JPY 43 billion were recorded in the previous fiscal year, and we expect the yen to appreciate compared with the previous fiscal year..

Next, I will explain the Financial Services segment. In fiscal 2017, Financial Services revenue increased 13% due to an increase in policy amount enforced at Sony Life, and operating income increased JPY 12.5 billion to JPY 178.9 billion.

This increase in operating income includes a gain on the sales of real estate held for investment purposes at Sony Life. .

We expect fiscal 2018 Financial Services revenue to be JPY 1,270,000,000,000 billion, and operating income to be JPY 170 billion. Although we expect revenue to continue to increase due to the expansion of policy amount enforced, we expect operating income to decrease slightly, primarily due to a decrease in gains on the sales of assets..

Next, I would like to briefly explain my view on the current state of each of our businesses. In the Game & Network Services business, the PS4 installed base and the expansion of network revenue has driven profit growth.

As a result, it is important to further expand our stable network service business model, along with our current business model, which is centered on hardware penetration and software-tied ratios..

We believe the Music business needs to leverage its strong industry position in the expanding music market, which is being driven by the penetration of streaming services, and to convert it into profit growth.

We also believe that we need to continue to aggressively promote game applications for mobile devices as a part of our strategy to leverage our animated IP..

The Pictures business had some success in fiscal 2017, as I mentioned earlier, but we recognize that its profitability is still lower than industry peers. We will concentrate on improving profitability in conjunction with the new management team led by Tony Vinciquerra..

We are calling the 3 segments shown in this slide Branded Hardware. Their overall profitability has improved as a result of efforts to strengthen product appeal and to improve operations.

Going forward, we aim to make this group even more efficient and stable cash flow generator by continuing the efforts each business is undertaking to improve profitability and by strengthening cross-business cooperation. .

The Semiconductor business has significant invested capital and should earn a high margin to justify its business risk. To do that, we believe it is important to concentrate on areas where we have competitive advantage and maintain our strong market position.

The rate of growth in demand for image sensors is likely to decline in the short-term due to saturation of the smartphone market. But over the medium to long term, we expect further growth to come from expansion of new applications, such as 3D sensing, security, factory automation and automotive. .

We expect the Financial Services business to continue to contribute stable profit..

In conclusion, I will discuss the state of our balance sheet. As you can see from the presentation materials distributed among you, our cash flow, excluding Financial Services, has steadily improved from the previous fiscal year to this fiscal year. .

On the other hand, our stockholders' equity has just begun to improve. Since we have invested a relatively large amount of capital in the Semiconductor business, we plan to further enhance our stockholders' equity with the standard of the semiconductor industry in mind.

At the same time, we will strike the right balance with investments for future growth..

This concludes my remarks. .

Now the floor is open to your questions. Those of you with questions, please wait for the microphone to be brought to you and please identify yourself by stating your name and affiliation before asking the questions. When the question is asked in English, it will interpreted consecutively into Japanese, and the answers will be given in Japanese.

And please confine the number of questions to 2 per person. Yes, please. .

Katsura with SMBC Nikko Securities. But first, thank you very much for further enhancing the disclosure of Game business. That is very helpful. And on that basis, about the forecast of the current fiscal year, the numbers related to Game business is higher than forecast and the Semiconductor business numbers are rather tough.

And I should like to ask further about the Semiconductor business. And you talked about onetime items of the last fiscal year and exchange rate impact as factors of change. And even based on that, the basic assumption is very tough.

And what is the rate of operation? And also, you will enhance and accelerate the investment in your thinking, so please expound on this. That's the first point.

And the second point is that in terms of the overall point of view, you set aside the buffers for each business and the Corporate section and the elimination and exchange rate, and it is 105 and 130 now? It's all and no buffers? And you probably allocated risks to each business.

Is that the right way of looking at that? You have mentioned the negative impact of exchange rate, JPY 38 billion for the current fiscal year.

What was the impact last fiscal year?.

And about Semiconductors, even in lieu of extraordinary items, the situation appears to be very tough. And Takeda-san will supplement me. But concerning the Semiconductor business, excluding the extraordinary items, there's a decline by JPY 20 billion.

The image sensors for mobiles increased and an improvement by product mix, but the negative impact of ForEx and also the increase in depreciation due to the investments in image sensors and also R&D cost for the automotive and sensing. And so some of the investment have not immediately improved the return yet. The question concerning the CapEx.

So for fiscal 2018, the investment in Semiconductor, the JPY 160 billion, out of that, JPY 130 billion is for image sensors.

Much of this is for the purpose of increasing capacity in the future, such as establishment of clean rooms and the infrastructure and also the high functionality and the larger size of sensors to leading to the better product mix and the R&D for the future.

So concerning the increase in capacity of image sensors, we will watch the supply and demand situation. .

About the buffer, especially the exchange rate assumption, about -- before that, the results of FY '17, how it compares to our FY '16. '16, dollar, 108, and 119 for euro. And '17, 111 and 130. And the impact in fiscal '17 for [ 5 of our ] business was positive JPY 60 billion, and the -- for the emerging market, the -- separate.

And for fiscal '18, the sensitivity is different. Game & Network Services, in dollars, JPY 1 increase. Game & Networks, plus JPY 3 billion. In euro, each yen -- JPY 1, it's minus JPY 2.5 billion. Last year, we said 3. In HE&S, plus 3.5 in euro, minus 1 billion. And in case of dollars, it is 3.5 against the 3 billion.

In IPS and the dollar, 50 -- JPY 500 million, and euro, the same. In the Mobile last year, in dollars, we say JPY 2.6 billion, but now, it's plus JPY 3 billion. Semiconductors, dollars, minus JPY 5 billion; euro, slightly negative. In Mobile, did I talk about Mobile? So that is the extent of exchange rate impact. .

Nakane, Mizuho Securities. Two questions please. Firstly about Games business. In terms of the console cycle, you have been saying that it's going to be tough going forward starting this year, but you have the profit increase for the year.

But as much as possible, could you tell us about the hardware and also the PS Plus results, what's your forecast for this year? And also what risks are you contemplating, both quantitatively and qualitatively? Can you give me some additional information? And secondly, about cash flow.

On Page 19, I guess we are supposed to calculate the detailed numbers, but last year, there was an increase in PS Plus. Conversion cycle became shorter so there are these effects.

So compared to last year and if you look at the assumption for P&L this year, what's the cash flow status? Can you give me more information about your plans on cash flow?.

So the -- some addition about -- information about Game results for fiscal '18 also about cash flow. I will speak to your cash flow question. On sales revenue, the sales through the network is included. It is where software sales is expected to increase and also hardware sales for PS4 will decline, and there will be an impact of ForEx.

And between them, they will even out so that the profit will be basically the same as previous year in profit. The PS4 hardware would decline, but that will be compensated by the increase in software and also PS Plus Network Service will expand. The combination of these factors will give us an increase in profitability. On your cash flow question.

I guess, you're talking about Game cash flow, no? The cash flow, in general? Well then, the overall cash flow situation. Opening cash flow investment combined is, to date, that's JPY 400 billion up from last year, a significant improvement, because compared to last year, the cash flow -- operating cash flow is JPY 335 billion.

Investment cash flow is an improved of JPY 136 billion. The reason for these improvements compared to the previous year is the net income after adjustments. Net income minus the impairment is now much higher. That's the biggest reason. In the meantime, the tax and also payments for CapEx. There's a difference of these payments to the next year.

And on the receiving side, account receivables in Semiconductors, for instance, as businesses are sold, there are temporary increase in the receipt, such as the equity held and subsidiaries sold. And also there's a positive gain due to the sales of real estate properties. So the numbers look better than in hand to our operational strength.

Now what about this year? Our forecast for this year will be such that, I will say, that continuously, assuming that we will continue to be profitability, we should be able to generate cash flow in a stable manner. But in comparison to last year, profits will be slightly down.

And the CapEx is somewhat increasing, basically the same, but there's a slight increase in CapEx. And there is a cut-off area. The CapEx cut-off area is significant, particularly in Semiconductors, so that must be incorporated and also with tax payment.

So for fiscal '18, as things stand now, compared to fiscal '17, it will be somewhat lower according to our plans now. .

one, Semiconductor; another, Games. For Semiconductor, for this fiscal year's plan, if you could elaborate more, for example, image sensor sales in dollar terms, 12% increase is expected and capacity, 88k to 100k. So it looks almost the same, but in dollar terms, the sales increased the amount.

If you look at, say, quantity and the unit price, how it would be -- is it divided? And if the capacity is increasing the amortization, would it be incurred from the first quarter? And internally, there are activities to increase the yield and shortening of lead time, those are the self efforts needed.

And how are they incorporated in this fiscal year's business plan? My second question, about the Game. Mr. Totoki earlier talked about the expansion of the stable revenue of operating income.

As we have more disclosed information, where is the focus to increase profit? Mostly active user, you'd make investment to increase it or ARPU has to be increased through content, richer content? What are your focal points? And how will this be reflected in this fiscal year's forecast?.

Semiconductor, first. In dollar terms, the sales increased in quantity in the sales units.

And then cost reduction from the manufacturing process, who would answer?.

Now about the quantity, FY '17, in the fourth quarter, there was the slowing down of the demand, and there was an adjustment made. And the adjustment in the first quarter of January to March, it proceeded from April to June. There's a tendency for recovery. So considering these, the quantity increase is expected in FY '18.

Now for the amortization or depreciation increase, as you understand, the capacity is being increased according to that plan. So the depreciation is also increasing as well as a trend. But the cost reduction, this is one of the discipline of the management, which is we are promoting.

So the increment is incorporated in this fiscal year's plan compared to the previous fiscal year, JPY 43 billion of extraordinary item and foreign exchange because of the higher yen amounted to JPY 30 billion. These 2 major items contributed last year.

So it's -- excluding extraordinary item for this fiscal year, that can lead to the decrease in the profit. Now about the Games. where would be the focus for profit growth, that's your question? As you know, MRP, just like other segments on the 22nd of May, please wait until then.

But the previous cycle shows us that the hardware peak, and then the next year, the profit peaked, software profit peaked 1 year after. So after the peak, we need to make the changes of performance smaller after the peak. In the PS Plus subscription-type business and recurring business, we need to grow these.

And Network-oriented game experiences have to be offered, and we are offering these. So after purchasing the software, customers purchase add-on contents, they download them and that's something we can expect. They make the in-game purchase as well, so. .

Nishimura of Crédit Suisse. Two questions. The first point. And I understand you will be announcing the MRP next month, and this year is the first year of MRP. How do you position the current fiscal year? You earlier talked about Semiconductors and talked about the investment for the future.

So in the Other business, will you be considering the increase in expense for -- in terms of the future growth? And the second point. Concerning the image sensors in Semiconductor business, you are talking about the improvement in the product mix.

In addition to the increase in volume, the change in the content of your production in your discussion with the users or customers, what sort of changes do you see?.

This year is the first year of 3-year MRP, and how we position the current fiscal year, what we have placed most emphasis on is that our target was to -- while we have never achieved the operating profit in excess of JPY 500 billion on a continuous basis for more than 3 years, and so we will try to achieve the sustainability of profit, not for a single year but on a continuous basis, and that is a big challenge.

And we discussed this with Hirai-san also. And after achieving a high level of profit for 3 years, it will lead to the next MRP, and we will make investment to that end. That is another major challenge, and we will talk about the specifics on the 22nd of May. And the forecast of Semiconductor business in fiscal 2018 and improvement of product mix.

The -- immediately, we -- the spread of dual camera on smartphone, the pace is slower than we initially expected, but the sensing demand increase is faster than we thought. And so for fiscal '18, we will continue to expand the sales of high-end image sensors and at the same time, work on improvement of profitability.

In other words, we will come up with the high value-added product, where we can secure the high margin, and at the same time, work on the technology development for the new applications, such as autos and sensing.

And another point, if there are the plans for investment for the future, concerning R&D expense, last year, JPY 450 billion, this year, JPY 470 billion, increase of about JPY 20 billion in investment. .

Ezawa, Citigroup. Two questions, please. Under P&L -- well, more than your PL, cash flow on the balance sheet are more important now. I think that's the message that you've been telling us since last meeting. And today as well, I think you refer to that, the importance cash flow on the balance sheet. But I guess, you guys tried to increase content IP.

Basically, stock business. Why do you say that? You say that you have to improve the balance sheet. You say that's so because of the Semiconductor business that you carry. But in terms of the corporate direction of the company, you even [indiscernible] your own equity. To the extent that leverage is doable, it should pursue your business.

But why is it now that you are talking about the improvement of balance sheet? Which increased the stockholders' equity absolutely. I cannot buy that argument really. So why are you talking about this is my question.

The investment improvement is equity ratio, so ultimately, what's the sort of safety zone in terms of the equity ratio that you would like to achieve? And secondly, a related question. As you talk about balance sheet or cash flow, the stock market will immediately begin to be interested about capital allocation.

I know that your results are very excellent, but in terms of returning to the shareholders, I don't think you are doing much.

So as you improve the balance sheet -- I guess this is a question I should ask when you to talk about MRP, but returning to the stockholders, shareholders of Sony, can you talk about your position on that as well?.

Thank you. About our focus on capital allocation, indeed, it's a very important thing to work on. Hirai and Yoshida included carrying out discussions on this amongst us. So please give some more time until the 22nd of May when we hold our Corporate Status Meeting on that occasion.

We'll talk about our thoughts on capital allocation as a part of our MRP process. .

Okazaki from Nomura Securities. About the Mobile business, I have a question. Other businesses are recovering quite well, and I don't think this is quite a very large impact. But still, that's forecasted to be a loss. And I understand the important, strategic importance against target. It seems to me that you find it difficult to clear.

So what's your view on it while you were in charge of this business, so I ask you?.

It was the fall of 2014, I became in charge of the Mobile business. And for 3.5 years, I worked so hard for the improvement of profitability. These impairment charges, we had to post and incurred the loss. So that tells that turnaround has not been achieved. I take it quite seriously.

The competitive environment is quite harsh, as I said earlier, 5G wireless technology, communication technology. Going forward, for the Branded Hardware, these will become even more important. So although the environment is quite difficult and harsh, again, we changed the measures. Even with the 10 million units, we tried to be profitable.

That's our intent. .

Your forecast for loss, even if it will not linger the Mobile business positioning, I think the cost burden seems to be more important.

Is it correct to assume that?.

For every kind of business, we cannot continue incurring losses. Again, we need to turn around to make it more sustainable. That's what we think. .

My name is Sugiyama, Goldman Sachs. And my question is concerning the Game. Are the profit forecast of fiscal 2018, excluding exchange impact, the message is to maintain the high level of the previous year.

Now in connection with the PlayStation 4 activities, is this still very high? And recently, the third-party software is selling so well and hit the titles. And more immediately, free-to-play games, such as Fortnite, and with the expansion of that, PS4 active users is now becoming record high and higher than the past record.

So the momentum of the software, during the current fiscal year, the current situation is stronger than your forecast as I see it.

And what's your view on this?.

Just as you indicated, there is a very strong momentum in software, especially concerning the fourth quarter. We felt the momentum is very strong, and that's how we watch it. And Network Services also expanding, and the market itself is expanding. So this is a good tailwind, and we should ride on that and try to benefit from that. .

Ladies and gentlemen, with this, we will conclude today's session. Thank you for your participation..