It is now time for us to start the Sony Corporation Consolidated Financial Results Briefing for Fiscal Year 2019. I am acting as the moderator. My name is Kato from the Corporate Communications department. This briefing is being held for the media analysts and institutional investors who have been informed in advance.

And the audio and presentation will be posted on our company's website. Today, first of all, we will hear from Hiroki Totoki, who is our CFO and Senior Executive Vice President.

He will be explaining the consolidated financial results for fiscal year 2019 and the forecast for fiscal year 2020 using the briefing materials that are posted on our website. And then after that there will be a Q&A period. We expect that it will take about 60 minutes in total. This time, we are going to accept questions any time by e-mail.

Those of you who have a question, please send them in according to the method that we have informed you in advance, and it will be up to two questions per person. And our time is limited therefore, it may be that we may not be able to answer all your questions. Now Mr. Totoki, please..

The Runaway. Due to restrictions on outings, the production schedule of new motion pictures and TV shows around the world, especially in the U.S., has significantly delayed. As a result, in Motion Pictures, theatrical revenue and revenue generated after theatrical release including the rental and sales of videos are expected to decrease.

On the other hand, digital revenue from Bad Boys For Life and Bloodshot which we released in theaters prior to the spread of the coronavirus disease has been strong. Revenue for television production is also being impacted due to delay in the delivery of shows to TV networks and digital distribution services.

Due to the global reduction in advertising spending, advertising revenue in media networks is decreasing significantly, especially in India. Next is the EP&S segment. FY '19 sales decreased 14% year-on-year to JPY 1,991.3 trillion, mainly due to a decrease in unit sales of smartphones and TVs and negative impact of exchange rates.

Operating income increased JPY 10.8 billion year-on-year to JPY 87.3 billion mainly due to operating cost reductions in mobile communications partially offset by the impact of the decrease in sales. Of all businesses, we expect the EP&S segment to be impacted the most from the coronavirus.

First, I will explain the supply side which includes manufacturing and procurement. Of the 4 major manufacturing sites for our TV business, we ceased production in stages from mid-March at the factory we own in Malaysia and at the factories we outsourced to in Mexico and Slovakia pursuant to local government policy.

These 3 factories have returned to partial production, but a portion of supply continues to be unable to meet demand. In the camera and smartphone businesses, the factories we own in China and Thailand are currently operating as usual.

Some of our partners in Malaysia and the Philippines who supply components to several of our businesses have reduced their operations, causing a delay in the production of some of our products due to component shortages. On the demand side, due to the closure and shutdown of retail stores globally, retail sales have decreased significantly.

The severity of the impact on a geographical basis is changing frequently but deterioration of market conditions in Europe is currently the most severe. Our television business is being significantly impacted in areas like India and Vietnam where our scale is significant as well as in Europe.

And sale and profit from digital cameras are being significantly impacted by a substantial slowdown in demand around the world. We are concerned that this might continue for a long time. Next is the Imaging & Sensing Solutions segment.

FY '19 sales increased 22% year-on-year to JPY 1,070.6 trillion, mainly due to an increase in image sensors unit sales for mobile devices and an improvement in product mix.

Operating income increased a significant JPY 91.7 billion year-on-year to JPY 235.6 billion mainly due to the impact of the increase in sales, partially offset by an increase in depreciation expenses and research and development cost as well as the negative impact of the foreign exchange rates.

Due to several positive factors occurring simultaneously such as strong demand, acceleration of the shift to large-sized high value-added products and our introduction of a highly competitive new product which fit those specification, the image sensor business produced results that significantly exceeded our expectations at the beginning of the fiscal year.

Now I will discuss the impact of coronavirus on the I&SS segment. As of today, there has been no major impact from the coronavirus on our manufacturing facilities in Japan which are operating as usual. Moreover, we understand that the factory operations and supply chains of our major mobile customers have been recovering.

On the other hand, we believe that the decrease in shipments of our image sensors was relatively minor compared to the impact the coronavirus had on the manufacturing and sales of our mobile customers in the fourth quarter ended March 31, 2020. So there is a possibility that inventory in the supply chain of these customers has increased.

In addition, we are monitoring how much the final outlet for our products, the smartphone market, may decelerate going forward. Now I would like to discuss the current state of our I&SS business.

Considering the deceleration of the smartphone market due to the impact of the coronavirus, there is a possibility that image sensor sales this fiscal year will be flat year-on-year.

At this point in time, there is no change to our view that image sensors will drive improvements in the functionality of cameras which are a major differentiating factor for smartphones or our view as to the expansion of demand over the mid to long term.

Thus, we have already decided to invest more than 80% of the cumulative capital expenditure we planned to make over the 3 years of our mid-range plan.

However, given the uncertain operating environment, we will postpone as long as possible decisions regarding the remaining capital expenditures so we can make appropriate and timely decisions after gathering more market information.

In addition, we will be disciplined in our prioritization of research and development spending, but we plan to maintain the current level of spending as we manage Sony for the mid to long term. Lastly is the Financial Services segment.

FY '19 financial services revenue increased 2% year-on-year to JPY 1,307.7 trillion primarily due to higher insurance premium revenue mainly from single premium insurance, partially offset by a deterioration in net gains and losses on variable insurance investments in the separate, both at Sony Life.

Operating income decreased JPY 31.9 billion year-on-year to JPY 129.6 billion primarily due to an increase in the provision of policy reserves related to variable insurance at Sony Life, reflecting a deterioration in market conditions towards the end of the fiscal year.

And valuation losses on certain securities held by Sony Bank resulting from a decline in prices mainly due to growing concerns about credit risk. Now I will explain the impact of the coronavirus on the Financial Services segment.

Pursuant to the announcement of a state of emergency by the Japanese government, we have stopped all in-person sales activity of the life planners at Sony Life.

If these conditions persist for a long period of time, there's a possibility that the profitability of Sony Life could be significantly negatively impacted primarily because the acquisition of new insurance policies would decrease and expenses for provisions to account for this would increase.

So I'll discuss the consolidated results outlook for fiscal year '20. Since we cannot reasonably predict the impact of the threat of the coronavirus disease including when it will diminish, our consolidated results forecast for FY '20 is undetermined at this time.

We plan to issue a consolidated results forecast for fiscal year '20 when we announce the earnings for the first quarter in early August. The best we can do is make certain hypotheses regarding the trajectory of the coronavirus disease and estimate FY '20 operating income for each of our segments based on the assumptions you see here.

The estimated results are expressed as a percentage range of actual FY '19 operating income. Based on these assumptions, we estimate that consolidated operating income would decrease at least 30% compared to the FY '19 result. These figures are merely an estimate based on certain assumptions and we are continuing to work to improve our profit level.

Now I will discuss operating cash flow, excluding the Financial Service segment and capital allocation through the end of fiscal year '19. We generated approximately JPY 1.5 trillion of cumulative operating cash flow over the last 2 fiscal years. Approximately JPY 0.2 trillion in cash flow was generated from the sale of businesses and assets.

We prioritize using this cash to make growth investments such as increasing image sensor manufacturing capacity and acquiring EMI. In addition, as a strategic investment, we repurchased a total of JPY 300 billion of Sony stock.

We will update you on our forecast for FY '20 operating cash flow to include the impact of the coronavirus when we announced earnings for the first quarter. Lastly, I would like to explain the state of our balance sheet.

In order to reliably procure capital, even when the financial markets are in turmoil, Sony has managed its balance sheet with a high degree of financial discipline while closely monitoring our credit ratings.

As of the end of March 2020, we maintained our strong financial underpinnings with a 42.8% equity ratio excluding the Financial Services segment. No debt is coming due in FY '20 and we had approximately JPY 960 billion of cash on hand as of the end of March 2020 for consolidated Sony excluding the Financial Services segment.

In addition, we have a total of approximately JPY 570 billion in committed lines of credit from major banking institutions inside and outside of Japan and approximately JPY 1 trillion commercial paper facility and uncommitted lending facilities from several banks. As of today, none of these facilities were being utilized.

Thus, we believe that we have sufficient liquidity to continue to conduct business in a smooth manner, even if the economic environment were to deteriorate conspicuously going forward. There is no change to our policy of steadily increasing our dividend over the long term.

Moreover, we believe we are in a position to proactively consider strategic investments aimed at growth opportunities in the post-corona world. This concludes my remarks..

Thank you very much. So consolidated finance results -- financial results briefing and the forecast for fiscal year 2020 were explained. Now let us go on to the Q&A session. In the first half, 20 minutes, there will be questions from the media. And in the latter half, 20 minutes, there will be questions from analysts and our institutional investors.

Questions can be asked at any time using e-mail. So can we follow the method that has been informed to in advance. And the questions that we have received will be read as submitted..

If the question is in English, then the interpreter will translate into Japanese, and we will reply in Japanese. So now we would like to entertain questions from the media..

We have Mr. Totoki, Senior Executive Vice President, Chief Financial Officer; and Naomi Matsuoka, the Senior Vice President and General Manager, Finance Department, Finance Department and Corporate Planning & Control Department; and Mami Imada, Senior General Manager, Corporate Communications, to answer your questions.

The first question was received from [ Mr. Shimizu ] of Nikkei. About novel coronavirus, the Game, Pictures and Music businesses, how do you think the consumer demand will change because of the various impact and creative entertainment on the strength of technology of Sony? You are an entertainment company.

How are you going to overcome the difficulties such as delay in productions? The second question is about PlayStation 5.

What is your forecast for the demand of PlayStation 5 and actual number of deliveries? Will there be any quantitative impact due to the COVID-19?.

Thank you, and this is Mr. Totoki speaking. I will answer two questions. Firstly, the demand on digital entertainment actually has been increasing. That's the behavior of the consumer currently. And I think this trend is likely to continue for some time and also the creative entertainment on the strength of Sony's technology.

As far as we're concerned, times being as such, I believe we have to support the entertainment business earlier in April.

We created a relief fund amounting to JPY 100 million to fight against the impact of the virus for pictures and music because of the [ sales issue ] with live entertainment or the delay and suspension of the productions, they are affecting the lives of the creators and our partners.

And with the creation of this fund, we've decided to help support their well-being going forward. And also about the PlayStation 5, as I mentioned in the speech, the production is proceeding basically according to our schedule. In the meantime, the actual delivery and actual demand, I'd like to refrain from commenting on that as of this time.

So that's the extent of what I can say at this particular moment. Thank you..

Next from NHK, [ Inomata-san ].

New coronavirus, what kind of effect would it have on the performance in terms of monetary value? You mentioned the impact so far, but what's the forecast of the impact on this fiscal year as much as you can? Second question, the impact of the coronavirus in order to contain or minimize the effect in order to protect the employees, many companies are changing the way to manage business work lifestyle.

And there may be 4-day work week and other new ideas, but does Sony have new ideas initiatives as a new way to -- for work?.

Allow me to answer these two questions. First, this -- the impact of the coronavirus are in monetary value to the performance. FY '19, for FY '19, the outbreak of the coronavirus and others, it's difficult to delineate these two. But for the consolidated results, JPY 68 billion negative impact was felt.

For this fiscal year, the impact on this fiscal year, it's so difficult to project or forecast any impact. But including that, we came up with the estimate. As I showed you earlier, I would like to take a look at that again.

Your second question, the impact of the coronavirus, how to minimize it? Any new measures to minimize the impact? I would like to invite Imada-san to answer..

The measures for the new work style, I do not have any specific measures precisely for that. But we prioritize the safety of the employees. The telework is one way to do that. And the work from home, regardless of where you stay, they can work. And through this measure, new way of work is being promoted. And I'm sure it will proceed.

At this moment, pursuant to the government policy, we try to put highest priority to the safety and the health of the employees. Thank you..

Let's go on. From Reuters, Yamazaki-san. We have a question..

First a question about PS5. The impact -- if there is an impact on the supply chain, I'd like to know what it is. Second, about -- not limited to games, after this coronavirus, do you have a plan to review the supply chain? That's the two questions..

First question about PS5, the supply chain, impact on supply chain. Basically, we have work from home and the restrictions on international travel, those are constraints. So some testing process and the qualification of production lines may be constrained. But necessary measures are being taken for this.

So towards the end of the year, we believe that we can prepare without problem for the launch. And review of the supply chain, do we have any plans for the review? From before, for the manufacturing sites, there has been consideration of various business risks and we have made study.

And so for this expansion of new coronavirus, this is a global issue. And so changing the production sites at this present time is not being considered. Thank you..

Thank you. Let us continue with the next question. Let me read this next question. [ Nishida-san ], a freelancer, asked this question.

Firstly about Game, Pictures and Music, the Contents business and also the Electronics business, has there been an impact in terms of the delivery and the supply is delayed due to the COVID-19? And also do you think the impact of COVID is limited? What would the outlook of impact after next year? Second question is about the Game business.

Hardware sales, are they according to your plans or will there be impact of the COVID-19? Is it larger or less than last year? And under the current situation, it's even lower than your expectations..

Mr. Totoki speaking.

Regarding your first question, in most of our businesses, the impact of COVID-19, what is the delay situation that we are suffering? And also after this year, what will be the outlook? Will there be an impact? Speaking about the Game business, for instance, for the first-party and third-party games in terms of game development, currently, there are no problems that are manifest as of now.

But still, development activity is underway with a lot of restrictions. So efficiency may be lower, which means that there's going to be a delay in scheduling. There's a risk as such, and we have to monitor that risk very carefully. About the Contents business, Pictures and Music, they have suspended all shooting activities.

And therefore, the contents production in pictures or music, particularly music where the digital contents -- producing them now is very difficult. So that's what we're already observing. And during this year, as I said before, we will continue to feel some impact going forward. As far as the Game business is concerned, hardware sales.

As far as the unit sales of hardware is concerned, the PS4, the existing model, the sales are smooth going, I would say. Doing very well, particularly, the year just ended in the fourth quarter of last fiscal year, the results were basically exactly as we'd expected. And more recently, demand is rather very strong, we are informed. Thank you..

Well, the time is running out. So this concludes the Q&A session for media people. In order to change the participants, we will take a break -- short break before we start the sessions for analysts and institutional investors. [Break].

Thank you for your patience. From now for about 20 minutes, we will entertain questions from analysts and institutional investors.

The respondents are Hiroki Totoki, Senior Executive Vice President and CFO; we also have Naomi Matsuoka, Senior General Manager of Finance Department and Corporate Planning & Control Department; and we have Hirotoshi Korenaga who is VP, Senior General Manager of Global Accounting Division. Now first question, please.

From Morgan Stanley MUFG Securities..

At the time of the Lehman shock, for 6 quarters, more than JPY 100 billion of restructuring expenses was planned.

Are you going to take any measures from the first quarter of FY '20 or are you going to wait out until the coronavirus outbreak subsides? Now the risk of EPS going negative and the review of the business portfolio as a possibility, is there any possibility of a positioning change?.

Now after Lehman, this time, it's so different from Lehman shock. Number of people and effects to cost now is so different from where it was at the time of the Lehman shock. In any case, under these circumstances, the demand itself has declined than originally expected.

So we reviewed the marketing expenses and then the overhead reduction for the indirect costs and cost control, while we will not wait out until the coronavirus subsides to do this in order to secure the level of profitability..

Next question. From Merrill Lynch, Hirakawa-san..

First question, Sony's next-generation game console marketing, compared to Microsoft, software lineup introduction is a bit inferior. Some people say it's lacking.

So towards the launch of PS5, do you think that you have a passing grade? And if it is a passing grade, then what is going well? Also the -- towards the launch at the end of the year, going forward, what is the theme for your advertising activity? Second question, for Pictures, Media Networks, the portfolio review expense will be the same as previous fiscal year.

That is for fiscal year '20..

Yes, so PS5 right now, we have to think strategically right now. Therefore, unfortunately, I cannot really make a comment. Is it a passing grade or not? Well, on that point, I think results will be everything. So after the launch, it will become clear. And so we are going to do our utmost -- make our utmost effort.

Now about Pictures and Media Networks, the portfolio review expense on a continuous basis, this is going to be studied. At the present time, we haven't made major decisions..

Thank you. Next question. Mr. Nakane at Mizuho Securities asks this question. Firstly, the sales and the operating income forecast for March '21 year, I think you've agreed to the budget as of end of February.

At that time, what was your forecast by different businesses segment? And also the second question is post-corona or to be with corona in Game and Music and Pictures, what do you think will be the business environment? Will there be a structural change in the business environment? And with that effect, how will that affect the profitability of Sony and other peer companies? What will be the strategy of Sony to deal with such a change?.

Thank you, Mr. Totoki speaking. So year ending March 21st, what would be our forecast on sales was the first question. And we created a budget in February and what was viewed at that time, I think, was the question. And currently, everything has changed. Assumptions have changed.

So discussing what might have been the situation without impact of the virus would be -- discussing that will be very difficult, but impossible.

But as far as we're concerned, this year -- based on the results for this year, we will make efforts to go one step further in the year after that and that's always a practice in creating the budget based on the results of the current year trying to do better.

And also about the change in the business environment, how is a business environment going to change? I think people are discussing a lot of things. But at least, people will stay home, spend more time or less spending this time outdoors, and a lot of activities are done in the remote network basis. So that will be for part of the change.

And so as we're concerned, we have a lot of businesses related to networking and remote operations. With PlayStation Network, for instance, it's a large online community, so I'd like to step this business up. And there's a possibility and I think there's room for the growth of this particular business.

And the use of 5G, for instance, production of video content, for instance, instead of [ physical ] contents, it can be done online. And also in medical business field, we have real-time technologies, but there's a lot of fields where our technologies will be useful. So those areas and opportunities that we'll be focusing going forward.

And speaking of pictures, theatrical release is always very important. And because of the coronavirus negative impact, we are currently suffering. But once the situation settles and if we restart the theatrical operations, the people may not come to theaters to view pictures. So it may take some time.

If that happens, then we have to discuss with the business concerns to create a new way of releasing Sony Pictures. And also we can use online and remote technologies for the live performances going forward. Thank you..

Next question. From JPMorgan, Mr. Ayada..

First question. For I&SS, about the inventory of supply chain. For smartphones, depending on the customers, some models do not sell well.

But depending on the future trend, the evaluation loss, which happened in the past of PS inventory, are you thinking about that? And then the image sensors price trend, larger size, multisensor trend, what is your opinion or view on this trend?.

Allow me to answer for the inventory. In December last year, the end of December last year, the inventory was in tight situation in the fourth quarter. Because of the outbreak of the coronavirus, sales decreased. And then compared to that, inventory size increased as of the end of March. The inventory level is approaching the appropriate level.

In the FY '20, this inventory will be shipped out. So we are not planning any evaluation loss. That's the first point. At this point in time, on the business negotiation level, from -- as a bird's eye view, the impact of the outbreak of the coronavirus are threefold.

One, smartphone markets deceleration and the negative impact on the sales -- unit sales. And in the supply chain, the inventory is increasing over -- across the supply chain. The sales volume itself compared to the FY '19, if it increases, the increase percentage -- the speed of the increase will be slower than FY '19.

Basically, the market itself is decelerating. From the high-end smartphones to mid to low, there's a shift from high end to mid to low. That can be triggered because of the decelerating market. And then the image sensors product mix may deteriorate compared to FY '19. In FY '19, the larger-sized demand increased sharply. This speed may slow down.

This is a big possibility. For more details, 0.58 microns product, we are in the second year of producing it. So the mass production started 2 years ago, and the market will proceed accordingly..

Going on to the next question, SMBC Nikko Securities, Katsura-san..

First question, semiconductor inventory and the utilization and production capacity, this kind of results and your forecast plan, if you could let me know.

Second question, cash position, present status and under the present environment, what is your stance on the view of allocation?.

Yes, image sensor capacity on an installed basis, if I can answer in that way, fourth quarter of FY '19, in the master process, 123,000 per month. And 124,000 was the previous assumption. So it's a bit of a drop. But with the process mix there is some fluctuation and it's not that the installation is delayed.

And for fiscal '20, at the end of first quarter, 133,000 per month. So over 3 months, capacity will go up gradually. And in the fourth quarter of last year, 3-month simple average, 122,000 full operation. And the first quarter of fiscal year '20, 3-month average, 127,000.

So for mobile and for digital, there is slight production adjustment for the digital camera. I would say that's about it. And if I may talk a little more, at the end of fiscal '20, master process output will be 138,000. It is going to be -- -- the output will be increased. And basically, there is no change to that plan.

And for the cash position and allocation that you asked about, first of all, for fiscal '20 as of the end of the previous year, March, it is JPY 962.3 million. And the commitment line, JPY 570 billion, and this commitment line of JPY 570 billion is not used.

And in addition to that, commercial paper facility, JPY 1 trillion, and bank uncommitted line is JPY 230 billion. So we haven't used any of this. And therefore, if you have that kind of allowance, even if the environment of the economy worsens, we believe that we can continue to be liquid.

As for allocation stance, naturally as we have been saying from before, strategic investment, M&A and stock repurchase. Well, we are going to have an optimal utilization and our stance has not changed as for convertible bonds. Right now, we are not thinking so proactively. Thank you..

Thank you. We'll proceed to the next question. Nishimura-san from Crédit Suisse..

Firstly, I ask this question. For fiscal '20, operating income estimates, the impact of the virus on each of the segments and also other impacts, can you separate the various impacts? So a direction in terms of increase or decrease in fixed costs, can you also refer to that as well? Second question would be about image sensors.

They're getting larger so that unit price is increasing. And also because of multilenses, volume is increasing, that has been the trend.

Will there be a change in that trend? Not so decline in end result and demand of smartphones will be changed in your plans to increase your production capacity?.

Firstly, our estimates for the operating income for the fiscal '20, the coronavirus impact and other type of impact, we have not estimated those separating the two. And whatever I would say is -- but for the impact of corona, not separating the two, corona versus noncorona, so allow me now to make a reference to that.

But when time comes for us to announce the results of the first quarter, we will be able to give you more solid pictures. So please bear with that. About the image sensors production, the future direction was your question. Logically speaking, our midterm direction is not likely to change going forward, logically speaking.

But having said that, looking at the demand for smartphones currently, yes, there's an impact of the virus so that smartphone demand is somewhat lower now. That's a matter of fact. So as I've been explaining, the impact will be felt from the declining demand and also the negative impact due to product mix changes.

For fiscal '20, yes, these are situations that we have to serve very carefully. And with that, we will be impacted that on our schedule, we plan to increase our production capacity. Well, as I said in the speech, for 3 years now, 80% of the investment plan has been decided already.

The remaining 20-or-so percent, we have the option of deferring the remaining investments. So we'll look at the current demand and we'll make investments at appropriate timing. Thank you..

Now it is time to close the briefing session. Thank you very much for your attendance. [Statements in English on this transcript were spoken by an interpreter present on the live call.].