Sony Group 2027 Q2 Earnings Call

Welcome to Q2 earning announcement. Consolidated sales for the second quarter ended September 30, 2026, increased 10% compared to the same quarter of the previous fiscal year to JPY 3 trillion 429.4 billion, and consolidated operating income increased 45% to JPY 622.3 billion. Both were record highs for the second quarter. Net income increased 44% to JPY 449.6 billion. The financial results by segment are shown in the Q2 FY 2026 results by segment slide. In the all other segment, we recorded an additional loss of approximately JPY 30 billion related to Sony Honda Mobility during the quarter. This substantially completed the recognition of losses associated with the downsizing of the company's operations.

We have increased our FY 2026 sales forecast 4% compared to our previous forecast to JPY 13 trillion, our operating income forecast 9% to JPY 1 trillion 870 billion, and our net income forecast 10% to JPY 1 trillion 330 billion. The forecast for operating cash flow is now JPY 1 trillion 600 billion. The impact of US tariff refunds and memory market conditions on the full-year operating income forecast remains largely unchanged. The forecast by segment is shown in FY 2026 results forecast by segment slide. I will now give an overview of each business. First is G&NS segment. FY 2026 Q2 sales increased 9% year-on-year to JPY 1 trillion 208.5 billion. Operating income increased 83% to JPY 220.1 billion, a record high for the second quarter. Excluding one-time losses of JPY 49.8 billion recorded in the same quarter of the previous fiscal year, operating income increased 29%.

For the full fiscal year, we have increased the sales forecast 6% compared to the previous forecast to JPY 4 trillion 830 billion. We have increased the operating income forecast 6% compared to the previous forecast to JPY 700 billion, primarily due to the impact of higher third-party software and network service sales and decreased costs. The number of monthly active user across the PlayStation platform in September increased 7% compared to the same month of the previous fiscal year to 127 million accounts. That was a record high for September. Total playtime for the quarter increased 4% year-on-year. The year-on-year trend for both metrics improved significantly compared to the first quarter of this fiscal year, which we believe demonstrates that the baseline of engagement is steadily improving.

With regard to PS5 hardware, we have been able to offset the rise in memory prices through adjustments to promotions and pricing, as well as additional cost reduction, and we expect hardware profitability for the current fiscal year to remain on par with the previous fiscal year. Regarding memory procurement for next fiscal year, based on discussions held so far with various suppliers, we have aligned on the quantity of memory needed for our projected hardware unit sales. Regarding first-party titles, cumulative sales of Marvel's Wolverine, released in September, exceeded 2.4 million units, contributing to the improved results of the entire segment for the quarter. We leveraged our expertise building the Marvel's Spider-Man franchise to create a differentiated action game experience for Marvel's Wolverine. Users have praised the new title for its highly immersive action, high-quality production, and richly layered storytelling.

We have decided to postpone the release of God of War Laufey to the first quarter of next fiscal year. We will continue to develop the game to ensure that it provides a premium experience that meets the expectation of the title's diverse fan base. Although new PS5 unit sales are gradually declining as expected in this stage of the console life cycle, the PS platform continues to expand and grow in a stable manner. Looking ahead to next fiscal year, we aim to continue to enhance user engagement and further strengthen monetization through the release of strong titles and the expansion of our service. We also intend to make solid progress in preparing for the next-generation platform. Next is the music segment. FY 2026 Q2 sales increased 10% year-on-year to JPY 598.4 billion.

Operating income increased 6% to JPY 122.8 billion, setting a record high profit for the second quarter. This was primarily due to an increase in music streaming revenue, despite the absence of the hit theatrical release of "Demon Slayer: Kimetsu no Yaiba," which was recorded in the same quarter of the previous fiscal year. For the full fiscal year, we have increased our sales forecast 5% compared to the previous forecast to JPY 2 trillion 300 billion, and our operating income forecast 6% from the previous forecast to JPY 445 billion. Streaming revenue for the quarter on U.S. dollar basis increased 7% year-on-year in recorded music and 6% in music publishing. The single "Choosin' Texas" by Ella Langley is a huge hit, exceeding 1.8 billion cumulative streams globally and breaking multiple records on the music charts.

The song has spent a total of 26 weeks at number one on the U.S. Billboard singles chart, breaking the record previously held by a Mariah Carey song released approximately 30 years ago. It also reached a record total of 19 weeks at number one on the digital songs chart. There has been a clear increase in the consumption of catalog songs driven by the growth of streaming. Through September of this year, catalog songs that were released more than 18 months ago, accounted for more than half of the streams on Spotify Global Top 200. Due to the big success of Michael Jackson's biopic, his catalog generated more than 3 billion streams on Spotify's Global Top 200 in the nine months since January of this year, increasing from approximately 100 million in calendar year 2025.

Gen Z listeners accounted for approximately half of the increase in streams, illustrating how the power of visual storytelling has revitalized our catalog and attracted new listeners. We believe such evergreen catalogs are assets that will continue to generate value over the long term, even in the age of AI. Next is the picture segment. FY 2026 Q2 sales increased 48% year-on-year to JPY 513.7 billion, and operating income was approximately seven times higher at JPY 92.6 billion. This was record high operating income for the second quarter. For the full fiscal year, we increased our sales forecast 6% compared to our previous forecast to JPY 1 trillion 760 billion, and our operating income forecast 33% to JPY 200 billion, primarily due to an increase in revenue from theatrical releases.

Spider-Man: Brand New Day," released in July, was a record-breaking hit with worldwide cumulative box office revenue exceeding $2.5 billion. It is the highest-grossing film of all time in North America and the third highest-grossing film of all time globally. Following the film's release, unit sales of related game titles approximately doubled, and all the SME-released features in the film have generated more than 1 billion cumulative streams. This demonstrates how the real-world experience of watching the movie in the theater serves as a catalyst for enhancing IP value across the Sony Group in multiple ways. SPE has a strong lineup of upcoming releases. There is "Jumanji: Open World" this December and the animated film "Spider-Man: Beyond the Spider-Verse" next fiscal year.

The success of theatrical release not only contributes to performance in a single fiscal year, but also generates significant revenue opportunities in the future through post-theatrical distribution windows. We will continue to strive to deliver compelling films by combining our global beloved IP and creative strengths with our global marketing and distribution capabilities. Regarding the anime business, which is centered on Crunchyroll, we are combining the strengths of our Sony Group companies to expand our content offering and broaden our reach to fans to achieve sustainable revenue growth. To expand our content offering, we launched Crunchyroll Storyworks. Through this initiative, Crunchyroll, Aniplex, and SPE aim to collaborate with Japanese creators to strengthen the adaptation of stories from around the world into anime and produce live-action adaptations of Japanese anime. To expand our reach to fans, we plan to introduce a dedicated Crunchyroll hub on the PS5 home screen next spring.

This new feature aims to capture the cross-demand between games and anime, which share a large overlap in their fan bases, by providing a cross-discovery feature that allows users to seamlessly discover related content. We will continue to focus on expanding our reach by creating in-person fan experiences in collaboration with Japanese publishers and production partners. Through these initiatives, we aim to further raise global awareness of anime, expand our fan base and addressable market, and solidify the mid-to-long-term revenue growth of the Sony Group's anime-related business. Next is the ET&S segment. FY 2026 Q2 sales decreased slightly year-on-year to JPY 567.8 billion. Operating income increased 5% to JPY 64.1 billion, primarily due to the impact of U.S. tariff refunds, despite the impact of the lower sales. The full-year forecast remains unchanged from the previous forecast.

Although conditions remained challenging in the imaging business this quarter, primarily due to a slowdown in the Chinese market, we minimized the impact of increased memory cost and lower unit sales on earnings by expanding market share, led by new products, and by accelerating the shift toward high-value-added products. Regarding the joint venture with TCL, discussions between the two companies to finalize the details of the joint venture's organizational structure and operations are progressing smoothly ahead of full-scale operation in April of next year. True RGB BRAVIA, which was launched in June and has been selling well around the world, features a suite of high-value-added technologies that are expected to contribute significantly to improving the profitability of our display business this fiscal year. Combined with TCL's business scale and cost competitiveness, we expect these technologies to become a major competitive advantage for the joint venture from next fiscal year.

Major competitive advantage for the joint venture from next fiscal year. Last is the I&SS segment. FY 2026 Q2 sales decreased 6% year-on-year to JPY 577.6 billion, and operating income increased 12% to JPY 154.6 billion. This was a record high for quarterly operating income. Our sales forecast is essentially unchanged compared with the previous forecast at JPY 2 trillion 120 billion. We have increased our operating income forecast 7% compared to the previous forecast to JPY 450 billion. In the smartphone market this quarter, growth declined approximately 20% year-on-year, mainly due to the impact of conditions in the memory market. Although the market for mid-range and lower phones declined significantly, we believe the decline in the high-end market was limited. Shipment volumes of our mobile sensors have trended generally in line with the market.