The fiscal year ending March 31, 2017 ("FY2016") is the second year of our current mid-range corporate plan introduced last year. Today I will first recap the progress that has been made in executing this plan, and then present the initiatives that are underway as we lay the foundations for Sony's future for the fiscal year ending March 31, 2019 ("FY2018") and beyond, so that we can continue to be a company that delivers new kando experiences.
The theme of the first three years after I became CEO in April 2012 was to transform Sony, with a focus primarily on restructuring. This was a painful process, but we were able to see these measures through to their completion.
The theme of our second phase mid-range corporate plan, introduced in the fiscal year ended March 31, 2016 ("FY2015") , is "profit generation and investment for growth." With this second phase plan we are shifting gears and moving away from the previous emphasis on restructuring, and are now focused on growth. We are managing our businesses based on the key strategies laid out in our corporate strategy announced in February last year, as we aim to transform Sony into a highly profitable enterprise.
Looking back on FY2015, we made significant progress, achieving a stronger profit structure with greatly improved results, in terms of both consolidated operating income and net income attributable to shareholders.
I believe we have made a positive start to our second phase mid-range plan, defined by "profit generation and investment for growth." I also believe our strategy of emphasizing differentiation and profitability without necessarily pursuing volume has been widely implemented across the Group, and this has firmly placed the company on a path towards renewed growth.
At the same time, the business landscape is constantly changing, and we will remain highly conscious of any developments as we move the company forward.
Just as we entered FY2016, the earthquakes struck Kumamoto. I would once again like to offer my deepest condolences to everyone who has been affected by this disaster, and pray for the swift rehabilitation of the affected areas.
In terms of our operations, Sony Semiconductor Manufacturing Corporation's Kumamoto Technology Center (Kumamoto TEC), located 12 kilometers from where the main earthquake struck, is our primary facility for producing image sensors for digital cameras and security cameras, as well as micro-display devices. Its operations were significantly affected by the earthquakes, and production was disrupted. After the initial earthquake, continuing aftershocks forced us to delay the start of the recovery process due to the potential risk to our employees. However, once we were able to confirm the safety of the building, repair work started and has been proceeding steadily. Many production processes have already resumed, and we are targeting August for a return to full operations.
Regarding our FY2016 consolidated results forecast, while we anticipate a significant negative impact due to the earthquakes, across the Sony Group, we are united in our efforts to achieve a consolidated operating profit of 300 billion yen, which is a comparable level to FY2015.
Looking to the fiscal year ending March 31, 2018 ("FY2017"), the final year of our current mid-range plan, we have updated the FY2017 financial targets for each business segment in view of changes to the business landscape and the current status of each business. The new targets for each of our businesses are indicated here.
Our consolidated mid-range targets for ROE of more than 10% and for operating profit of more than 500 billion yen in FY2017 remain unchanged.
Sony has only ever recorded operating profit of more than 500 billion yen once in its history, in FY1997. It would only be the second time to achieve such a figure, and the first time in 20 years.
This demonstrates the size of the challenge we face, but I believe achieving this figure will be an important milestone on the path to transforming Sony to a highly profitable enterprise. Our management team continues to analyze this target, and its importance has been reiterated across the Sony Group. We are all working together to make steady progress towards achieving our targets for ROE of more than 10% and operating profit of more than 500 billion yen.
The largest factor that contributed to improved profitability in FY2015 was the revitalization of our SONY-branded consumer electronics business.
Our consumer electronics business has experienced many challenges, with the TV business posting losses for 10 years and the mobile business recording a significant impairment charge in the fiscal year ended March 31, 2015 ("FY2014") ,. However, this fiscal year, we are forecasting that every one of our consumer electronics businesses will end the year in the black.
We believe this projection is based on several factors. One is the result of our restructuring program and cost optimization efforts. Another is the focus that each business has placed on its fundamental priorities, including accurately determining consumer needs for high value-added products; making no compromises on the specifications, quality, and design of each product; engaging in appropriate marketing activities, and then using effective sales techniques to deliver these products into customers' hands.
Since becoming CEO in 2012, I have constantly emphasized the vital role that strengthening and differentiating our products would play in revitalizing our consumer electronics business, and we have worked tirelessly to achieve this. I also stated that it would take some time for these efforts to take effect.
Customers have been drawn to the strength of our "Bravia," "Xperia," "α," "Cyber-shot," "Handycam", "Walkman" and "PlayStation®" brands, and they have provided the foundations for the Sony Group's greatly improved profitability in FY2015. I expect the revitalization of our consumer electronics business to also provide the foundations for the achievement of operating profit target of more than 500 billion yen in FY2017.
At the same time, we must also evolve our electronics business and continue to undertake new challenges in order to generate sustainable growth, given the changes in our competitive environment. I will touch on this point in more detail later.
Game & Network Services is Sony's largest growth driver within our mid-range plan.
In this segment, PS4 is continuing to achieve strong results. The platform as a whole, including software and network services, is receiving widespread customer acclaim, and has surpassed our initial expectations for profit growth.
As of May this year, PS4 has cumulatively sold more than 40 million units worldwide, continuing its rapid growth and expansion as the fastest-selling console in PlayStation® history.
The network services business is also continuing to grow, achieving a 50% increase in sales in FY2015 compared to the previous year. The user base is expanding, driven in particular by the PlayStation® Plus subscription service, and we have continued to engage in investment towards further growth.
Our PlayStation® Vue cloud-based TV service is expanding its content lineup, having added Disney and ESPN Media Networks to its available channels in March of this year. Furthermore, the service, which had previously been limited to a number of cities in the US, now extends across the US. We are aiming to acquire even more new customers this year.
The eagerly awaited PlayStation® VR (PS VR) virtual reality system is set to go on sale October of this year. Virtual reality is a new challenge for us, but we are looking to grow this market in collaboration with our game partners.
With VR, we are entering into an entirely new realm that holds many future possibilities for Sony, not only in games, but also for the whole Sony Group. This is because it is an application in which we believe we can leverage our full array of technological strengths in areas such as digital imaging, content acquisition and production, as well as our entertainment assets. Sony is accordingly engaging with virtual reality Group-wide, and also exploring the possibility of cultivating it as a new business domain.
In the Picture and Music segments, which are also positioned as Sony's growth drivers, the industry itself is undergoing a major transition. There has been a shift to digital content and rapid growth in streaming services, while the ways that customers consume content, and their individual needs are becoming increasingly diverse.
The number of viewers who "binge watch" TV series on subscription video services is increasing, and this is one example of how content is being consumed immersively, in large quantities at a time. As this type of content consumption becomes more prevalent, demand for high-quality content also increases, particularly drama. With Sony Pictures Television producing a succession of major hits including "Breaking Bad," "Better Call Saul," and "The Blacklist", Sony believes it is well-positioned to take advantage of these trends.
In the Music segment, Adele's record-breaking hit "25" contributed significant profit in FY2015. Discovering, developing and promoting artists like Adele will continue to be at the core of this business, and we believe the music industry as a whole is now showing signs of recovery, driven by the growth of paid subscription services. In order to further capitalize on this market shift, in April 2015 we made independent music distributor, The Orchard, a wholly owned subsidiary, and then in April 2016 we reached an agreement to fully acquire Sony/ATV, and are continuing to make strategic investments in recurring revenue businesses.
With our ability to attract talented creators, our expertise in creating high-quality content, and our vast content portfolio, we see the shifting landscape in the entertainment industry as a great opportunity for Sony.
In the Devices segment, our other growth driver, the core image sensor business had been a consistent source of profit for the Sony Group. However, due to slowing growth within the smartphone market, we announced a significant downward revision to our full year results forecast in FY2015.
We believe slowdown in profit growth in this business will be unavoidable through FY2017, and we have considered the current situation very carefully, particularly given the considerable capital investment we have made in this area.
I believe we must take an approach to managing the Devices segment that prioritizes speed of response to changes in the market environment, and focuses on Sony's areas of strength.
In terms of image sensors for mobile products, while the smartphone market itself is slowing, the shift to dual-lens cameras and need for higher pixel density is expected to lead to increased demand in the future.
Given our technological expertise in these areas, these could be favorable market trends for Sony. By taking advantage of the shifts in business landscape and also by continuing existing efforts to expand image sensor sales to Chinese and Korean manufacturers, we are aiming to revitalize the profitability of this business from the second half of FY2016 and into FY2017.
From a mid- to long-term perspective, taking into account the expected introduction of new applications for image sensors, Sony continues to expect significant future growth for the image sensor business. This business continues to be positioned as a growth driver accordingly.
Surveillance cameras is one example of a new image sensor application for which Sony has high expectations, given the growing market and Sony's increasing market share. Sony also sees potential growth in areas such as factory automation, IoT (Internet of Things) including drones, and automotive applications.
While it will be some time before Sony's image sensor business for automotive applications is fully established, it is an area in which we anticipate growth and are investing in R&D aggressively. Sony possesses a wealth of expertise in advanced camera technologies, from lenses and signal processing to recognition algorithms and power consumption management. Using this expertise, we plan to engage in further product development and enrich the composition of our product lineup in order to differentiate our products and fully leverage our business advantages in the automotive market.
In FY2015, we acquired Belgian company, Softkinetic Systems, and Israeli company, Altair, in order to gain further technology and business know-how necessary for developing these new applications and moving into new markets.
In addition to maximizing our own internal R&D resources, we intend to continue to aggressively explore opportunities for investments and acquisitions if we believe they will further evolve our imaging technologies and lead to the growth of our sensing and solutions business.
I will now discuss our Financial Services segment.
In the Financial Services segment, each of our life insurance, non-life insurance, banking and nursing care business have continued to steadily expand their business operations, based on the high level of trust they have gained among customers. However, the ultra-low interest rate environment in Japan is expected to present challenges in terms of generating profit for the duration of the current mid-range corporate plan, and therefore we have revised our projections for this segment, which were incorporated in our mid-range corporate plan.
In the core life insurance business, we are reevaluating our product lineup and sales strategy, and executing initiatives, including comprehensive risk management measures, in order to maintain and improve profitability.
While the business environment is challenging, nothing has changed in terms of the competitive advantage we possess through our more than 4,600 Lifeplanner sales employees who are in direct contact with our many customers, providing high-quality consulting services. Sony will target mid- to long-term growth by continuing to provide premium and convenient services in life insurance and across all our financial services businesses.
The management team and Board of Directors have evaluated and discussed what steps Sony should take in order to boost enterprise value and create new growth businesses, after we have completed our restructuring program and once the current mid-range financial targets have been achieved.
As I have consistently said since being appointed CEO, Sony's mission is to be a company that inspires and fulfills your curiosity. Our vision is to use our passion for technology, content and services to deliver kando, in ways that only Sony can. These remain unchanged.
Sony plans to continue to position electronics, entertainment and financial services as the three pillars of its business, and strive to develop them in order to achieve growth. I believe that our diverse business portfolio is one of our strengths, and that as Sony management we are expected to sustain and reinforce these strengths.
Sony is a company that has always challenged itself to do what has never been done before, but in order to continue to be able to undertake such challenges, a highly profitable business structure and management accountability are vital.
As I remarked earlier, the turnaround of our electronics business had been a long-standing challenge, but I believe the business is finally on a path to profitability. I believe that now is the time for us to accelerate our efforts to create new business opportunities within this area.
Consumer electronics, and primarily AV/IT products, are generally considered to be a mature market, in which substantial growth cannot be achieved. Others believe that in this age of advanced networks, all added value now stems from the cloud and network services, and that hardware has become commoditized. However my belief is that even as the requirements of hardware change over time, its importance as the first and last customer touchpoint is something that doesn't change, and I believe this is somewhere that Sony can demonstrate its uniqueness and find new sources of growth. Our strength at Sony lies in our ability to develop products that exist at the closest point of contact with customers and resonate with them at an emotional level, and to place those products in the hands of customers around the world.
In the telecommunications industry, there is a long-standing expression that describes competing over the "last one mile," referring to the last part of the infrastructure that delivers services to customers. I believe that for Sony, we must continue to be a vital presence at the "last one inch," or the very closest point of contact with our customers.
In order to create new business opportunities and continue to be such a presence at the "last one inch" for our customers, I believe it is vital for us to focus on two important principles. The first is to pursue Sony's mission of delivering kando to our customers, and the second is the pursuit of recurring revenue business models that are an important means of generating sustainable profit growth.
We define a recurring revenue business as one that is able to achieve stable profit growth thanks to the continued patronage of a given customer base.
For PlayStation® and Financial Services, I believe that the key to delivering kando and generating sustainable profits is connecting with as many customers as possible at a very deep level. For our entertainment businesses, it is all about establishing relationships with a broad range of artists and creators, who are the very source of value for customers, and then sharing the kando they generate with the widest possible audience. In our electronics business, it is our ability to continue to offer unique and meaningful experiences through our technology and design, and our ability to hire and nurture talented engineers and designers with the capacity to realize this vision that will determine our capability to deliver kando and generate sustainable profit.
Looking to the future and with these principles firmly in mind, we have embarked on such initiatives as Life Space UX, SAP (the Seed Acceleration Program), and the Future Lab Program, as we seek to launch new businesses and expand the scope of our electronics business.
In addition to these measures, we will also aim to combine our existing strengths in areas such as video and audio technologies, sensors and mechatronics, with artificial intelligence (AI), robotics, communications and other elements, and by doing so offer new proposals to our customers at the "last one inch" across all types of living spaces.
We are already moving forward with initiatives to extend and evolve the scope of our electronics business, such as the drone-based enterprise solutions that have been launched by Aerosense -- our joint venture with ZMP Inc. -- and the range of Xperia smart products that Sony Mobile announced in February.
We are targeting life in the home as the first area in which we will aim to apply our robotics technologies, in order to make the home a more convenient and enjoyable space. To this end, in April of this year, we established a new organization that is working toward a business launch. One of the things this organization is developing is a robot capable of forming an emotional bond with customers, and able to grow to inspire love and affection. Rather than simply developing products that incorporate AI, Sony will seek to propose new business models that integrate hardware and services to provide emotionally compelling experiences.
In the future, we will explore broader business opportunities for our AI and robotics technologies, including applications such as production processes and logistics.
We are also investing aggressively in the technology and talent necessary to accelerate business creation in these areas.
One example is our investment in and collaboration with American start-up, Cogitai, which is involved in cutting-edge AI R&D, that we announced last month. Sony has also become a platinum level sponsor of the International Joint Conference on Artificial Intelligence, and we intend to take on a more active role in research and academic activities focused on this area.
In order to accelerate R&D in the areas that Sony will focus on going forward, I believe it is imperative to further strengthen collaboration with leading external researchers and start-up companies, and to create a more open ecosystem. In order to strengthen this ecosystem, in July 2016 we plan to establish the "Sony Innovation Fund," a corporate venture capital fund.
Based on the strategic importance of the businesses in which we invest, the Sony Innovation Fund will seek to have advisors and business incubators actively participate in businesses in order to support their growth, increase engagement, and enhance the likelihood of success. At the same time, I hope this and other similar initiatives will also serve as channels through which we can nurture Sony's leaders of tomorrow.
At Sony we are fortunate to have uniquely-skilled employees who identify closely with our mission of being a company that inspires and fulfills your curiosity, and who continue to take on new challenges even under difficult conditions. They are Sony's most valuable assets.
On May 7th this year, Sony celebrated its 70th anniversary.
Of course, the primary task of management is achieving our mid-range targets, but once we have accomplished this, it is vital that we create new businesses and business models in order to generate sustainable profit growth and deliver kando.
Sony's spirit of innovation and challenge is detailed in our Founding Prospectus.
I believe that the time has come for us to push on with the new challenges that are necessary to secure Sony's future growth. We must not rely on our legacy, but evolve this unique company built by our visionary founders into something that we can pass on to the next generation. I believe it is my responsibility and that of the entire management team to do so.
We will act boldly and take on the challenges needed to reshape Sony into a highly profitable enterprise and create new businesses. I look forward to your continued support.