UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FormForm 20-F
☐ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
or
☑ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended March 31, 20222023
or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from/to
or
☐ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report:
Commission
file number
1-6439
Sony Group Kabushiki Kaisha
(Exact Name of Registrant as specified in its charter)
SONY GROUP CORPORATION
(Translation of Registrant’s name into English)
Japan
(Jurisdiction of incorporation or organization)
7-1, KONAN 1-CHOME
MINATO-KU
,TOKYO
108-0075
JAPAN
(Address of principal executive offices)
J. Justin Hill, Senior Vice President, Finance & Investor Relations
Sony Corporation of America
25 Madison Avenue, 26
th
Floor
New York
,New York
10010-8601
Telephone:212-833-6722
212
-833-6722E-mail:
ir@sony.com
(Name, Telephone,
E-mail
and Address of Company Contact Person)Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||
American Depositary * | SONY | New York Stock Exchange | ||
Common ** |
| * | American Depositary Shares evidenced by American Depositary Receipts. Each American Depositary Share represents one share of Common Stock. |
| ** | No par value per share. |
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the Annual Report:
Outstanding as of | |||||||||||||||
March 31, | March 31, | ||||||||||||||
Title of Class | (Tokyo Time) | (New York Time) | |||||||||||||
Common Stock | |||||||||||||||
American Depositary Shares | |||||||||||||||
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
☑ No ☐If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐
No
☑Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
☑ No ☐Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
☑ No ☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a
non-accelerated
filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer” and “emerging growth company” in Rule12b-2
of the Exchange Act.☑ Large accelerated filer | ☐ Accelerated filer | ☐ Non-accelerated filer | ☐ Emerging growth company |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.
☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
US GAAP ☐ | International Financial Reporting Standards as issued by the International Accounting Standards Board ☑ | Other ☐ |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 ☐ | Item 18 ☐ |
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in RuleRule 12b-2of the Exchange Act).
Yes ☐ | No ☑ |
Cautionary Statement
Statements made in this document with respect to Sony’s current plans, estimates, strategies and beliefs and other statements that are not historical facts are forward-looking statements about the future performance of Sony. Forward-looking statements include, but are not limited to, those statements using words such as “believe,” “expect,” “plans,” “strategy,” “prospects,” “forecast,” “estimate,” “project,” “anticipate,” “aim,” “intend,” “seek,” “may,” “might,” “could” or “should,” and words of similar meaning in connection with a discussion of future operations, financial performance, events or conditions. From time to time, oral or written forward-looking statements may also be included in other materials released to the public. These statements are based on management’s assumptions, judgments and beliefs in light of the information currently available to it. Sony cautions investors that a number of important risks and uncertainties could cause actual results to differ materially from those discussed in the forward-looking statements, and therefore investors should not place undue reliance on them. Sony adopted IFRS starting in the three months ended June 30, 2021, in lieu of the previously applied U.S. GAAP. The results for the fiscal year ended March 31, 2021 are also presented in accordance with IFRS. Investors also should not rely on any obligation of Sony to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Sony disclaims any such obligation. Risks and uncertainties that might affect Sony include, but are not limited to:
| (i) | Sony’s ability to maintain product quality and customer satisfaction with its products and services; |
| (ii) | Sony’s ability to continue to design and develop and win acceptance of, as well as achieve sufficient cost reductions for, its products and services, including image sensors, game and network platforms, smartphones and televisions, which are offered in highly competitive markets characterized by severe price competition and continual new product and service introductions, rapid development in technology and subjective and changing customer preferences; |
| (iii) | Sony’s ability to implement successful hardware, software, and content integration strategies, and to develop and implement successful sales and distribution strategies in light of new technologies and distribution platforms; |
| (iv) | the effectiveness of Sony’s strategies and their execution, including but not limited to the success of Sony’s acquisitions, joint ventures, investments, capital expenditures, restructurings and other strategic initiatives; |
| (v) | changes in laws, regulations and government policies in the markets in which Sony and its third-party suppliers, service providers and business partners operate, including those related to taxation, as well as growing consumer focus on corporate social responsibility; |
| (vi) | Sony’s continued ability to identify the products, services and market trends with significant growth potential, to devote sufficient resources to research and development, to prioritize investments and capital expenditures correctly and to recoup its investments and capital expenditures, including those required for technology development and product capacity; |
| (vii) | Sony’s reliance on external business partners, including for the procurement of parts, components, software and network services for its products or services, the manufacturing, marketing and distribution of its products, and its other business operations; |
| (viii) | the global economic and political environment in which Sony operates and the economic and political conditions in Sony’s markets, particularly levels of consumer spending; |
| (ix) | Sony’s ability to meet operational and liquidity needs as a result of significant volatility and disruption in the global financial markets or a ratings downgrade; |
| (x) | Sony’s ability to forecast demands, manage timely procurement and control inventories; |
| (xi) | foreign exchange rates, particularly between the yen and the U.S. dollar, the euro and other currencies in which Sony makes significant sales and incurs production costs, or in which Sony’s assets, liabilities and operating results are denominated; |
| (xii) | Sony’s ability to recruit, retain and maintain productive relations with highly skilled personnel; |
| (xiii) | Sony’s ability to prevent unauthorized use or theft of intellectual property rights, to obtain or renew licenses relating to intellectual property rights and to defend itself against claims that its products or services infringe the intellectual property rights owned by others; |
| (xiv) | the impact of changes in interest rates and unfavorable conditions or developments (including market fluctuations or volatility) in the Japanese equity markets on the revenue and operating income of the Financial Services segment; |
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| (xv) | shifts in customer demand for financial services such as life insurance and Sony’s ability to conduct successful asset liability management in the Financial Services segment; |
| (xvi) | risks related to catastrophic disasters, geopolitical conflicts, pandemic disease or similar events; |
| (xvii) | the ability of Sony, its third-party service providers or business partners to anticipate and manage cybersecurity risk, including the risk of unauthorized access to Sony’s business information and the personally identifiable information of its employees and customers, potential business disruptions or financial losses; and |
| (xviii) | the outcome of pending and/or future legal and/or regulatory proceedings. |
Risks and uncertainties also include the impact of any future events with material adverse impact. The continued impact of the Coronavirus Disease 2019(“COVID-19”)and developments relating to the situation in Ukraine and Russia could heighten many of the risks and uncertainties noted above.
Important information regarding risks and uncertainties is also set forth elsewhere in this annual report, including in “Risk Factors” under “Item 3.,” “Item 4.,” “Item 5.,” “Legal Proceedings” included in “Item 8.” Sony’s consolidated financial statements referenced in “Item 8.” and “Item 11..”
Key Information
Information on the Company
Operating and Financial Review and Prospects
Financial Information
,
Financial Information
Quantitative and Qualitative Disclosures about Market Risk
In this document, Sony Group Corporation and its consolidated subsidiaries are together referred to as “Sony” or “Sony Group.” In addition, “Sales and financial services revenue” are referred to as “sales” in the narrative description except in the consolidated financial statements.
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TABLE OF CONTENTS
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Item 1. | Identity of Directors, Senior Management and Advisers |
Not Applicable
Item 2. | Offer Statistics and Expected Timetable |
Not Applicable
Item 3. | Key Information |
A. | [Reserved] |
| Yen in millions | ||||||||
| Fiscal year ended March 31 | ||||||||
| 2021 | 2022 | |||||||
Consolidated Statements of Income data: | ||||||||
Sales and financial services revenue | 8,998,661 | 9,921,513 | ||||||
Operating income | 955,255 | 1,202,339 | ||||||
Income before income taxes | 997,965 | 1,117,503 | ||||||
Net income attributable to Sony Group Corporation’s stockholders | 1,029,610 | 882,178 | ||||||
Comprehensive income attributable to Sony Group Corporation’s stockholders | 1,118,628 | 623,678 | ||||||
Consolidated Statements of Financial Position data: | ||||||||
Sony Group Corporation’s stockholders’ equity | 6,680,343 | 7,144,471 | ||||||
Common stock | 880,214 | 880,365 | ||||||
Net assets | 6,724,339 | 7,197,249 | ||||||
Total assets | 27,507,843 | 30,480,967 | ||||||
Number of shares issued at fiscal year-end (thousands of shares of common stock) | 1,261,059 | 1,261,082 | ||||||
Ratio of stockholders’ equity to total assets (%) | 24.3 | 23.4 | ||||||
Data per share of Common Stock data: | ||||||||
Sony Group Corporation’s stockholders’ equity per share of common stock | 5,390.73 | 5,775.63 | ||||||
Net income attributable to Sony Group Corporation’s stockholders (Yen) | ||||||||
— Basic | 836.75 | 711.84 | ||||||
— Diluted | 823.77 | 705.16 | ||||||
Other data: | ||||||||
Cash dividends declared — Interim | 25.00 | 30.00 | ||||||
| (23.91 cents | ) | (26.55 cents | ) | |||||
Cash dividends declared — Fiscal year-end | 30.00 | 35.00 | ||||||
| (27.29 cents | ) | (26.72 cents | ) | |||||
B. | Capitalization and Indebtedness |
Not Applicable
C. | Reasons for the Offer and Use of Proceeds |
Not Applicable
D. | Risk Factors |
This section contains forward-looking statements that are subject to the Cautionary Statement appearing on page 2 of this annual report. Risks to Sony are also discussed elsewhere in this annual report.
Sony must overcome increasingly intense competition, which could lead to lower revenue or operating margins.
Sony has several business segments in different industries with many product and service categories, which cause it to compete with many existing and new competitors ranging from large multinational companies to highly specialized entities that focus on only one or a few businesses and also, potentially, with outsourced manufacturing service partners that currently supply products to Sony. These competitors may have greater financial, technical, labor and marketing resources available to them than those available to Sony. Sony’s financial condition and operating results depend on its ability to efficiently anticipate and respond to these established and new competitors.
The competitive factors Sony faces vary depending on the nature of the business. For example, in the electronics area, Sony competes on the basis of various factors including price and function, while in the Music and Pictures segments, Sony competes for talent, such as artists, songwriters, actors, directors and producers, and for entertainment content that is created, acquired, licensed and/or distributed. Competition on price can lead to lower margins when costs do not fall at a proportional rate, and competition for talent and appealing product can also lead to lower profitability if the higher costs required for such talent and content cannot be recouped through greater sales. Moreover, even for those products where Sony believes it has a strong competitive advantage, such as image sensors, it is possible that its competitors’ technological capabilities will accelerate such that Sony would be unable to maintain its advantageous market position. In terms of consumer electronics products, to produce products that appeal to changing and increasingly diverse consumer preferences, including growingconstantly changing consumer interest in products that minimizeminimizing energy consumption and other impacts on climate change,using environmentally friendly materials for both products and packaging, or to overcome the fact that a relatively high percentage of consumers already possess similar products, Sony must develop superior technology, anticipate consumer tastes, and rapidly develop attractive and differentiated
products with competitive prices and features. Sony faces increasingly intense pricing pressure from competitors, retailer consolidation, new sales/distribution channels, and shorter product cycles in a variety of consumer product categories. In the Music and Pictures segments, operating results can be impacted by worldwide consumer acceptance of their products, which is difficult to predict, by competing products released at or near the same time and by alternative forms of entertainment and leisure activities available to consumers. Additionally,consumers, as well as by competing products released at or near the same time. For example, in the Pictures segment, as box office revenues recover as restrictions due to the spread ofstarting in the beginning of the 2020 calendar year resulted in lockdownshave been lifted around the world which are influencing changes in consumer behavior.and movie theaters continue to reopen, the theatrical release calendar of films by major studios is becoming more crowded, increasing competition for available screen space. This situation could adversely affect the operating results of the Pictures segment.
COVID-19
If Sony is unable to maintain its advantageous market position in the fields in which it has a technological or other competitive advantage, Sony is unable to effectively anticipate and counter the ongoing price erosion that
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frequently affects its consumer products or the cost pressures affecting its businesses, there is a change in existing business models or consumer preferences, or the average prices of Sony’s products decrease faster than Sony is able to reduce manufacturing costs, Sony’s operating results and financial condition may be adversely impacted.
To remain competitive and stimulate customer demand, Sony must invest in research and development to achieve product and service innovations and successfully manage frequent introductions of such new products and services.
To strengthen the competitiveness of its products and services, Sony continues to invest in research and development (“R&D”), particularly in growth areas such as the Game & Network Services (“G&NS”) and Imaging & Sensing Solutions (“I&SS”) and G&NS segments. However, Sony may not be successful in investing in R&D if it fails to identify products, services and market trends with significant growth potential. In addition, Sony’s investments may not yield the innovation or the expected results quickly enough, or competitors may lead Sony in technological innovation. This may hinder Sony’s ability to commercialize new and competitive products and services.
Sony must continually introduce, enhance and stimulate customer demand for consumer electronic products and network services. Sales of these products and services are particularly sensitive to the significant weighting of consumer demand to the
year-end
holiday season. In the G&NS segment, the successful introduction and penetration of gaming platforms, including streaming, is a significant factor driving sales and profitability, and this success is affected by the ability to provide customers with attractive softwareline-ups
and online services. However, there is no assurance that third-party software developers and publishers, major contributors to this effort, will continue to develop and release software. In addition, Sony believes that integrating its hardware, software, entertainment content and network services and minimizing their energy consumption, as well as investing in R&D to effect such integration, is essential in generating revenue growth and profitability. However, this strategy depends on its ability to further develop network services technologies, coordinate and prioritize strategic and operational issues among Sony’s various business units and sales channels, continually introduce enhanced, energy efficient and competitively priced hardware that is seamlessly connected to energy efficient network platforms with user interfaces that are innovative and attractive to consumers and also standardize technological and interface specifications industry-wide and across Sony’s networked products and business units. In addition, the G&NS, Music and Pictures segments must invest substantial amounts, which may include significant upfront investments, in internally developed software titles, artist advances, music catalogs, motion picture productions, television productions and broadcast programming before knowing whether their products will receive customer acceptance. Furthermore, underperformance of Pictures’ products in the initial distribution market is correlated with weak performance in subsequent distribution markets, which would have an adverse effect on Sony’s results in the year of initial release as well as future years.The successful introductions of, and transitions to, new products and services depend on a number of factors, such as the timely and successful completion of development efforts, market acceptance, planning and executing an effective marketing strategy, managing new product introductions, managing production
ramp-up
issues, the availability of application software for new products, quality control and the concentration of consumer demand in theyear-end
holiday season. If Sony cannot achieve the expected results from its investment in R&D, adequately manage frequent introductions of new products and services and obtain consumer acceptance of its new products and services, or if Sony is not successful in implementing its integration strategy, Sony’s reputation, operating results and financial condition may be adversely impacted.Sony’s strategic initiatives, including acquisitions, joint ventures, investments, capital expenditures and restructurings, may not be successful in achieving their strategic objectives.
Sony actively engages in acquisitions, joint ventures, capital expenditures and other strategic investments to acquire new technologies, efficiently develop new businesses and enhance its business competitiveness. For
example, in September 2020, in order to achieve further growth and strengthen governance within the financial services business with the goal of enhancing the corporate value of the entire Sony Group, Sony acquired all of the common shares and related stock acquisition rights of Sony Financial Group Inc. (“SFGI”) not held by Sony and made SFGI a wholly-owned subsidiary of Sony, spending 396.7 billion yen. In addition, in the fiscal year ended March 31, 2021,2022, Sony investedmade an additional strategic investment in Bilibili Inc. (“Bilibili”) and Epic Games, Inc. (“Epic Games”), and acquiredin which Sony already held a minority interests in both companies, with the goal of accelerating business expansion in the area of entertainment. In the fiscal year ended March 31, 2022, Sonyinterest; acquired 100% of the shares and related assets of certain subsidiaries of Kobalt Music Group Limited (“Kobalt”) including AWAL, Kobalt’s music distribution business mainly for independent recording artists, and Kobalt Neighbouring Rights, Kobalt’s music neighboring rights management business, for consideration of 49.8 billion yen. In addition, in the fiscal year ended March 31, 2022, Sony made an additional strategic investment in Epic Games,business; acquired 100% of the equity interest in Ellation Holdings, Inc. (“Ellation”), a subsidiary of AT&T Inc. which operated the anime business Crunchyroll,Crunchyroll; made a minority investment in Japan Advanced Semiconductor Manufacturing Inc. (“JASM”), a subsidiary of Taiwan Semiconductor Manufacturing Company Limited (TSMC),; and acquired 100% of the shares and related assets of Som Livre, an independent music label in Brazil. In the fiscal year ended March 31, 2023, Sony acquired 100% of the shares of
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Bungie, Inc. (“Bungie”) an independent videogame developer in the United States; made an additional strategic investment in Epic Games; and established a joint venture with Honda Motor Co., Ltd. in the mobility field.
In some cases, the completion of mergers and acquisitions is subject to certain closing conditions, including regulatory approvals. As a result of anti-trust laws and regulations and anti-trust regulatory authorities becoming stricter, regulatory reviews following the signing of a definitive agreement may take longer than expected, or Sony may fail to obtain regulatory approvals, resulting in the loss of business opportunities and Sony’s inability to realize some or all of the initially expected results of mergers and acquisitions. As of the date of this report, mergers and acquisitions that Sony has already signed definitive agreements for and whose completion is subject to regulatory approvals include Sony Interactive Entertainment’s acquisition of Bungie, Inc. (“Bungie”), an independent videogame developer in the United States, and the merger of Sony Pictures Networks India (“SPNI”) with Zee Entertainment Enterprises Ltd. (“Zee”), a publicly listed Indian media and content company.
While Sony performs a comprehensive analysis and evaluation of merged or acquired organizations prior to their acquisition from various perspectives such as technology, accounting, tax, finance, human resources (“HR”) and legal, Sony’s financial results may be adversely affected by factors including the significant cost of the acquisition and/or integration expenses, IT and information security risks introduced from newly acquired organizations, failure to achieve initially expected synergies, failure to generate expected revenue and cost improvements, loss of key personnel and assumption of liabilities.
When establishing joint ventures and strategic partnerships, Sony’s financial and operating results may be adversely affected by strategic or cultural differences with partners, conflicts of interest, failure to achieve synergies, additional funding or debt guarantees required to maintain the joint venture or partnership, requirements to buy out a joint venture partner, sell its shares or dissolve a partnership, insufficient management control including control over cash flow, loss of proprietary technology and
know-how,
impairment losses and reputational harm from the actions or activities of a joint venture that uses the Sony brand.Sony invests heavily in production facilities and equipment, including fabrication facilities used to make image sensors for smartphones and other products. Sony may not be able to execute these capital expenditures as planned or recover these capital expenditures in part or full or in the planned timeframe due to the competitive environment, lower-than-expected consumer demand, changes in the financial condition or business decisions of Sony’s major customers, or delays in the procurement of production facilities and equipment. Sony invested 180.0237.1 billion yen and 237.1355.9 billion yen of capital in the fiscal years ended March 31, 20212022 and 2022,2023, respectively, mainly for the purpose of increasing image sensor production capacity.
Further, Sony is implementing initiatives for restructuring and transformation to enhance profitability, business autonomy and shareholder value or to clearly position each business within the overall business portfolio. However, the expected benefits of these initiatives, including the expected level of profitability, may not be realized due to internal and external impediments or market conditions worsening beyond expectations. If Sony is not successful in achieving its restructuring and transformation initiatives, Sony’s operating results, financial condition, reputation, competitiveness or profitability may be adversely affected.
Sony’s sales and profitability may be affected by the operating performance of wholesalers, retailers, other resellers and third-party distributors.
Sony is dependent for the distribution of its products on wholesalers, retailers, other resellers and third-party distributors, many of whom also distribute competitors’ products. For example, in some cases, Sony’s smartphones sold through cellular network carriers are subsidized by the carriers. There is no assurance that such subsidies will be continued at all or in the same amounts upon renewal of Sony’s agreements with these carriers
or in agreements Sony enters into with new carriers. In addition, the Pictures segment depends on third parties to theatrically exhibit its motion pictures, and to operate cable, satellite, internet and other distribution systems to distribute its motion pictures and television programming. A decline in the licensing fees received from these third parties may adversely affect the Pictures segment’s sales. The Pictures segment’s worldwide television networks are also distributed on third-party cable, satellite and other distribution systems and the failure to renew, or the renewal on less favorable terms of, television carriage contracts (broadcasting agreements) with these third-party distributors may adversely affect the Pictures segment’s ability to generate advertising and subscription sales through these networks.
Sony invests in programs to incentivize wholesalers, retailers, and other resellers and third-party distributors to position and promote Sony’s products, but there is no assurance that these programs will provide a significant return or incremental revenue by persuading consumers to buy Sony products instead of competitors’ products.
The operating results and financial condition of many wholesalers, retailers, other resellers and third-party distributors have been adversely impacted by competition, especially from online retailers, and weak economic
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conditions. If their financial condition continues to weaken, they stop distributing Sony’s products, or uncertainty regarding demand for Sony’s products or other factors cause them to reduce their ordering, marketing, subsidizing, or distributing Sony’s products, Sony’s operating results and financial condition may be adversely impacted.
As a global company, Sony is subject to a wide range of laws and regulations and a growing consumer focus on corporate social responsibility in many countries. Those laws and regulations, as well as consumer and regulator focus, might change in significant ways, leading to an increase in the costs of Sony’s operations, a curtailment of Sony’s activities, and/or an adverse effect on Sony’s reputation.
As a global company, Sony is subject to the laws and regulations of many countries throughout the world that affect its business operations in a number of areas, including advertising, promotions, consumer protection, import and export requirements, anti-corruption, anti-trust, environmental protection (including decarbonizing regulations in connection with actions against climate change), data privacy and data protection, content and broadcast regulation, intellectual property, labor, product liability, taxation (including taxes from certain revenue on digital services), foreign investment, government procurement, foreign exchange controls, and economic sanctions.
Compliance with these laws and regulations may be onerous and expensive. These laws and regulations continue to develop and may be inconsistent from jurisdiction to jurisdiction, further increasing the cost of compliance and doing business. Any such developments could occur frequently and without warning and could make Sony’s products or services less attractive to its customers, delay or prohibit introduction of new products or services in one or more regions or cause Sony to change or limit its business practices. For example, imposition of restrictive trade measures in the United States and elsewhere, as well as retaliatory actions against such measures, could result in increased customs duties applicable to Sony’s products or increased costs for procuring parts and components, and could limit or prohibit the sales of Sony’s products and services to certain of its current or potential customers, which may adversely affect Sony’s operating results and financial condition. In the I&SS segment, Sony suspended product shipments of image sensors to a certain Chinese customer from September 15, 2020, pursuant to export restrictions announced by the U.S. government on August 17, 2020. As a result, image sensor sales decreased compared to before the export restrictions came into effect, although Sony resumed a portion of shipments to the customer after receiving a U.S. export license. Sony also recorded inventory write-downs of certain image sensors for the same customer in the fiscal year ended March 31, 2021. In addition, changes in laws or regulations or the judicial interpretation thereof that Sony relies on or Sony is subject to in conducting its operations, including online operations, as well as Sony’s failure to anticipate such changes, may subject Sony to greater risk of liability, increase the costs of compliance, or limit Sony’s ability to engage in or expand certain operations or lead to discontinuance of certain operations.
Violation of applicable laws or regulations by Sony, its officers or employees, third-party suppliers, business partners andor agents may subject Sony to monetary fines, penalties, legal judgments, restrictions on business operations and/or reputational damage. Additionally, there is a growing global regulatory and consumer focus on sustainability efforts, including corporate social responsibility and sourcing practices, andas well as increasing regulatory obligations of public disclosure regarding these matters. In particular, there is increased attention on labor practices, including work environments at electronic component manufacturers, and original equipment manufacturers/original design manufacturing/original equipment manufacturing, or ODM/OEM,manufacturers (OEM/ODM), and product manufacturers operating in Asia. Increased regulation or public pressure in this area could cause Sony’s compliance costs to increase, particularly since Sony uses many parts, components and materials to manufacture its products and relies on suppliers to provide these parts, components and materials but does not
directly control the suppliers’ procurement or employment practices. A finding of
non-compliance,
or the perception that Sony has not responded appropriately to growing consumer concern for such issues, whether or not Sony is legally required to do so, may adversely affect Sony’s reputation, operating results and financial condition.Sony must manage its large volume of and widespread procurement from third-party suppliers and business partners to control inventory levels, availability, costs and quality of parts, components, materials, software and network services within volatile markets.
Sony’s products and services rely on a large volume of third-party suppliers and business partners for parts, components, materials, software and network services, including semiconductors, chipsets for PlayStation
®
game consoles and mobile products, LCD (liquid crystal display) panels and the Android OS that is used in mobile products, televisions and services. As a result, external suppliers’ and partners’ supply shortages, fluctuations in pricing, quality issues, discontinued support, changes in business terms or prioritization of customers outside the electronics area or of Sony’s competitors can adversely affect Sony’s operating results, brand and reputation. For- 9 -
example, although Sony continues to strive to secure a necessary supplythe Entertainment Technology & Services (“ET&S”)* segment was affected by the global shortage of semiconductors and other components, the global shortages of semiconductors and other components thatwhich became pronounced infrom the latter half of the fiscal year ended March 31, 2021 continuedthrough the first half of the fiscal year ended March 31, 2023 and caused Sony to continue to be unable to fully meet market demand. Although global demand for semiconductors and other components was on a declining trend as of the end of the fiscal year ended March 31, 2022. Additionally, logistical disruptions around the world have led to increasing lead times for procurement and shipping, resulting in an inability to adequately meet market demand for sales of hardware in the G&NS segment and a wide range of products in the EP&S segment. Worsened or prolonged supply shortages may further adversely affect the2023, Sony’s operating results of the G&NS, EP&S and I&SS segments.financial condition could be affected if demand becomes strong again. Reliance on third-party software and technologies may make it increasingly difficult for Sony to differentiate its products from competitors’ products. Also, shortages or delayed shipments of critical parts or components may result in a reduction or suspension of production at Sony’s or its business partners’ manufacturing sites, particularly where Sony is substantially reliant on one supplier, where there is limited production capacity for custom parts or components, or where there are initial manufacturing capacity constraints for products, parts or components that use new technologies.
Sony places orders for parts and components in line with production and inventory plans determined in advance based on its forecast of consumer demand, which is highly volatile and difficult to predict. Inaccurate forecasts of consumer demand or inadequate business planning can lead to a shortage or excess inventory, which can disrupt production plans and result in lost sales opportunities or inventory adjustments, respectively. Sony writes down the value of its inventory when the underlying parts, components or products have become obsolete, when inventory levels exceed the amount expected to be used, or when the value of the inventory is otherwise recorded at a value higher than net realizable value. Such lost sales opportunities, inventory adjustments, or shortages of parts and components have had and may have an adverse impact on Sony’s operating results and financial condition.
* The former Electronics Products & Solutions (EP&S) segment was renamed the Entertainment, Technology & Services (ET&S) segment effective from April 2022.
Sony’s sales, profitability and operations are sensitive to global and regional economic and political trends and conditions.
Sony’s sales and profitability are sensitive to economic trends in its major markets, such as inflation. In the fiscal year ended March 31, 2022, 27.9%2023, 23.3%, 27.9%29.5% and 18.8%19.0% of Sony’s sales and financial services revenue were attributable to Japan, the U.S. and Europe, respectively. These markets may be subject to significant economic downturns, resulting in an adverse impact on Sony’s operating results and financial condition. An actual or expected deterioration of economic conditions in any of Sony’s major markets may result in a decline in consumers’ consumption and adverse impacts on the businesses of commercial customers, resulting in reduced demand for Sony’s products and services.
In addition, Sony’s operations are conducted in many countries and regions around the world, and these international operations, particularly in certain emerging markets, can create challenges. For example, in the EPET&S, I&SS and G&NS segments, production and procurement of products, parts and components in China and other Asian countries and regions increase the time necessary to supply products to other markets worldwide, which can make it more difficult to meet changing customer demand in a timely manner. Further, in certain countries and regions, Sony may encounter difficulty in planning and managing operations due to unfavorable political or economic factors, such as armed conflicts, deterioration in foreign relations, changes in trade policies,
non-compliance
with expected business conduct and a lack of adequate infrastructure. If international or domestic political and military instability disrupts Sony’s business operations or those of its business partners Sony’s operating results and financial condition may be adversely affected. For example, as a response to the worsening of the situation in Ukraine and Russia that began in the fiscal year ended March 31, 2022, as of thedate of this report, Sony has suspended its business in Russia. If this situation worsens further in the future, it could create global uncertainty, possibly leading to the worsening of Sony’s businesses in other regions or a deterioration in global economic conditions resulting in an adverse impact on Sony’s operating results and financial condition.
Foreign exchange rate fluctuations can affect Sony’s operating results and financial condition.
Sony’s operating results and financial condition are sensitive to foreign exchange rate fluctuations because many of Sony’s products are sold in countries other than the ones in which they were developed and/or manufactured. For example, within Sony’s electronics area, R&D and headquarters’ overhead costs are incurred mainly in yen, and manufacturing costs, including material costs, costs of procurement of parts and components, and costs of outsourced manufacturing services, are incurred mainly in U.S. dollars and yen. Sales are recorded in yen, U.S. dollars, euros, Chinese renminbi, and local currencies of other areas, including emerging markets. Consequently, foreign exchange rate fluctuations have had and may have an adverse impact on Sony’s operating results, especially when the yen or the euro weaken significantly against the U.S. dollar, when the yen
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strengthens significantly against the euro, or when the U.S. dollar strengthens against emerging market currencies. Sony’s operating results may also be adversely impacted by foreign exchange rate fluctuations since Sony’s consolidated statements of income are prepared by translating the local currency denominated operating results of its subsidiaries around the world into yen. Furthermore, as Sony’s businesses have expanded in China and other areas, including emerging markets, the impact of fluctuations of foreign currency exchange rates in these areas against the U.S. dollar and yen has increased.
Mid-
to long-term changes in exchange rate levels may interfere with Sony’s global allocation of resources and hinder Sony’s ability to engage in R&D, procurement, production, logistics, and sales activities while maintaining profitability.Although Sony seeks to reduce its exposure to foreign exchange risk by hedging a portion of its net short-term foreign currency exposure shortly before the transactions occur, such hedging activity may not offset, or may offset only a portion of, the adverse financial effects of unfavorable movements in foreign exchange rates over the limited time the hedges are in place.
Moreover, since Sony’s consolidated statements of financial position are prepared by translating the local currency denominated assets and liabilities of its subsidiaries around the world into yen, Sony’s equity capital may be adversely impacted when the yen strengthens significantly against the U.S. dollar, the euro and/or other foreign currencies.
Ratings downgrades or significant volatility and disruption in the global financial markets may adversely affect the availability and cost of Sony’s funding.
Sony’s credit ratings may be adversely impacted by unfavorable operating results and a decline in its financial condition. Any credit rating downgrades may, in turn, result in an increase in Sony’s cost of funding and may have an adverse impact on Sony’s ability to access commercial paper (“CP”) or
mid-
to long-term debt markets on acceptable terms.Additionally, global financial markets may experience significant levels of volatility and disruption, generally putting downward pressure on financial and other asset prices and impacting credit availability. Historically, Sony’s primary sources of funds have been cash flows from operations, the issuance of commercial paperCP and other debt securities, such as term debt, as well as borrowings from banks and other institutional lenders. There can be no assurance that such sources will continue to be available on acceptable terms or be sufficient to meet Sony’s needs.
As a result, Sony may seek other sources of financing to fund operations, such as the draw-down of funds from contractually committed lines of credit from financial institutions or the sale of assets, in order to repay commercial paperCP and
mid-
to long-term debt as they become due, and to meet other operational and liquidity needs. However, such funding sources may also not be available at acceptable terms or be sufficient to meet Sony’s requirements. As a result, Sony’s operating results, financial condition and liquidity may be adversely affected.Sony’s success depends on the ability to recruit, retain and maintain productive relations with diverse people who embrace a challenging spirit and possess the ambition to grow.
In order to continue to create content, develop services, design, manufacture, market, and sell products, in increasingly competitive markets, Sony must attract, retain and maintain productive relations with key personnel,
both internally and externally, who possess high levels of expertise and broad experience, including its executive team, other management professionals, creative talent, and hardware and software engineers. However, such key personnel are in high demand. In addition, business divestitures, restructuring or other transformation initiatives may lead to an unintended loss of experienced human resourcesemployees or
know-how.
Actual or threatened work slowdowns or stoppages related to unionized workers, particularly in the entertainment field, could lead to delayed releases or cost increases. For example, in the Pictures segment, the Writers Guild of America (“WGA”) went on strike effective May 2, 2023. If this strike is prolonged, it may adversely affect the operating results of the Pictures segment. Furthermore, in Japan, with a declining workforce due to the falling birthrate and aging population, intensifying competition among companies for specialized talent, and rising labor costs, it may become difficult to secure the necessary talent if Sony’s HR system is inadequate in its design and operations. If these incidents occur or if Sony is unable to attract, retain and maintain productive relations with employees with high levels of expertise and broad experience as well as key management professionals, Sony’s operating results and financial condition may be adversely affected.Sony’s intellectual property might be subject to unauthorized use or theft and it might encounter restrictions in its use of intellectual property owned by third parties.
Sony’s intellectual property might be subject to unauthorized use or theft. For example, digital technology, the availability of digital media, and global internet penetration impact Sony’s ability to protect its copyrighted
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content from unauthorized duplication, digital theft and counterfeiting, putting pressure on legitimate product sales. Sony has incurred and will continue to incur expenses to help protect its intellectual property rights; however, Sony’s various initiatives to prevent such unauthorized use or theft of intellectual property might not achieve their intended result, which could adversely affect Sony’s competitive position and the value of its investment in R&D. Additionally, Sony’s intellectual property rights may be challenged or invalidated, or such intellectual property rights may not be sufficient to provide Sony with competitive advantages.
Many of Sony’s products and services are designed under the license of patents and other intellectual property rights owned by third parties. Based upon past experience and industry practice, Sony believes it will be able to obtain or renew licenses relating to various intellectual property rights that its business needs in the future; however, such licenses may not be available at all or on acceptable terms, and as a consequence Sony may need to redesign or discontinue its marketing, selling or distribution of such products or services.
Claims have been and may be asserted against Sony that its products or services, including third-party parts, components, software and network services used in Sony’s products or services, infringe the intellectual property rights of other parties. Such claims may be asserted by competitors or by other rights holders, particularly as products and services evolve to include new technologies and enhanced functionality. Such claims might require Sony to enter into settlement or license agreements, pay significant damage awards, face an injunction or refrain from marketing, selling or distributing certain of its products and services.
The failure to prevent unauthorized use or theft of Sony’s intellectual property rights, the failure to enter into licenses for necessary third-party intellectual property rights, the invalidation of Sony’s intellectual property rights or the settlement of an infringement claim against Sony by others may adversely impact Sony’s reputation, operating results and financial condition.
Changes in consumer behavior resulting from new technologies and distribution platforms, as well as increasing concentration of digital music distributors and creation of content by distributors themselves, may adversely affect operating results in the Music and Pictures segments.
Technology, particularly digital technology, used in the Music and Pictures segments continues to evolve, rapidly leading to alternative methods and platforms for the discovery and consumption of digital content. These technological advancements have changed consumer behavior and empowered consumers to seek more control over when, where and how they consume digital content.
The prevalence of digital streaming networks and other new media may negatively impact traditional television and
in-theater
motion picture viewership, which could adversely affect operating results of the Pictures segment.Furthermore, as more music and video content is consumed over digital streaming networks, digital music distributors are becoming increasingly concentrated, which may decrease the competitiveness of Sony’s music content and adversely affect its pricing. In addition, digital music and video distributors may increase the amount of content they create for their own services, which may reduce the demand for content created or produced by Sony. If Sony is unable to adequately respond to these changes or fails to effectively adapt to new market changes, Sony’s operating results and financial condition may be adversely impacted.
Changes in the regulation and performance of financial markets may adversely affect the operating results and financial condition of the Financial Services segment.
The Financial Services segment operates in industries subject to comprehensive regulation and supervision, including the Japanese insurance and banking industries. Future developments or changes in laws, regulations or policies may lead to increased compliance costs or limitations on operations in the Financial Services segment. In addition, lending and borrowing between Sony’s subsidiaries in the Financial Services segment and other companies within Sony Group Corporation’s ability to receive funds from its wholly-owned subsidiary SFGI in the form of financial support or loans is restrictedstrictly limited by guidelines issued by regulatory agencies in Japan.
Changes in interest rates, foreign exchange rates and the value of Japanese government and corporate bonds, U.S. treasury bonds, equities, real estate and other asset classes may have an adverse effect on the operating results and financial condition of the Financial Services segment. For example, the life insurance business has invested most of its general account assets in ultra-long-term Japanese government and corporate bonds, as well as ultra-long-term U.S. treasury bonds, to match the liability characteristics of the long-term maturity insurance policies it has underwritten. The life insurance business has guaranteed yields on outstanding policies while its investment portfolio could be reduced by the market changes discussed above. The banking business has invested most of its total loan balance, or over half of its total assets, in its mortgage loans account. An increase in
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non-performing
loans or a decline in prices of the real estate collateral from the market changes discussed above or deterioration of credit quality may have an adverse effect on the operating results and financial condition through an increase in the allowance for credit losses.The market changes discussed above, Sony’s management of these changes or the occurrence of earthquakes, pandemic disease or other catastrophic events in Japan could expose the life andmeet policy commitments.satisfy insurance contract liabilities.
non-life
insurance businesses to increasing costs or adverse impact on their ability to Sony’s facilities and operations are subject to damage and disruption as a result of catastrophic disasters, outages, pandemic diseases including
COVID-19,
or similar events that could lead to supply chain, manufacturing and other business disruptions and have an adverse impact on Sony’s operating results.Sony’s headquarters and many of Sony’s most advanced manufacturing facilities, including those for image sensors, are located in Japan, where the risk of earthquakes is relatively high. A major earthquake in Japan, especially in Tokyo, the Tokai area or the Kyushu and Tohoku areas, where Sony headquarters, certain consumer electronics product manufacturing sites and image sensor manufacturing sites, respectively, are located, could cause substantial damage to Sony’s business operations, including damage to buildings, machinery, equipment and inventories, and the interruption of production at manufacturing facilities. For example, the earthquake of April 14, 2016 and subsequent earthquakes in the Kumamoto region in Japan caused damage to an image sensor manufacturing site in Kyushu, which interrupted production at the site.
In addition, offices and facilities used by Sony, its suppliers, service providers and business partners, including those used for network, telecommunications and information systems infrastructure, R&D, material procurement, manufacturing, motion picture and television production, logistics, sales, and online and other services are located throughout the world and are subject to possible destruction, temporary stoppage or disruption as a result of unexpected catastrophic events such as natural disasters, pandemic diseases includingstartingregarding the spread of the beginning of the 2020 calendar year, although restrictions including lockdowns have been lifted and the impact on economic activities has lessened around the world, if economic activity stagnates again due to a future resurgence of infections, it could adversely affect the procurement of components and raw materials, production, delays for a portiondevelopment, sale and distribution of Sony’s products occurredand services, resulting in a negative impact on Sony’s operating results and financial position. In the G&NS segment, the production of hardware could be adversely affected again due to temporaryissues in the component supply chain. In the Music segment,reduced operations atin-housemanufacturing plants, factories to which Sony outsources and at Sony’s third-party suppliers, as a resultthe closure of the spread ofretail stores globally.
COVID-19,
terrorist attacks, armed conflicts, large-scale power outages and large-scale fires. If any of these facilities or offices were to experience a significant loss as a result of any of the above events, it may disrupt Sony’s operations, delay design, development or production, interrupt shipments and postpone the recording of sales, and/or result in large expenses to repair or replace these facilities or offices. For example, COVID-19
beginning inin-person
concerts and other events could be restricted again, causing related revenues to decrease. In the Pictures segment, if movie theaters are once again forced to close or limit their capacity, Sony’s theatrical revenues may decrease. Additionally, depending on the status of lockdowns or other anti-infection measures, as well as future increases in infections, Sony may be impacted by delays in the production schedules of new motion pictures and television programming, as well as decreased advertising revenue. The ET&S segment could continue to be adversely impacted by factory shutdowns or declines in factory utilization, supply chain issues and Sony may also be exposed to price increases for raw materials, parts and components, and lower demand from commercial customers. These situations may have an adverse impact on Sony’s operating results and financial condition. In addition, extreme weather conditions may
become more severe and frequent as the temperature rises due to the effects of climate change, and such extreme weather conditions could heighten the risks and uncertainties noted above.
Sony’s brand image, reputation and business may be harmed and Sony may be subject to legal claims if there is a breach or other compromise of Sony’s information security or that of its third-party service providers or business partners.
Sony, its third-party service providers, suppliers and other business partners make extensive use of information technology to support business operations, and to provide network and online services to customers. These operations and services, as well as Sony’s business information, may be intentionally or inadvertently compromised by malicious third parties, including state-sponsored organizations, criminal organizations, SonySony’s
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officers or employees, third-party service providers or other business partners. Such organizations or individuals may use a variety and combination of techniques, such as installing malicious software, exploiting vulnerabilities in information technology, using social engineering to mislead officers, employees and business partners into disclosing passwords and sensitive information, and coordinating distributedattacks to render services unavailable. As cyber-attacks become increasingly sophisticated and automated, and as tools and resources become more readily available, there can be no guarantee that Sony’s actions, security measures and controls designed to prevent, detect or respond to outside intrusion, limit access to data, prevent loss, destruction, alteration, or exfiltration of business information, or limit the negative impact from such attacks can provide absolute security. In addition, Sony’s officers or employees have been working both in the office and at home following the spread offiscal year ended March 31, 2015,G&NS segment, the internal network and IT infrastructure in the Pictures segment, was subject to a cyber-attack that resulted in unauthorized access to, and theft and disclosure of, Sony business information, including employee information and other information, and the destruction of data. Additionally, Sony’s network services, online game businesses and websites have been subject to cyber-attacks, by groups and individuals with a range of motives and expertise, resulting in unauthorized access, denial of service, and the theft and/or disclosure of Sony’s business information, including officer and employee information, customer information.information, and other information, as well as the destruction of data.
denial-of-service
COVID-19
and this practice is expected to continue. Although Sony takes measures to ensure that appropriate information security protections are in place for the remote workforce, there can be no guarantee that Sony’s actions, security measures and controls designed to prevent, detect or respond to outside intrusion, limit access to data, prevent loss, destruction, alteration, or exfiltration of business information, or limit the negative impact from such attacks, can provide absolute security. As a result, Sony’s business information, including personally identifiable information, may be lost, destroyed, disclosed, misappropriated, altered, or accessed without consent, and Sony’s information technology systems or operations, or those of its service providers or other business partners, may be disrupted. Malicious adversaries may also use unauthorized access to Sony’s networks as a platform to compromise Sony’s third-party business partners without Sony’s knowledge. Sony has previously been the subject of sophisticated and targeted attacks. For example, network services in the Any of the above incidents can result in significant remediation costs. In addition, a disruption to Sony’s network and online services, information technology, or other compromise of its information security may have serious consequences to its business and operations, including lost revenues, damage to relationships with business partners and other third parties, disclosure, alteration, destruction or use of proprietary information and the failure to retain or attract customers. Moreover, such disruptions and breaches may result in a diversion of management’s attention and resources. Further, it may result in adverse media coverage, which may harm Sony’s brand image and reputation. Sony may also be subject to legal claims or legal proceedings, including regulatory investigations and actions. Sony’s cyber insurance may not cover all expenses and losses and, accordingly, such breaches or other compromises of Sony’s information security or that of its third-party service providers or business partners may have an adverse impact on Sony’s operating results and financial condition.
Sony’s businessreputation, operating results and financial condition may sufferbe adversely affected as a result of adverse outcomes of litigation and regulatory actions.
Sony faces the risk of litigation and regulatory actions in different countries in connection with its operations. Legal proceedings, including regulatory actions, may seek to recover very large indeterminate amounts or to limit Sony’s operations, and the possibility that they may arise and their magnitude may remain unknown for substantial periods of time. For example, legal proceedings, including regulatory actions, may result from antitrust scrutiny of market practices for anti-competitive conduct. A substantial legal liability or adverse regulatory outcome and the substantial cost to defend the litigation or regulatory actions may have an adverse effect on Sony’s reputation, operating results and financial condition.
Sony is subject to financial and reputational risks due to product quality, product security, and liability issues.
Sony’s products and services, such as consumer electronics products,
non-consumer
products, parts and components, semiconductors, software and network services are becoming increasingly sophisticated and complicated as rapid advancements in technologies occur and as demand increases for mobile products and online services. Also, many Sony products are connected to the internet, and regularly communicate with services provided by Sony or third parties.Sony’s efforts to adapt to rapid advancements in technologies and increased demand for mobile products and online services, while also maintaining product quality and product security, may not be successful and may increase exposure to product liability. As a result, Sony may incur both reputational damages and expenses in connection with, for example, product recalls and after-sales services. In addition, Sony may not be successful in introducing after-sales upgrades, enhancements or new features to existing products and services, or in enabling existing products and services to continue to conveniently and effectively integrate with other technologies and online services. Moreover, cyber-attacks targeting internet-connected products have increased significantly. For
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example, customer information and Sony or third-party technical information may be misappropriated, the functionality of Sony’s products and services may be impaired, or Sony products may be used inattacks. There can be no guarantee that Sony’s security measures will prevent products from being compromised.
denial-of-service
As a result, the quality of Sony’s existing products and services may not remain satisfactory to consumers and become less marketable, less competitive or obsolete, and Sony’s reputation, operating results and financial condition may be adversely affected. Moreover, allegations of security vulnerability, health and safety issues related to Sony products, or lawsuits related to product quality, health issues arising from products or product safety, regardless of merit, may adversely impact Sony’s operating results and financial condition, either directly or as a result of the impact on Sony’s brand image and reputation as a producer of high-quality products and services. These issues are relevant to Sony products sold directly to customers, whether manufactured by Sony or a third party, and also to products of other companies that are equipped with Sony’s components, such as semiconductors.
Sony’s financial results and condition may be adversely affected by its employee benefit obligations.
Sony recognizes a net defined benefit liability or asset for its defined benefit pension plans based on (i) the present value of defined benefit obligations (“DBO”) under each pension plan less (ii) the fair value of plan assets, in accordance with the accounting guidance for defined benefit plans. If the fair value of plan assets is in excess of the present value of DBO, the amount of any asset to be recognized is limited to the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan. Any decrease in the fair value of plan assets or increases in the present value of DBO due to a lower discount rate and changes in certain other actuarial assumptions may increase or decrease the net defined benefit liability or asset and may have an adverse effect on Sony’s financial results and condition.
Also, Sony’s financial results and condition could be adversely affected by future pension funding requirements pursuant to the Japanese Defined Benefit Corporate Pension Plan Act (“(the “Pension Plan Act”). Under the Pension Plan Act, Sony is required to conduct a periodic actuarial revaluation and to ascertain whether certain financial criteria have been met after the annual accounting closing. In the event that the fair value of plan assets falls below the actuarial reserve required by law and the shortfall may not be recovered within a certain moratorium period permitted by laws and/or special legislative decree, Sony may be required to make an additional contribution to its plans, which may reduce cash flows. Similarly, if Sony is required to make an additional contribution to a foreign plan to meet any funding requirements in accordance with local laws and regulations in each country, Sony’s cash flows might be adversely affected. If Sony is required to increase cash contributions to its pension plans when actuarial assumptions, such as an expected long-term rate of return of the plan assets, are updated for purposes of determining statutory contributions, it may have an adverse impact on Sony’s cash flows.
Further losses in tax jurisdictions where Sony has assessed deferred tax assets as unrecognized, the inability of Sony to fully utilize its deferred tax assets, limitations on the use of its deferred tax assets under local law, exposure to additional tax liabilities or changes in Sony’s tax rates could adversely affect Sony’s operating results and financial condition.
Sony is subject to income taxes in Japan and numerous other jurisdictions, and in the ordinary course of its business there are many situations where the ultimate tax determination can be uncertain, because of the transfer pricing for its intercompany transactions, and because Sony is subject to continuous review by tax authorities of numerous jurisdictions. The calculation of Sony’s tax provision and the carrying value of tax assets, including net operating loss carryforwards and tax credit carryforwards, require significant judgment and the use of estimates, including estimates of future taxable income. At the end of each reporting period, Sony reassesses unrecognized deferred tax assets and determines whether these assets should be recognized. As of March 31, 2022,2023, the unrecognized deferred tax assets amounted to 240.8237.3 billion yen. An increase in unrecognized deferred tax assets may have an adverse impact on Sony’s operating results and financial condition.
Deferred tax assets are evaluated on a jurisdiction by jurisdiction basis. As of March 31, 2022,2023, Sony and/or its subsidiaries had unrecognized deferred tax assets, principally in Japan for local taxes. Additionally, deferred tax assets could expire unused or otherwise not be realizable for a variety of reasons including the lack of sufficient taxable income in the appropriate jurisdiction. Sony’s operating results and financial condition could be adversely affected when the deferred tax assets expire unused.
In some jurisdictions, the use of net operating loss carryforwards or tax credits to reduce taxable income in a subsequent period is limited to a fixed percentage of taxable income or may only be used to offset taxes on
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income from certain sources. Thus, it is possible that even with significant net operating loss carryforwards or tax credits, Sony could record and pay taxes in a jurisdiction where it has taxable income.
In addition to the above, Sony’s businesses may be subject to new forms of gross basis taxation and transactional taxes, including digital service taxes. Although such taxes may not directly impact Sony’s effective tax rate, they may nevertheless have an adverse impact on its operating results and financial condition.
Sony could incur asset impairment losses for goodwill, content assets and other intangible assets or other
non-current
assets.Sony has a significant amount of goodwill, content assets, other intangible assets and other
non-current
assets, including production facilities and equipment. A decline in financial performance, market capitalization, reduced estimates of future cash flows, changes in global economic conditions or changes in estimates and assumptions used in the impairment analysis, which in many cases requires significant judgment, could result in impairment losses against these assets. Events or changes in circumstances which would indicate impairment include unfavorable variances from or adjustments to established business plans, significant changes in forecasted results or volatility inherent to external markets and industries. The increased levels of global competition and the faster pace of technological change to which Sony is exposed can result in greater volatility of these estimates, assumptions and judgments, and increase the likelihood of impairment losses. Any such loss may adversely affect Sony’s operating results and financial condition.Holders of American Depositary Shares have fewer rights than shareholders and may not be able to enforce judgments based on U.S. securities laws.
The rights of shareholders under Japanese law to take actions, including voting their shares, receiving dividends and distributions, bringing derivative actions, examining Sony’s accounting books and records, and exercising appraisal rights, are available only to shareholders of record. Because the depositary, through its custodian agents, is the record holder of the shares underlying the American Depositary Shares (“ADSs”), only the depositary can exercise those rights in connection with the deposited shares. The depositary will make efforts to vote the shares underlying ADSs in accordance with the instructions of ADS holders and will pay the dividends and distributions collected from Sony. However, ADS holders will not be able to bring a derivative action, examine Sony’s accounting books and records, or exercise appraisal rights through the depositary.
Sony Group Corporation is incorporated in Japan with limited liability. A majority of Sony’s directors and corporate executive officers are
non-U.S.
residents, and a substantial portion of the assets of Sony Group Corporation and the assets of Sony’s directors and corporate executive officers are located outside the U.S. As a result, it may be more difficult for investors to enforce against Sony Group Corporation or such persons, judgments obtained in U.S. courts predicated upon civil liability provisions of the federal and state securities laws of the U.S. or similar judgments obtained in other courts outside Japan. There is doubt as to the enforceability in Japanese courts, in original actions or in actions for enforcement of judgments of U.S. courts, of civil liabilities predicated solely upon the federal and state securities laws of the U.S.Prior notification under the Foreign Exchange and Foreign Trade Act of Japan may be required in the case of an acquisition by a foreign investor of a certain portion of our shares.
Because Sony is engaged in certain businesses designated by the Foreign Exchange and Foreign Trade Act of Japan (the “FEFTA”) and its related cabinet orders and ministerial ordinances (collectively, the “Foreign Exchange Regulations”), if a foreign investor intends to consummate an acquisition of shares of common stock of Sony Group Corporation and that acquisition constitutes an “inward direct investment” under the Foreign Exchange Regulations, the foreign investor, subject to certain exemptions, must file a prior notification of such inward direct investment with the Minister of Finance and any other competent Ministers. Under the Foreign Exchange Regulations, an “inward direct investment” includes an acquisition by a foreign investor of shares of common stock of Sony Group Corporation, the consummation of which results in such foreign investor, in
combination with any existing shareholding, directly or indirectly holding 1% or more of the total number of issued shares of common stock or the total number of voting rights of Sony Group Corporation, unless certain exemptions apply.
If such prior notification is filed, the proposed acquisition may not be consummated until the prescribed screening period expires. In some cases, the Ministers may extend the screening period, and may recommend or
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order any modification or the abandonment of such acquisition. In addition, if certain conditions – including those prescribed in light of the national security of Japan – under the Foreign Exchange Regulations are met, the Ministers may order the foreign investor to divest the shares acquired or take other measures. Consequently, any proposed acquisition by a foreign investor of shares of common stock of Sony Group Corporation that constitutes an “inward direct investment” may not be consummated in an expected time frame in accordance with an intended plan, or at all.
Additionally, if a foreign investor directly or indirectly holds 1% or more of the total voting rights of Sony Group Corporation and, at a general meeting of shareholders, consents to certain proposals having a material influence on the management of Sony Group Corporation such as the (i) election of such foreign investor or any of its related persons (as defined in the Foreign Exchange Regulations) as a director of Sony Group Corporation or (ii) transfer or discontinuation of its business, such consent, subject to certain exemptions, also constitutes an “inward direct investment” requiring prior notification. If such prior notification is filed, such consent cannot be given until the prescribed screening period expires. As a result, such foreign investors may have difficulties giving such consent in accordance with an intended plan, or at all.
The discussion above is not exhaustive of all possible foreign exchange controls considerations that may apply to a particular investor, and potential investors are advised to satisfy themselves as to the overall foreign exchange controls consequences of the acquisition, ownership and disposition of shares of common stock or voting rights of Sony Group Corporation by consulting their own advisors. For a more detailed discussion on the requirements and procedures regarding the prior notifications under the Foreign Exchange Regulations, refer to “D. Exchange Controls” in “Item 10..”
Additional Information
Item 4. | Information on the Company |
A. | History and Development of the Company |
Sony Group Corporation was established in Japan in May 1946 as Tokyo Tsushin Kogyo Kabushiki Kaisha, a joint stock company () under Japanese law. It changed its name to Sony Kabushiki Kaisha (“Sony Corporation” in English) in January 1958, and changed its name again to Sony Group Kabushiki Kaisha (“Sony Group Corporation” in English) in April 2021 in order to focus on its role as the headquarters of the Sony Group.
Kabushiki Kaisha
In December 1958, Sony Group Corporation was listed on the Tokyo Stock Exchange (the “TSE”). In June 1961, Sony Group Corporation issued American Depositary Receipts in the U.S.
In March 1968, Sony Group Corporation established CBS/Sony Records Inc. in Japan, as a
50-50
joint venture company between Sony Group Corporation and CBS Inc. in the U.S. In January 1988, the joint venture became a wholly-owned subsidiary of Sony Group Corporation, and in April 1991, changed its name to Sony Music Entertainment (Japan) Inc. (“SMEJ”). In November 1991, SMEJ was listed on the Second Section of the TSE.In September 1970, Sony Group Corporation was listed on the New York Stock Exchange (the “NYSE”).
In August 1979, Sony Group Corporation established Sony Prudential Life Insurance Co., Ltd. in Japan, as a
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joint venture company between Sony Group Corporation and The Prudential Insurance Company of America. In April 1991, the joint venture changed its name to Sony Life Insurance Co., Ltd. (“Sony Life”). In March 1996, Sony Life became a wholly-owned subsidiary of Sony Group Corporation.In July 1984, Sony Magnescale Inc., a subsidiary of Sony Group Corporation, was listed on the Second Section of the TSE. The subsidiary changed its name to Sony Precision Technology Inc. in October 1996 and then to Sony Manufacturing Systems Corporation in April 2004. In April 2012, Sony Manufacturing Systems was merged into Sony EMCS Corporation. Sony EMCS Corporation changed its name to Sony Global Manufacturing & Operations Corporation in April 2016.
In July 1987, Sony Chemicals Corporation, a subsidiary of Sony Group Corporation, was listed on the Second Section of the TSE. The subsidiary changed its name to Sony Chemical & Information Device Corporation in July 2006, and changed its name again to Dexerials Corporation in October 2012.
In January 1988, Sony Group Corporation acquired CBS Records Inc., the music business division of CBS Inc. in the U.S. The acquired company changed its name to Sony Music Entertainment Inc. in January 1991 and then to Sony Music Holdings Inc. in December 2008.
In November 1989, Sony Group Corporation acquired Columbia Pictures Entertainment, Inc. in the U.S. In August 1991, Columbia Pictures Entertainment, Inc. changed its name to Sony Pictures Entertainment Inc. (“SPE”).
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In November 1993, Sony Group Corporation established Sony Computer Entertainment Inc. in Japan. Sony Computer Entertainment Inc. changed its name to Sony Interactive Entertainment Inc. in April 2016.
In October 1995, Sony/ATV Music Publishing LLC (“Sony/ATV”) was formed as aMusic Publishing LLC changed its name to Sony Music Publishing (US) LLC.
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joint venture company between Sony Group Corporation and Michael Jackson. In September 2016, the joint venture became a wholly-owned subsidiary of Sony Group Corporation. In January 2021, Sony/ATV In January 2000, acquisition transactions by way of a share exchange were completed such that three subsidiaries which had been listed on the TSE — SMEJ, Sony Chemicals Corporation (currently Dexerials Corporation), and Sony Precision Technology Inc. (which was merged into(currently Sony EMCSGlobal Manufacturing & Operations Corporation) — became wholly-owned subsidiaries of Sony Group Corporation. In September 2012, Sony Group Corporation completed the sale of certain of its chemical products businesses, including Sony Chemical & Information Device Corporation (currently Dexerials Corporation) to Development Bank of Japan Inc.
In October 2001, Sony Ericsson Mobile Communications AB (“Sony Ericsson”), a
50-50
joint venture company between Sony Group Corporation and Telefonaktiebolaget LM Ericsson (“Ericsson”) of Sweden, was established. In February 2012, Sony acquired Ericsson’s 50% equity interest in Sony Ericsson. As a result of the acquisition, Sony Ericsson became a wholly-owned subsidiary of Sony and changed its name to Sony Mobile Communications AB.In October 2002, Aiwa Co., Ltd. (“Aiwa”), then a
TSE-listed
subsidiary, became a wholly-owned subsidiary of Sony Group Corporation. In December 2002, Aiwa was merged into Sony Group Corporation.In June 2003, Sony Group Corporation adopted the “Company with Three Committees” corporate governance system in line with the revised Japanese Commercial Code then effective. (Refer to “Board Practices” in “Item 6.”)
Directors, Senior Management and Employees.
In April 2004, Sony Group Corporation established Sony Financial Holdings, Inc. (“SFH”), a financial holding company, in Japan. Sony Life, Sony Assurance Inc. (“Sony Assurance”), and Sony Bank Inc. (“Sony Bank”) became subsidiaries of SFH. In October 2007, SFH was listed on the First Section of the TSE in conjunction with the global initial public offering of shares of SFH by Sony Group Corporation and SFH. In September 2020, SFH became a wholly-owned subsidiary of Sony Group Corporation through Sony’s tender offer for the common shares and the related stock acquisition rights of SFH and the subsequent procedures for the purchase of all of SFH’s remaining common shares. In October 2021, SFH changed its company name to Sony Financial Group Inc. (SFGI)(“SFGI”).
In April 2004,
S-LCD
Corporation(“S-LCD”),
a joint venture between Sony Group Corporation and Samsung Electronics Co., Ltd. of Korea for the manufacture of amorphous thin film transistor LCD (liquid crystal display) panels, was established in Korea. Sony’s stake inS-LCD
was 50% minus 1 share. In January 2012, Sony sold all of its shares ofS-LCD
to Samsung Electronics Co., Ltd.In August 2004, Sony combined its worldwide recorded music business, excluding its recorded music business in Japan, with the worldwide recorded music business of Bertelsmann AG (“Bertelsmann”), forming a
50-50
joint venture, SONY BMG MUSIC ENTERTAINMENT (“SONY BMG”). In October 2008, Sony acquired Bertelsmann’s 50% equity interest in SONY BMG. As a result of the acquisition, SONY BMG became a wholly-owned subsidiary of Sony. In January 2009, SONY BMG changed its name to Sony Music Entertainment (“SME”).In December 2005, Sony Communication Network Corporation, a subsidiary of Sony Group Corporation, was listed on the Mother’s market of the TSE, and was later listed on the First Section of the TSE in January 2008. Sony Communication NetworkIt changed its name towas renamedin October 2006, and changed its name again to
So-net
Entertainment Corporation So-net
Corporation(“So-net”)
in July 2013. In January 2013, Sony Group Corporation acquired all of the common shares ofSo-net
through a tender offer and subsequent share exchange and, as a result of the acquisition,So-net
became a wholly-owned subsidiary of Sony Group Corporation.So-net
was renamed Sony Network Communications Inc. (“SNC”) in July 2016.In June 2012, an investor group including Sony Corporation of America (“SCA”) established DH Publishing, L.P. (“EMI”) to own and manage EMI Music Publishing, which it then acquired. This acquisition resulted in Nile Acquisition LLC (“Nile”), of which SCA owned 74.9% and the Estate of Michael Jackson (the “Estate”) owned 25.1%, acquiring approximately 40% of the equity interest in EMI. In July 2018, Sony completed the acquisition of the Estate’s equity interest in Nile, resulting in Sony owning approximately 40% of the equity interest in EMI. In November 2018, Sony completed the acquisition of the remaining approximately 60% equity interest in EMI,
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resulting in EMI becoming a wholly-owned subsidiary of Sony. In January 2021, Nile changed its name to Sony Music Publishing LLC (“SMP”). SMP encompasses both the former Sony/ATV and EMI.
In April 2013, Sony Olympus Medical Solutions Inc. (“SOMED”), a medical business venture between Sony Group Corporation and Olympus Corporation, was established in Japan. Sony’s stake in SOMED is 51%.
In July 2014, Sony Group Corporation sold its personal computer (“PC”) business operated under the VAIO brand to Japan Industrial Partners, Inc.
In July 2014, pursuant to a separation of Sony’s businesses into distinct subsidiaries, the television business was split out and began operations as Sony Visual Products Inc. (“SVP”).
In October 2015, the video and sound business was split out and began operations as Sony Video & Sound Products Inc. (“SVS”).
In April 2016, the imaging and sensing solutions business was split out and began operations as Sony Semiconductor Solutions Corporation (“SSS”).
In April 2017, the imaging products and solutions business was split out and began operations as Sony Imaging Products & Solutions Inc. (“SIPS”), which completed the sequential separation of Sony’s business units into distinct subsidiaries.
In September 2017, Sony transferred its battery businesses to the Murata Manufacturing Co., Ltd. Group.
In April 2019, SVPSony Visual Products Inc. and SVS merged to become Sony Home Entertainment & Sound Products Inc. (“SHES”).
In April 2020, Sony established Sony Electronics Corporation, an intermediate holding company encompassing the electronics products and solutions businesses.
In April 2021, in connection with the above-mentioned launch of Sony Group Corporation, Sony Electronics Corporation, SHES, SIPS and Sony Mobile Communications Inc. (“SOMC”) were merged into one company, which was renamed Sony Corporation. Additionally, certain support functions for the electronics products and solutions businesses and the imaging products and solutions business that had been carried out by Sony Group Corporation were transferred to Sony Corporation and SSS.
In April 2022, due to a restructuring of the segments of the TSE, Sony Group Corporation moved from the First Section to the Prime Market of the TSE.
In July 2022, Sony Interactive Entertainment LLC acquired Bungie, an independent videogame developer in the United States.
In September 2022, Sony Honda Mobility Inc. (“Sony Honda Mobility”), a joint venture in the mobility field between Sony Group Corporation and Honda Motor Co., Ltd., was established in Japan. Sony’s stake in Sony Honda Mobility is 50%.
Sony Group Corporation’s registered office is located atIts website is
7-1,
Konan1-chome,
Minato-ku,
Tokyo108-0075,
Japan, telephone+81-3-6748-2111.
https://www.sony.com/en/
.The agent in the U.S. for purposes of this Item 4 is Sony Corporation of America, 25 Madison Avenue, 26
th
Floor, New York, NY 10010-8601 (Attn: Office of the General Counsel).Sony files reports and other information with the SECU.S. Securities and Exchange Commission (the “SEC”) pursuant to the SEC’s rules and regulations that apply to foreign private issuers. The SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Sony’s electronic filings are available for viewing on this website, at
https://www.sec.gov
.Principal Capital Investments
In the fiscal years ended March 31, 20212022 and 2022,2023, Sony’s capital542.4697.2 billion yen and 697.2809.6 billion yen, respectively. For a breakdown of principal capital expenditures and divestitures (including interests in other companies), refer to “Item 5.” The funding requirements of such various capital expenditures are expected to be financed by cash provided principally by operating and financing activities or the existing balance of cash and cash equivalents.
expenditures
were Operating and Financial Review and Prospects.
In the fiscal year ended March 31, 2022,2023, Sony invested approximately 255.8381.1 billion yen in the I&SS segment. This investment included approximately 237.1355.9 billion yen to increase image sensor production capacity.
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B. | Business Overview |
Sony is engaged in the development, design, production, manufacture and sale of various kinds of electronic equipment, instruments and components for consumer, professional and industrial markets such as network services, game hardware and software, televisions, audio and video recorders and players, still and video cameras, mobile phones, and image sensors. Sony is engaged in the development, production, manufacture, and distribution of recorded music and the management and licensing of the words and music of songs as well as the production and distribution of animation titles, including game applications based on animation titles. Sony is also engaged in the production, acquisition and distribution of motion pictures and television programming and the operation of television and digital networks. Further, Sony is also engaged in various financial services businesses, including life and
non-life
insurance operations through its Japanese insurance subsidiaries and banking operations through a Japanese internet-based banking subsidiary.Products and Services
Game & Network Services (G&NS)
Sony Interactive Entertainment LLC undertakes product research, development, design, marketing, sales, production, distribution and customer service for PlayStation
®
hardware, software, content and network services.The G&NS segment includes the Digital Software anddigital networksthe network by Sony Interactive Entertainment; Network Services includes network services relating to game, video and music content; and Hardware and Others includes home gaming consoles, packaged software, game software sold bundled with home gaming consoles, peripheral devices and first-party software for third-party platforms.
Add-on
Content, Network Services and Hardware and Others categories. Digital Software andAdd-on
Content includes distribution of software titles andadd-on
content through Music
Recorded Music:
“Recorded Music” includes the distribution of physical and digital recorded music and revenue derived from artists’ live performances. SME, a global entertainment company, excluding Japan, is engaged primarily in the development, production, marketing and distribution of recorded music in all commercial formats and genres. SMEJ is an entertainment company focused on the Japanese market, which includes a Japanese domestic recorded music business that produces recorded music and music videos through contracts with many artists in all music genres.
Music Publishing:
“Music Publishing” includes the management and licensing of the words and music of songs. SMP is a U.S.-based music publishing business that owns and acquires rights to musical compositions, exploiting and marketing these compositions and receiving royalties or fees for their use.
Visual Media and Platform:
“Visual Media and Platform” includes the production and distribution of animation titles and game applications, and various service offerings for music and visual products. These businesses are operated primarily by SMEJ.
Pictures
Motion Pictures:
“Motion Pictures” includes the worldwide production, acquisition and distribution of live-action and animated motion pictures. SPE’s motion picture production organizations include Columbia Pictures, Screen Gems, TriStar Pictures, 3000 Pictures, Sony Pictures Animation, Stage 6 Films, AFFIRM Films and Sony Pictures Classics. SPE also operates Sony Pictures Imageworks, a visual effects and animation unit, and manages a studio facility, Sony Pictures Studios, which includes post-production facilities.
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Television Productions:
“Television Productions” includes the worldwide production, acquisition and distribution of programming, including scripted series, unscripted “reality” or “light entertainment,” daytime serials, game shows, animated series, made for television movies and miniseries and other programming.
Media Networks:
“Media Networks” includes the operation of television networks and digital networks(“DTC”) streaming services worldwide. SPE’s television networks around the world include SPNI, which operates television networks in India, and Game Show Network, LLC, which operates a U.S.-based network delivered on cable, satellite and other distribution platforms. Digital networks include Crunchyroll, a streaming service based in North America primarily focused on anime content, and SonyLIV, a general entertainment streaming service in India, in addition to Crunchyroll, a streaming service primarily focused on anime content, and Pure Flix, a streaming service primarily focused on faith and family-based content, both primarily in North America.
India.direct-to-consumer
TV
Audio
& Video:
Sony Corporation undertakes product research, development, design, marketing, sales, production, distribution and customer services for televisions and video and sound products.
Still and Video Cameras:
Sony Corporation undertakes product research, development, design, manufacturing, sales, distribution and customer service for interchangeable lens cameras, compact digital cameras, consumer and professional video cameras as well as display products such as projectors and medical equipment. Additionally, it is responsible for the broadcast/professional solutions business and the FeliCa contactless IC (integrated circuit) card technology business. SOMED undertakes development support to provide comprehensive medical and imaging device solutions for operating rooms and other medical areas.
Mobile Communications:
Sony Corporation undertakes product research, development, design, marketing, sales, production, distribution and customer services for mobile phones, accessories and applications. SNC provides internet broadband network services to subscribers as well as creates and distributes content through its portal services to various electronics product platforms such as PCs and mobile phones.
Imaging & Sensing Solutions (I&SS)
SSS and its subsidiary Sony Semiconductor Manufacturing Corporation undertake product research, development, design, manufacturing, marketing, sales, production, distribution and customer services primarily for complementary metal oxide semiconductor (“CMOS”) image sensors, in addition to charge-coupled devices (“CCDs”)(CCDs), large-scale integration systems (“LSIs”)(LSIs) and other semiconductors. These CMOS image sensors are used in a wide variety of applications, primarily smartphones, as well as other products such as digital cameras and security cameras, factory automation systems and automobiles.
Financial Services
SFGI conducts insurance, banking and other operations primarily through Sony Life, a Japanese life insurance company, Sony Assurance, a Japanese
non-life
insurance company, and Sony Bank, a Japanese internet-based bank, which are all wholly-owned by SFGI.All Other
All Other consists of various operating activities, including the disc manufacturing business outside of Japan, and the recording media and storage media businesses. In addition, certain costs related to the after-sales services of the PC business, which was sold in 2014, remain in All Other.
Sales and Distribution
G&NS, EPET&S and I&SS
In the G&NS segment, PlayStation
®
hardware and peripheral devices, software and content and network services are marketed and distributed by Sony Interactive Entertainment LLC, Sony Interactive Entertainment- 21 -
Inc. and Sony Interactive Entertainment Europe Ltd. Digital software, including
add-on
content, is primarily sold via the PlayStation Store, while software for third-party platforms is sold via third-party distributors. Hardware and physical software are sold both indirectly via third-party distributors as well as directly via PlayStation’s proprietary website. Additionally, Bungie carries out marketing and distribution of its software, content and merchandise under its own brand as an independent studio and publisher, with support from PlayStation.Sony’s products and services in the EPET&S and I&SS segments are primarily marketed throughout the world under the trademark “Sony.”
In most cases, Sony’s products in the EPET&S and I&SS segments are sold to sales subsidiaries of Sony Group Corporation located in or responsible for sales in various countries and territories. These subsidiaries then sell those products to unaffiliated local distributors and dealers or through direct sales, such as through the internet. Sony Corporation brings its mobile products to market through direct and indirect channels, such as third-party cellular network carriers and retailers, as well as through its own website. In some regions, certain products and services are sold directly to local distributors by Sony Group Corporation.
Sales of such products and services are particularly seasonal and vary significantly with the timing of new product introductions and the economic conditions of each country. Sales for the third quarter ending December 31 of each fiscal year are generally higher than other quarters of the same fiscal year mainly in the G&NS and EPET&S segments due to demand induring the
year-end
holiday season.Japan:
Sony Marketing (Japan) Inc. markets consumer electronics products mainly through retailers. It also markets professional electronics products and services. For electronic components, Sony sells products directly to wholesalers and manufacturers.
United States:
Sony markets its electronics products and services in these segments through Sony Electronics Inc. and other wholly-owned subsidiaries in the U.S.
Europe:
In Europe, Sony’s products and services in these segments are marketed through sales subsidiaries including Sony Europe B.V., which is headquartered in the United Kingdom and has branches in European countries, and Sony Electronics JSC in Russia.countries.
China:
Sony markets products and services in these segments through Sony (China) Limited, Sony Corporation of Hong Kong Limited and other wholly-owned subsidiaries in China.
Asia-Pacific:
In Asia-Pacific, Sony’s products and services in these segments are marketed through sales subsidiaries including Sony India Private Limited, Sony Electronics of Korea Corporation, Sony Taiwan Limited and Sony Electronics Vietnam.
Other Areas:
In overseas areas other than the U.S., Europe, China and Asia-Pacific, Sony’s products and services in these segments are marketed through sales subsidiaries including Sony Brasil Ltda., Sony Middle East & Africa FZE in the United Arab Emirates and Sony de Mexico S.A.de C.V.
Music
SME and SMEJ develop, produce, market, and distribute recorded music in various commercial formats. SME and its affiliates conduct business globally under “Columbia Records,” “Epic Records,” “RCA Records” and other labels. SMEJ conducts business in Japan under “Sony Music Records,” “Epic Records Japan,” “SME Records,” “Ki/oon Music,” “Sony Music Associated Records” and other labels.
Sony owns and acquires rights to musical compositions, exploits and markets these compositions, receives royalties or fees for their use and conducts its music publishing business in countries other than Japan under the Sony Music Publishing name.
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SMEJ creates artwork and produces packaged home entertainment products including music and games. It also organizes various events in Japan through Sony Music Communications Inc. and its affiliates. In addition, SMEJ produces, markets and distributes animation products and game applications based on animation titles under the Aniplex name.
Pictures
SPE generally retains all rights relating to the worldwide distribution of its internally produced motion pictures and television programming, including rights for theatrical exhibition, home entertainment distribution, pay and free television and digital exhibition and other markets. SPE also acquires distribution rights to motion pictures and television programming produced by other companies, and jointly produces and distributes motion pictures and television programming with other studios, television networks and production companies. These rights may be limited to particular geographic regions, specific forms of media or periods of time.
Within the U.S., SPE uses its own distribution service businesses, Sony Pictures Releasing and Sony Pictures Classics, for the U.S. theatrical release of its motion pictures and for the theatrical release of motion pictures acquired from and produced by others.
Outside the U.S., SPE generally distributes and markets motion pictures through one of its Sony Pictures Releasing International subsidiaries or affiliates. In certain countries, however, SPE has joint distribution or
sub-distribution
arrangements with other studios, or arrangements with independent local distributors or other entities.The worldwide home entertainment distribution of SPE’s motion pictures and television programming (and product acquired or licensed from others) is handled through Sony Pictures Home Entertainment, except in certain countries where SPE has joint distribution ordistributed on digital platforms, cable networks and direct broadcast satellite (“DBS”) providers.
sub-distribution
arrangements with other studios, or arrangements with independent local distributors. Product is distributed in various home media formats including DVD,Blu-ray
Disc™
and Digital Distribution. Digital Distribution includes electronic sell-through andvideo-on-demand
The worldwide television distribution of SPE’s motion pictures and television programming (and product acquired or licensed from others) is handled through Sony Pictures Television. SPE’s library of motion pictures and television programming is licensed to linear distributors such as broadcast television networks, digital platforms, cable networks and DBS providers. Digital platforms include subscription and advertising supported platforms (including Sony’s PlayStation
™
Network, Netflix and Amazon Prime Video).SPE’s television networks and streaming services (including Crunchyroll primarily in North America and SonyLIV in India) are distributed through digital platforms, (including SonyLIV in India, as well as Crunchyroll and Pure Flix primarily in North America), cable, DBS providers and telecommunications companies to viewers around the world. These networks and services generate advertising, subscription and other ancillary revenues.
Financial Services
Sony Life conducts its life insurance business primarily in Japan. Sony Life’s core business is providing death protection and other insurance products to individuals, primarily through a consulting-based sales approach utilizing its experienced team of Lifeplanner
®
sales specialists as well as partner independent sales agents. SonyLife provides tailor-made life insurance products that are optimized for each customer. As of March 31, 2022,2023, Sony Life employed 5,3385,402 Lifeplanner
®
sales specialists. Sony Life maintains an extensive service network which mainly consists of the Lifeplanner®
channel and the independent agent channel in Japan. The Lifeplanner®
channel is characterized by recruitment of high-caliber sales professionals from industries outside the life insurance industry, quality improvement through education and training, performance-linked compensation and high productivity. Lifeplanner®
sales specialists offer custom-made packages. Most of the agents in the independent agent channel are corporate andnon-exclusive
agents, primarily shop-style agents. Shop-style agents are asub-channel
of the independent agent channel, who offer insurance in local stores and provide customers with opportunities to compare various insurers’ products. To enhance Sony Life’s relationship with independent agents, Sony Life’s agent support staff provides independent agents with various support services, including recruiting, training and sales promotion activities. As part of its plan to expand its sales of individual annuity products, Sony Life established AEGON Sony Life Insurance Co., Ltd. (“AEGON Sony Life”) in August 2007 and SA Reinsurance (“SA Re”) in October 2009, both50-50
joint venture companies with AEGON N.V. AEGON Sony Life and SA Re began operations in Japan in December 2009 and in Bermuda in January 2010, respectively. In January 2020, Sony Life acquired from AEGON International B.V. the remaining 50% stakes of- 23 -
AEGON Sony Life and SA Re, resulting in both AEGON Sony Life and SA Re becoming wholly-owned subsidiaries of Sony Life. AEGON Sony Life changed its trade name to Sony Life With Insurance Co., Ltd. (“Sony Life With”) on April 1, 2020. Furthermore, onOn April 1, 2021, Sony Life undertook an absorption-type merger with Sony Life With, with Sony Life as the surviving company. Furthermore, Sony Life completed the liquidation of SA Re in March 2023.
Sony Assurance has conducted a
non-life
insurance business in Japan since October 1999. Sony Assurance’s core business is providing automobile insurance and fire insurance products, as well as medical insurance and overseas travel insurance products, to individual customers, primarily through direct marketing via the internet and via telephone. The direct marketing business model employed by Sony Assurance enables it to improve operating efficiency and lower the costs of marketing and maintaining its insurance policies, creating savings which it passes on to policyholders in the form of competitively priced premiums.Sony Bank has conducted banking operations in Japan since June 2001. As an internet bank focusing on the asset management and borrowing needs of individual customers, Sony Bank offers an array of products and services including yen and foreign currency deposits, investment trusts and mortgages. By using Sony Bank’s transaction channel, the “MONEYKit” service website, account holders can invest and manage assets over the internet according to their life plans. On July 1, 2011, Sony Bank acquired Sony’s 57% equity interest in Sony Payment Services Inc. (“Sony Payment Services”), resulting in Sony Payment Services becoming a consolidated subsidiary of Sony Bank. Sony Payment Services provides credit card settlement services to members of its internet network.
All Other
Sony DADC group offers Ultra HDEPET&S and I&SS segments.
Blu-ray
™
,Blu-ray
Disc™
, DVD and CD media replication services as well as digital and physical supply chain solutions to business customers. Sony Storage Media Solutions Corporation sells its storage media products through its own sales forces, as well as through Sony’s sales companies mentioned in the above description of Sales and Distribution for the G&NS, Sales to External Customers by Geographic Area
The following table shows Sony’s consolidated sales to external customers in each of its major markets for the periods indicated.
Fiscal year ended March 31 | Fiscal year ended March 31 | |||||||||||||||
| 2021 | 2022 | 2022 | 2023 | |||||||||||||
(Yen in millions) | (Yen in millions) | |||||||||||||||
Japan | 2,965,936 | 2,764,321 | 2,764,321 | 2,691,972 | ||||||||||||
United States | 2,147,686 | 2,766,021 | 2,766,021 | 3,401,402 | ||||||||||||
Europe | 1,817,854 | 1,870,091 | 1,870,091 | 2,190,311 | ||||||||||||
China | 762,766 | 771,006 | 771,006 | 855,437 | ||||||||||||
Asia-Pacific | 861,623 | 1,149,261 | 1,149,261 | 1,563,414 | ||||||||||||
Other Areas | 442,796 | 600,813 | 600,813 | 837,301 | ||||||||||||
Total | 8,998,661 | 9,921,513 | 9,921,513 | 11,539,837 | ||||||||||||
Sources of Supply
Sony procures parts, components and raw materials used in the production of its products on a global basis on the most favorable terms that it can achieve. These items are purchased from various suppliers around the world. Sony has a general policy of maintaining multiple suppliers for important parts and components. In the fiscal year ended March 31, 2022, Sony continued to optimize the number of its suppliers to achieve efficiencies and to minimize procurement risks when possible.
When parts, components and raw materials become scarce, it not only causes production costs to rise but also may affect production. For example, semiconductors, LCD panels and other discrete components, which are used in multiple applications, can influence Sony’s performance when the availability of such parts and components is significantly limited. Additionally, rising energy costs and market prices may cause prices of parts, components and raw materials to increase, which may adversely affect Sony’s financial results. Regarding raw materials, the market price of resin, and sheet steel and copper, which are widely used in mechanical parts, electronic parts and components, may also fluctuate because of market factors such as the balance of supply and demand, and such fluctuations may impact the cost of those parts and components.
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After-Sales Service
Sony provides repair and servicing functions in the areas where its G&NS, EPET&S and I&SS products are sold. Sony provides these services through its own online support network, call centers, service centers, factories, authorized independent service centers, authorized servicing dealers and subsidiaries.
In line with industry practices of these businesses, almost all of Sony’s
consumer-use
products that are sold in Japan carry a warranty, generally for a period of one year from the date of purchase, covering repairs, free of charge, in the case of a malfunction in the course of ordinary use of the product. Warranties outside of Japan generally provide coverage for various periods of time depending on the product and the area in which it is marketed. In the case of broadcast- andprofessional-use
products, Sony maintains support contracts with customers in addition to warranties.To further help ensure customer satisfaction, Sony maintains customer information centers in its principal markets and web support information for all markets.
Patents and Licenses
Sony has a number of Japanese and foreign patents relating to its products and services. Sony is licensed to use a number of patents owned by others, covering a wide range of products and services. Certain of these licenses are important to Sony’s business. Sony products that employ(“PS4™”) and PlayStation
Blu-ray
Disc™
player functionality, including PlayStation®
4 ®
5 (“PS5™
”) hardware, are substantially dependent upon patents that relate to technologies specified in theBlu-ray
Disc™
specifications and are licensed by MPEG LA LLC andOne-Blue,
LLC. Sony considers its overall license position beneficial to its operations.Competition
In each of its principal product lines and services, Sony encounters intense competition throughout the world. Sony believes, however, that in the aggregate it competes successfully and has a major position in all of the principal product lines and services in which it is engaged, although the strength of its position varies with products and markets. Refer to “Risk Factors” in “Item 3.”
Key Information.
G&NS, EPET&S, I&SS and All Other
Sony believes that its product planning and product design expertise, the high quality of its products, its record of innovative product introductions and product improvements, the user experience it provides and the ecosystem that supports such an experience, its price competitiveness derived from reductions in manufacturing and indirect costs, and its extensive marketing and servicing efforts are important factors in maintaining its competitive position. Continuing to provide high-value added products, services and experiences is a key factor by which Sony aims to differentiate itself in these highly competitive markets. Sony believes that the success of the G&NS businesses is determined by the availability of attractive software titles and related content, downloadable content, network services and peripherals. In the I&SS segment, Sony puts significant effort into keeping Sony’s strong competitive position by investing in R&D and production capacity, while also trying to avoid overinvesting and increasing fixed costs by carefully monitoring customer demand, market trends and demand for
end-user
products.Music
Success in the music industry is dependent to a large extent upon the artistic and creative abilities of artists, producers and employees and is subject to the vagaries of public taste. The Music segment’s future competitive position depends on its continuing ability to attract and develop artists and products that can achieve a high degree of public acceptance as well as offer efficient services. In addition, Sony believes that the success of the Music segment’s animation products and game applications business, Aniplex, is largely dependent on the creative talent of game producers and developers, and is also subject to the vagaries of public taste.
Pictures
SPE faces intense competition from all forms of entertainment and other leisure activities to attract the attention of audiences worldwide. SPE competes with other motion picture studios and production companies to obtain story rights and talent, including writers, actors, directors and producers, which are essential to the success of SPE’s products. SPE competes with other companies, in particular technology companies, who are expanding
- 25 -
into the production or distribution of film and television programing. In motion picture production and distribution, SPE faces competition to obtain exhibition and distribution outlets and optimal release dates for its products. In addition, SPE faces competition to acquire motion pictures and television programming from third parties. In television production and distribution, competition arises from the increasing fragmentation of audiences among broadcast and cable networks, digital platforms, DBS providers and other outlets both within and outside of the U.S. Furthermore, broadcast networks in the U.S., or their affiliated production companies, continue to produce their own shows internally, and major streaming services in and outside the United States are producing more content themselves or acquiring content from affiliated production companies. This competitive environment may result in fewer opportunities to produce shows for such networks and services, and may contribute to shorter lifespans for ordered shows that do not immediately achieve favorable ratings. SPE’s worldwide television networks compete for viewers with broadcast and cable networks, DBS providers, digital platforms and other forms of entertainment. The number of networks around the world continues to drive competition for advertising and subscription revenues, acquisition of programming, and distribution of SPE’s television networks by cable, DBS providers, digital platforms and other distribution systems.
Financial Services
In the Financial Services segment, Sony faces strong competition in the financial services markets in Japan.
Sony Life competes not only with traditional insurance companies in Japan but also with other companies including online insurance companies, foreign-owned life insurance companies and a number of Japanese cooperative associations.
Sony Assurance competes against insurers that sell their policies through sales agents as well as insurers that, like Sony Assurance, primarily sell their policies through direct marketing via the internet and via telephone.
Some of the competitors in the life insurance and
non-life
insurance businesses have advantages over Sony including:greater financial resources and financial strength ratings;
greater brand awareness;
more extensive marketing and sales networks, including through
tie-ups
with other types of financial institutions;more competitive pricing;
larger customer bases; and
a wider range of products and services.
Sony Bank has focused on providing retail asset management and mortgage services for individuals, and faces significant competition in Japan’s retail financial services market. Sony Bank competes with traditional banking institutions, regional banks, trust banks,
non-bank
companies, and newer financial groups providing online full-services of bank and brokerage in Japan.In the Financial Services segment, it is important to maintain a strong and healthysound financial foundation for the business as well as to meet diversifying customer needs. Sony Life and Sony Assurance have maintained a high solvency margin ratio, relative to the Japanese domestic minimum solvency margin ratio requirements. Sony Bank has maintained a sufficient capital adequacy ratio relative to the Japanese domestic criteria.
Government Regulations
Sony’s business activities are subject to various governmental regulations in different countries in which it operates, including regulations relating to: various business/investment approvals; trade affairs, including customs, import and export control; competition and antitrust; anti-bribery; advertising and promotion; intellectual property; broadcasting, consumer and business taxation; foreign exchange controls; economic sanctions; personal information protection; product safety; labor; human rights; conflict; occupational health and safety; environmental; and recycling requirements.
In Japan, Sony’s insurance businesses are subject to the Insurance Business Act and approvals and oversight from the Financial Services Agency (“FSA”). The primary purpose of the Insurance Business Act and related regulations is to protect policyholders, not shareholders. The Insurance Business Act specifies the types of
- 26 -
businesses insurance companies may engage in, imposes limits on the types and amounts of investments that can be made and requires insurance companies to maintain specified reserves and a minimum solvency margin ratio. In particular, life insurance companies must maintain a premium reserve (for the portion of their portfolio other than unearned premiums), an unearned premium reserve, a reserve for refunds with respect to certain insurance contracts of life insurance companies specified in the Insurance Business Act’s regulations, and a contingency reserve in amounts nonot lower than the amount of the “standard policy reserve” as set forth by the regulatory guidelines. The FSA maintains a solvency standard which is used by Japanese regulators to monitor the financial strength of insurance companies.Japanese Insurance Business Act and the Banking Act that require insurance and banking business companies to maintain their financial credibility and to secure protection for policyholders and depositors in view of the public importance of insurance and banking services. As such, lending and borrowing between subsidiaries in the Financial Services segment and the other companies within Sony Group is strictly limited.
Non-life
insurance companies are also required to provide a policy reserve. Sony Bank is also subject to regulation by the FSA under the Banking Act of Japan, including the requirement that it maintain a minimum capital adequacy ratio in accordance with capital adequacy guidelines adopted by the FSA based on the Basel III agreement. The FSA has broad regulatory powers over insurance and banking businesses in Japan, including the authority to grant or revoke operating licenses and to request information and conduct onsite inspections of books and records. Sony’s subsidiaries in the Financial Services segment are subject to the In addition, Sony’s telecommunication businesses in Japan are subject to approvals and oversight from the Ministry of Internal Affairs and Communications, under the Telecommunications Business Act and other regulations related to the internet businesses and communication methods in Japan.
Social Responsibility Regulations Such as Environmental and Human Rights Regulations
Sony monitors, evaluates, and complies with laws and regulations that may affect its global operations and purchasing activities with respect to social responsibility, such as environmental, human rights, labor, and occupational health and safety issues. For example, Sony has taken steps to address new regulations or governmental policies related to climate change including carbon disclosure, greenhouse gas (“GHG”) emission reduction, carbon taxes and energy efficiency for products in the G&NS, EPET&S and I&SS segments.
Also refer to “Risk Factors” in “Item 3.”
Key Information.
Disclosure pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012
Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 added Section 13(r) to the Securities Exchange Act of 1934 (the “Exchange Act”), as amended. Section 13(r) requires an issuer to disclose in its annual or quarterly reports, as applicable, whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with designated natural persons or entities sanctioned under programs relating to terrorism or the proliferation of weapons of mass destruction. Disclosure is required even where the activities, transactions or dealings are conducted outside the U.S. by
non-U.S.
affiliates in compliance with applicable law, and whether or not the activities are sanctionable under U.S. law.Sony is aware that certain transactions during the fiscal year ended March 31, 2022,2023, as described below, may be disclosable pursuant to Section 13(r) of the Exchange Act.
these activities, and therefore calculates the estimated net profit solely for the purpose of this disclosure, which in any event would not be significant. The information below is to the best of Sony’s knowledge, and in particular Sony may not be aware of all potentially reportable sales by third-party-owned dealers and distributors.
Sony’s representative office in Tehran, Iran, which was established in 1992, has been closed and has been under liquidation processes since before the beginning of the fiscal year ended March 31, 2014. In the course of liquidation, Sony engages in certain incidental transactions (for example, permits, taxes, and similar matters incidental to the wind-down of the office in Iran) with Iranian government-owned entities. No material revenues or profits are associated with these transactions with the Iranian government-owned entities.
A
non-U.S.
subsidiary of Sony entered into an agreement in March 2023 for the sale of medical instruments, namely, a medical printer and accompanying print media, to a third-party-owned distributor in Japan, which will be delivered to a hospital in Tehran that is under the control of the Iranian Ministry of Health and Medical Education, pursuant to Japan International Cooperation Agency’s (JICA) provision of grant aid to supply certain medical equipment to hospitals in Tehran as part of the- 27 -
Government of Japan’s Official Development Assistance (“ODA”). The sale was completed in May 2023. Sony’s expected gross revenue from the sale is approximately 267 thousand yen, and Sony estimates that its net profit from such sales is 50 thousand yen. |
Sony is not aware of any other activity, transaction or dealing by Sony Group Corporation or any of its affiliates during the fiscal year ended March 31, 20222023 that is disclosable in this report under Section 13(r) of the Exchange Act. As of the date of this report, Sony does not anticipate that any activity, transaction or dealing that may be disclosable will be conducted during the fiscal year ending March 31, 2023,2024, except as described above in connection with the wind-down of its representative office in Iran.Iran and the sale of medical instruments pursuant to the ODA. Nevertheless, Sony has continuedcontinues to monitor developments in this area especially in the light of the United States’ decision that was implemented in its entirety on November 5, 2018 to cease its participation in the Joint Comprehensive Plan of Action of July 14, 2015, among the United States, the United Kingdom, China, France, Russia, Germany, the European Union and Iran andre-imposecertain secondary sanctions (i.e., laws and regulations that threaten to impose U.S. economic sanctions onnon-U.S.companies engaging in specified transactions with Iran outside U.S. jurisdiction). Asas sanctions against Iran continue to evolve, Sony will continue toand assess whether and to what extent such sanctions may affect Sony’s business activities, which Sony intends to conduct in accordance with applicable laws and regulations.
Sony believes, and maintains policies and procedures designed to ensure that, its transactions with Iran and elsewhere have been conducted in accordance with applicable economic sanctions laws and regulations and do not involve transactions likely to result in the imposition of sanctions or other penalties on Sony. However, there can be no assurance that Sony’s policies and procedures will be effective, and if the relevant authorities were to impose penalties or sanctions against Sony, the impact of such sanctions could be material.
Sustainability Disclosure
Sony’s Approach to Sustainability
Sony Group Corporation has established the following basic policy on sustainability with the approval of the Board of Directors:
Sony manages diverse businesses with people at the core, and aims for sustainable value creation based on such diversity and
mid-to
long-term growth in the Sony Group’s corporate value under its Purpose to “fill the world with emotion, through the power of creativity and technology,” and its Corporate Direction of “getting closer to people.” In order to have people connected to each other through emotion, it is necessary to create a society in which everyone can live with peace of mind in a healthy global environment. Sony acts with due consideration of the impact of its business activities on stakeholders, including shareholders, customers, employees, suppliers, business partners, local communities and other organizations as well as the global environment, and focuses on building trust with stakeholders through dialogue. Through innovation and sound business practice, Sony endeavors to enhance its corporate value and contribute to the development of a sustainable society.(1) Organizational Structure for Sustainability Initiatives and Efforts
<Organizational structure>
Sony Group Corporation has established the Sustainability Department under the supervision of the Senior Executive in charge of Sustainability. The Sustainability Department promotes various sustainability-related initiatives throughout the Sony Group in cooperation with each business unit and operating company (“Business Unit(s)”) and other corporate divisions, including Compliance, Human Resources, Corporate Planning & Control, Finance and Legal (“Relevant Divisions”).
The Senior Executive in charge of Sustainability regularly reviews and assesses risks and engages in detection, communication, evaluation and response for the risk of loss related to sustainability. The Sustainability Department reports to the Board of Directors at least once a quarter on sustainability initiatives and their progress. In addition, as part of reporting on each Business Unit’s
mid-range
plan, the Board of Directors receives reports from each Business Unit on the sustainability challenges and opportunities relevant to their respective business operations and their efforts in those areas.<Our sustainability efforts>
The Sustainability Department, operating under the above structure and the aforementioned “Sony’s Approach to Sustainability,” strives to spread this policy across Sony’s business operations. Through dialogue with stakeholders and materiality analysis, the Sustainability Department identifies sustainability issues that need to be addressed by the Sony Group as a whole. Additionally, the Sustainability Department promotes the group-wide sustainability initiatives by formulating relevant Group policies on identified sustainability issues, including a global environmental plan, “Road to Zero,” and communicating across the Sony Group by collaborating with the Senior Executives in charge of Sony’s headquarters functions and the Relevant Divisions.
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The Business Units consider sustainability issues and opportunities for their respective businesses, and, with unique perspectives, implement sustainability-related initiatives that align with their respective business characteristics. In addition, the Business Units, consulting with the Sustainability Department, have introduced key performance indicators (“Sustainability KPIs”), which measure the Business Units’ sustainability efforts. The Sustainability KPIs are incorporated into the Business Units’ performance evaluations, and the Sustainability Department evaluates the status of achievement of such Sustainability KPIs. Additionally, sustainability is incorporated into one of the Senior Executives’ performance-linked renumeration evaluation factors for individual performance from the perspective of social value creation and ESG (Environment, Social, Governance).
In the fiscal year ended March 31, 2023, a global sustainability conference was held, where the Senior Executive in charge of Sustainability, the Senior Executive in charge of Human Resources, and sustainability personnel from the Business Units came together to confirm and share the sustainability initiatives for the Business Units and their progress on the Sustainability KPIs.
For the fiscal year ended March 31, 2023, the Sustainability KPIs included reducing the use of virgin
oil-based
plastic in Sony products, introducing renewable energy at Sony’s manufacturing facilities, reducing GHG emissions in Sony’s manufacturing processes, implementing awareness-raising activities related to the environment and diversity, equity, and inclusion (“DE&I”) using Sony’s content IP, as well as conducting DE&I programs and training.<Materiality analysis as a prerequisite for the above efforts>
In order to ensure that Sony’s sustainability initiatives can address changes in the social environment and the expectations of stakeholders from a
mid-
to long-term perspective, the Sustainability Department, under the supervision of the Senior Executive in charge of Sustainability, analyzes and identifies material topics for the Sony Group and periodically reviews their importance. Sony defines materiality as “material topics that are related to sustainability, impact Sony’s value creation, and are determined with longer-term social change and diverse stakeholder needs in mind.” The Sustainability Department most recently refreshed the materiality analysis in the fiscal year ended March 31, 2023 and evaluated sustainability issues which are highly relevant to Sony, including items that have a negative impact on Sony’s value creation from the perspectives of their importance to both Sony and its stakeholders.The importance of topics from Sony’s perspective is evaluated from the perspective of positive or negative impact on Sony’s ability to create value over the
mid-
to long-term, while the importance of topics from the stakeholders’ perspective is evaluated based on information published by non-governmental organizations (NGOs), investors, rating agencies, mass media and other sources.Based on such analysis, the most important topics that should be prioritized for Sony have been identified after review by the Senior Executives in charge of Sony’s headquarters functions and the Board of Directors.
(2) Sustainability Strategies
As a result of the above materiality analysis conducted in the fiscal year ended March 31, 2023, Sony has identified “Climate Change,” “DE&I,” “Respect for Human Rights,” and “Technology for Sustainability” as the most important topics that should be prioritized across the Sony Group (collectively, the “Most Important Topics”).
<Background for selecting the Most Important Topics>
Climate Change: Sony acknowledges that climate change impacts are becoming more apparent and that the transition towards a decarbonized society is a critical issue for all companies and that our stakeholders have elevated expectations of Sony’s environmental initiatives along two axes: the first being its “responsibility,” for instance, to reduce Sony’s environmental impact, and the second being the “contribution” it can make by leveraging its diverse businesses and technologies. Sony’s corporate activities are only possible if the earth, which sustains all life, is healthy. Sony believes that it is important to respond to the environment, including by taking measures against climate change.
DE&I: Sony recognizes that diverse organizations are more innovative in corporate activities than
non-diverse
organizations. Sony believes that it is important to respect our employees’ diverse values, remember the importance of equity, and foster an inclusive organizational culture. Expectations are also rising for corporate initiatives to address social issues such as social justice and inequality, and Sony believes that it is important for the Sony Group to further promote initiatives aimed at resolving issues both inside and outside the Group.- 29 -
Respect for Human Rights: Sony is aware of the potential human rights impacts of its global business activities. Sony recognizes that respecting human rights throughout Sony’s value chain and addressing any potential human rights risks, whether the relationship with Sony’s business operation is direct or indirect, are responsibilities that a diverse range of stakeholders expect of Sony. Considering recent changes in the external environment related to respect for human rights, Sony believes that it is important to further strengthen its efforts in this area.
Technology for Sustainability: Sony recognizes that our stakeholders have expectations regarding our ability to both grow our business and solve social and environmental issues through technology. Sony believes that it is an important mission of Sony to lead and contribute to the resolution of sustainability issues not only by increasing business revenue through the technologies and products Sony develops, but also by having a positive impact on society and the environment.
<Strategy and targets for the Most Important Topics, and major initiatives>
Climate Change
Under the “Road to Zero,” a long-term environmental plan established in 2010 that aims to achieve a zero environmental footprint for the entire Sony Group by the year 2050, Sony is promoting environmental impact reduction activities in each of the following four perspectives: climate change, resources, chemical substances, and biodiversity. In May 2022, Sony announced that it had determined to accelerate its environmental impact reduction activities in the climate change area and to push its goal of achieving a
net-zero
footprint throughout the entire value chain, moving the target year from 2050 to 2040. Sony’snet-zero
(*1) target for 2040 was approved as thenet-zero
target for the Science Based Targets initiative (“SBTi”) (*2) in August 2022.*1 Sony’s
net-zero
target follows the SBTi CorporateNet-zero
Standard below:| (a) | reducing Scope 1, 2 and 3 emissions to zero or a residual level consistent with reaching net-zero emissions at the global or sector level in eligible 1.5°C scenarios or sector pathways; and |
| (b) | neutralizing any residual emissions at the net-zero target date – and any GHG emissions released into the atmosphere thereafter. |
*2 Science Based Targets initiative (SBTi) is a global initiative that encourages companies to set science-based targets to reduce their GHG emissions toward the goal of limiting the increase in global average temperature due to climate change to 1.5°C above
pre-industrial
levels.Specific targets for achieving the above
net-zero
target by 2040 are as follows.| 1. | By 2030, Sony aims to make direct and indirect GHG emissions (Scopes 1 and 2) of its own business operations net-zero. For other emissions originating from stages such as products, supply chains, and logistics (Scope 3), Sony aims to reduce GHG emissions during product use by 45% compared to the fiscal year ended March 31, 2019 by 2035. By 2040, Sony aims to achievenet-zero emissions in all Scopes. |
| 2. | By 2030, Sony aims to achieve 100% renewable electricity used at its own business sites. The percentage of electricity use derived from renewable energy targeted to be achieved as of 2025 has been set at 35%. |
To achieve the targets in 1 and 2 above, Sony intends to implement the following measures.
Continuous reduction of environmental impact at Sony Group’s own business sites: Acceleration of energy saving, installation of solar power generation equipment, and introduction of renewable energy throughout the Sony Group. Virtual PPA (Power Purchase Agreement) using the FIPsystem in Japan.
(Feed-in-Premium)
Promotion of energy-efficient products: Acceleration of initiatives to reduce annual power consumption of Sony products.
Strengthening efforts with partners: Encouragement of business partners engaged in parts, materials and finished product manufacturing to manage their GHG emissions, save energy, and convert to renewable energy.
Contribution to carbon removal/fixation (*3): Exploration of investments in
start-ups
engaged in carbon removal, and development of an index integrating biodiversity and carbon fixation associated with augmented ecosystem businesses, such as Synecoculture™
(*4) being rolled out by SynecO, Inc.| *3 | Process by which carbon from the atmosphere is converted into organic compounds. |
| *4 | Synecoculture is a trademark of Sony Group Corporation. |
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DE&I
Refer to “(3) Human Capital Strategies, Metrics and Targets” for DE&I strategies.
Respect for Human Rights
Sony’s policy requiring respect for human rights is set forth in the Sony Group Code of Conduct. Sony expects all Sony Group companies to practice responsible business conduct by respecting all human rights in compliance with the code as well as all relevant laws and regulations.
Under this policy, Sony established and implemented Group policies specific to the human rights area, such as the “Sony Supply Chain Code of Conduct” which sets forth the code of conduct for Sony’s own manufacturing sites and suppliers, and aims to work towards a responsible supply chain, and the “Sony Group AI Ethics Guidelines,” which guide all Sony officers and employees to utilize artificial intelligence (“AI”) and/or conduct
AI-related
R&D in a manner that conforms with our values and emerging social norms. Sony engages in initiatives to prevent or mitigate any potential negative impact on human rights in line with the frameworks set out in the United Nations Guiding Principles on Business and Human Rights (UNGP) issued by the United Nations Human Rights Council and the OECD Guidelines for Multinational Enterprises. As one of our major efforts, Sony conducts human rights risk impact assessments, which serve as the starting point for our human rights due diligence. After identifying potential human rights risks that are highly relevant to Sony’s business activities, the assessments further identified three areas as priority areas for enhancing initiatives throughout the Sony Group: responsible supply chains, respect for DE&I and responsible development and use of technologies. As a result of the assessments, Sony promotes individual initiatives for each of these areas.Technology for Sustainability
Sony supports technological development that helps businesses grow and innovation that betters society and industry for the future.
For example, Sony’s R&D regarding sensing technology that measures the water content in soil, ultra-wide area sensing network technology, and sophisticated predictive data analytics technology, is underway. Sony promoted the practical application of Triporous
™
, a plant-based porous carbon material made from rice husks, which has now been introduced in the apparel sector, including through deodorant and antibacterial fibers, and in the healthcare sector, including though cleaning agents. Sony is also working to reduce the environmental impact of its products through the development of environmentally conscious materials and technologies to reduce power consumption.<Sony’s sustainability efforts on other sustainability issues>
Sony Group is driving initiatives to improve accessibility so that people with diverse needs can enjoy our products and services. For example, Sony employs inclusive design, including the participation of employees with disabilities in the planning of products and services, interviews with people with disabilities, and usability tests. In March 2023, the Sony Group exhibited at the CSUN Assistive Technology Conference 2023 through which Sony provided opportunities for more users to experience Sony’s accessible products and services and received various feedback from users for further possible improvements in the accessibility of Sony’s products and services.
In 2018, Sony established and implemented the “Sony Group Ethics Guidelines,” as described above, as Sony has expanded its AI development and usage. In December 2019 Sony established the Sony Group AI Ethics Committee, and in 2021 the AI Ethics Office was established within Sony Group Corporation to provide subject matter expertise on AI ethics to all Business Units. Sony has been strengthening its framework for AI ethics with initiatives such as establishing an internal document stipulating requirements to be complied with in the commercialization process of electronic products and services, and starting AI ethics assessments in the product development life cycle.
(3) Human Capital Strategies, Metrics and Targets
<Human Resources strategy — “Diversity” and “Attract talented individuals,” “Develop talented individuals,” “Engage talented individuals.” —>
Starting from the electronics business, Sony has continued to evolve, expanding the breadth of its businesses to include semiconductors, music, financial services, motion pictures and games. Furthermore, Sony has developed all its businesses globally, and has tailored its organizational structure with the aim of supporting their optimal global operation. Sony has headquartered half of its six main business segments in the U.S., and Sony’s
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diverse businesses operating across different regions are sustained by our diverse employees, one of Sony’s most important management resources, who form the foundation for creative innovation. Sony considers the diversity of our employees and businesses as drivers for value creation, along with creativity and technology. Sony has approximately 110,000 employees worldwide who are diverse, not only in terms of nationality and race, but also due to the expansion of Sony’s businesses, in terms of job types. Employee diversity constitutes the driving force behind the growth of each business. With their diverse backgrounds and varied specialties, Sony’s employees connect and intersect across businesses and regions, fusing technology and creativity to create new value in alignment with Sony’s Purpose, which is to “fill the world with emotion, through the power of creativity and technology.”
Since its founding, Sony has respected the independence and challenger’s spirit of individuals, and cherished a corporate culture based on the partnership between Sony and each individual employee, where each party is accountable to the needs of the other. Sony’s People Philosophy, “Special You, Diverse Sony,” represents Sony’s approach to employees, which has taken root and been carried on as part of our corporate culture, and conveys the desire that each unique individual and Sony embrace diversity and continue to grow together, centered on a shared Purpose.
The group-wide HR strategy based on Sony’s People Philosophy is defined as: “Attract talented individuals,” “Develop talented individuals,” and “Engage talented individuals.” Sony aims to maximize the performance of the Sony Group as a whole by focusing on measures that support spontaneous employee challenges and their willingness to grow, and in turn maximize the power of each individual employee. With regard to specific initiatives, Business Units’ HR executives formulate and implement the most appropriate HR measures in accordance with the characteristics of their respective businesses and regions.
(i) “Attract talented individuals”
Sony considers it important to attract diverse talent who identify with Sony’s Purpose, possess a high level of skill and expertise, embrace the spirit of challenge, and possess the ambition to grow. In recruitment activities, Sony strategically works with all Sony Group companies worldwide to attract world-class talent, and also focuses on industry-academia collaboration as a
mid-
to long-term measure to develop diverse talent pipelines. Sony is also globally providing opportunities that lead to the success of employees with various business, regional, and social backgrounds. For example, in the U.S., Sony provides early training and educational support to those who do not have sufficient opportunities and links these activities to the recruitment of diverse individuals.(ii) “Develop talented individuals”
Sony believes that the most effective way for our employees to grow is to provide them with job opportunities where they have autonomy and are able to demonstrate their desire to grow by taking on new challenges. For this reason, Sony systematizes the skills required according to the roles of employees and aims to strengthen each skill throughout the Group. Sony strongly believes that management-level employees play an important role in the growth of the Sony Group and its employees. Sony’s management team and HR departments discuss the direction for the
mid-term
development training and strengthening of the Group’s management and provide management-level employees with various programs such as leadership development and coaching, which aim to expand horizons and increase experience in a broad range of fields. Additionally, Sony has established the “Sony University” program, which was designed to nurture future leaders who will play a key role in each business segment and function. Furthermore, through the “Sony Cross-Mentoring Program,” Sony aims to create strategic connections between the current management team and future key employees in each business segment, to facilitate passing on the current leadership team’s wealth of experience to the next generation and to develop new group synergies and talented individuals.(iii) “Engage talented individuals”
To fully leverage the diversity of our employees, Sony believes that it is essential for each employee with different personalities, lifestyles, and work styles to continue to take on challenges in pursuit of growth. Sony’s initiatives include its diverse career development programs (including an internal job posting program, the “Free Agent Program” and the “Career Plus” program, among others, which all provide opportunities for professional experience within the Sony Group) and the arrangement of “PORT,” a space for learning and employee interaction within the Sony Group, in which
employee-led
community activities and various training programs are held.Sony believes that whether our diverse employees are able to maximize their uniqueness depends on their engagement and degree of empathy with our Purpose. At Sony, employee engagement is considered a
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particularly important indicator and is incorporated as part of the evaluation factors of remuneration linked to business results for Senior Executives of the Corporation. Going forward, Sony aims to continue to promote initiatives that lead to greater employee empathy with the Purpose and higher employee engagement, thereby aiming to realize the sustainable growth of Sony.
<Policy to foster the diversity of our employees and to build an inclusive organization>
Similar to a strong stone wall built by skillfully combining stones of different shapes, Sony aims to realize an organization in which diverse personalities, opinions, views, and values coexist in a corporate setting. Sony has implemented priority measures that are suitable for each business, region, and social environment in order to promote the appointment of employees with diverse backgrounds, place importance on the perspective of equity, and achieve true inclusion, which we believe will lead to the sustainable growth of the Sony Group which is comprised of diverse businesses.
As a group-wide initiative, Sony has established a “Diversity Statement” that emphasizes the importance of promoting diversity. In the U.S., Sony creates a wide range of internal and external opportunities. For example, SME has its own framework, “MILES,” for fostering DE&I that contributes to industry development, and SPE has the “Sony Pictures Action” program, which focuses on four pillars — people, content, partners, and community — to provide support for those who are socially disadvantaged. In addition, since 2015, Sony has held a “Diversity Week” every year and Sony Group companies around the world hold events to promote understanding of diversity in terms of gender, race, nationality, sexual orientation, gender identity, and disabilities.
(i) Diversity of experience
Sony believes that adding new knowledge and perspectives gained through experience at other companies will lead to the growth of our businesses and employees. Throughout the years, Sony has aimed to actively promote hiring individuals with such diversity of experience, especially in areas of business need. The ratio of employees with prior experience at other companies to all new hires at Sony Group companies in Japan was 52.5% for the fiscal year ended March 31, 2023, 49.6% for the fiscal year ended March 31, 2022, and 48.7% for the fiscal year ended March 31, 2021. Additionally, the majority of our employees at overseas Group companies have prior experience at other companies. During performance evaluation, Sony does not distinguish between employees with experience at other companies and those who started their careers at Sony.
(ii) Diversity of nationality
As of March 31, 2023, half of the Senior Executive Vice Presidents at Sony Group Corporation, who are responsible for major businesses, were
non-Japanese.
This demonstrates the diversity of backgrounds at the leadership level at Sony. In addition, some of the Sony Group’s major businesses, such as the Pictures and Music Publishing businesses, have foreign nationals playing a major role in their operations. Approximately half of all Sony Group employees are engaged in business activities outside Japan, and more than 90% of these employees are locally hired. In addition, Sony continues to actively recruit talented students and experienced individuals from around the world, regardless of nationality, to become employees capable of enhancing global research and development and cutting-edge technology development, such as AI developed at Sony Research Inc. (formerly Sony AI Inc.).(iii) Diversity of gender
Sony aims to globally promote greater opportunities for women as part of our efforts to ensure an inclusive work environment in which diverse employees can play an active role. As of March 31, 2023, the ratio of women to men in the workforce was 34.0% and the ratio of women to men in management positions was 30.0% at the whole Sony Group. On the other hand, Sony considers increasing gender diversity as an area of focus for Japan, where the ratio of women to men in management positions is low and the number of women majoring in the fields of science or engineering is limited.
Sony believes that it is essential to promote greater opportunities for women through measures to improve the working environment, as well as development programs and recruitment activities. Specifically, Sony has programs focused on continuously developing female employees, such as development and career training programs for female leaders as well as roundtable discussions and networking events for female employees, and is strengthening recruitment activities geared towards female employees, such as through science programs for female students aimed at supporting the next generation of talent. In addition, Sony Group Corporation and its major subsidiaries in Japan have set targets for increasing both the ratio of women to men in management positions and the ratio of male employees taking childcare leave.
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(iv) Promoting greater opportunities for LGBTQ+
Sony is working to ensure internal infrastructure inclusive of diverse employees and aiming to provide LGBTQ+ employees globally with working environments in which they can feel comfortable being themselves, while acknowledging various national and regional considerations and circumstances.
As a group-wide initiative, Sony introduced a pride logo, a Sony logotype displayed in rainbow colors, to visually express Sony’s respect inside and outside Sony and support for LGBTQ+ employees and communities. In addition to supporting LGBTQ+ employees, Sony has implemented an
e-learning
course for employees that covers LGBTQ+ topics, offers LGBTQ+ workshops, organizes events designed to raise employees’ awareness, and participates in pride parades globally. In the U.S., in partnership with GLAAD, an organization that aims to prevent LGBTQ+ discrimination in the media, SME provided training on LGBTQ+ inclusion and sponsored the 33rd Annual GLAAD Media Awards, which recognizes media outlets for their fair, accurate, and inclusive representation of LGBTQ+. In Japan, Sony has expanded various personnel programs to coversame-sex
partners, provides gender-neutral restrooms, makes it optional for job applicants to indicate their gender on applications, and provides private restrooms and shower facilities in each room at corporate dormitories, all measures aimed at ensuring a working environment inclusive of diverse employees.(v) Promoting greater opportunities for individuals with disabilities
Sony aims to create an employment environment where disabilities do not create barriers and no employee feels held back by their disability. Enabling every employee to thrive follows the philosophy of Masaru Ibuka, one of Sony’s founders, who said “we had a spirit of autonomy and a belief in creating workplaces that do not offer charity, but rather create an environment that makes it possible for individuals with disabilities to manufacture products that exceed those manufactured by individuals without disabilities.” To this end, Sony is focused on complying with the laws and norms of each country and region and aims to create an inclusive work environment that enables career building regardless of disabilities, and the entire Group is working to achieve this goal.
Sony has signed the Valuable 500, a World Economic Forum initiative focused on the inclusion of people with disabilities, and Sony’s goal to create inclusive work environments aligns with this initiative. Sony was named one of the Valuable 500 Iconic Leader companies, which are driving forces in their respective countries, regions, and industries. In the U.S., Sony is actively working with Disability:IN, an organization focused on the inclusion of people with disabilities in business, and has created an
e-learning
program to deepen the understanding of accessibility and disabilities among Sony Group companies and delivered it to employees. In Japan, Sony manages three special-purpose subsidiaries as an independent business establishment, and the know-how regarding reasonable workplace accommodation and accessibility related to the employment of persons with disabilities gained through the operation of these subsidiaries is being deployed throughout the Group. For example, employees of overseas Group companies visit the manufacturing sites of the special-purpose subsidiaries in Japan to learn about designing production lines that are accessible for people with disabilities to work on.Through the foregoing policy, Sony plans to continuously implement various programs to foster the diversity of our employees and build an inclusive organization for Sony’s sustainable growth and value creation for society.
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C. | Organizational Structure |
The following table sets forth the significant subsidiaries owned, directly or indirectly, by Sony Group Corporation.
Name of company | Country of incorporation/residence | (As of March 31, Percentage owned | ||||
Sony Interactive Entertainment Inc. | Japan | 100.0 | ||||
Sony Music Entertainment (Japan) Inc. | Japan | 100.0 | ||||
Sony Corporation | Japan | 100.0 | ||||
Sony Global Manufacturing & Operations Corporation | Japan | 100.0 | ||||
Sony Semiconductor Solutions Corporation | Japan | 100.0 | ||||
Sony Semiconductor Manufacturing Corporation | Japan | 100.0 | ||||
Sony Semiconductor Energy Management Corporation | Japan | 100.0 | ||||
Sony Network Communications Inc. | Japan | 100.0 | ||||
Sony Marketing Inc. | Japan | 100.0 | ||||
Sony Storage Media Solutions Corporation | Japan | 100.0 | ||||
Sony Global Solutions Inc. | Japan | 100.0 | ||||
Sony Financial Group Inc. | Japan | 100.0 | ||||
Sony Life Insurance Co., Ltd. | Japan | 100.0 | ||||
Sony Bank Inc. | Japan | 100.0 | ||||
Sony Assurance Inc. | Japan | 100.0 | ||||
Sony Corporation of America | U.S.A. | 100.0 | ||||
Sony Interactive Entertainment LLC | U.S.A. | 100.0 | ||||
Sony Music Entertainment | U.S.A. | 100.0 | ||||
Sony Music Publishing LLC | U.S.A. | 100.0 | ||||
Sony Pictures Entertainment Inc. | U.S.A. | 100.0 | ||||
Columbia Pictures Industries, Inc. | U.S.A. | 100.0 | ||||
CPT Holdings, Inc. | U.S.A. | 100.0 | ||||
Sony Electronics Inc. | U.S.A. | 100.0 | ||||
Sony Europe B.V. | U.K. | 100.0 | ||||
Sony Interactive Entertainment Europe Ltd. | U.K. | 100.0 | ||||
Sony Global Treasury Services Plc | U.K. | 100.0 | ||||
Sony Overseas Holding B.V. | Netherlands | 100.0 | ||||
Sony (China) Limited | China | 100.0 | ||||
Sony EMCS (Malaysia) Sdn. Bhd. | Malaysia | 100.0 | ||||
Sony Electronics (Singapore) Pte. Ltd. | Singapore | 100.0 | ||||
D. | Property, Plant and Equipment |
Sony has a number of offices, plants and warehouses throughout the world. Most of the buildings and land in/on which such offices, plants and warehouses are located are owned by Sony.
floor space | ||||||
- 3035 -
The status of major property, plants and equipment as of March 31, 2023 is as follows:
Facility or Subsidiary Name (Primary Location) | Segment | Details | Carrying Amount (Yen in millions) | Number of employees *2 | ||||||||||||||||||||
| Land (Area (thousand square meters)) | Buildings | Machinery, equipment and other assets *1 | Right-of-use assets | |||||||||||||||||||||
In Japan (Sony Group Corporation *3 ): | ||||||||||||||||||||||||
Headquarters (Minato-ku, Tokyo) | Corporate | Headquarters facilities | | 1,275 (19 | ) | 21,862 | 14,681 | — | 1,435 | |||||||||||||||
| Others *4 | Corporate | Headquarters facilities | | 6,582 (305 | ) | 34,544 | 3,718 | — | 1,010 | |||||||||||||||
In Japan (Subsidiaries): | ||||||||||||||||||||||||
Sony Interactive Entertainment Inc. (Minato-ku, Tokyo) | G&NS | Home gaming consoles / cloud-related software | | — (— | ) | 1,407 | 168,168 | 11,381 | 1,900 | |||||||||||||||
| Sony Corporation (Minato-ku, Tokyo) | ET&S | Research facilities for TVs, audio / video devices, cameras, broadcasting equipment and medical equipment | | — (— | ) | 2,372 | 47,810 | 35,495 | 7,300 | |||||||||||||||
Sony Network Communications Inc. *5 (Shinagawa-ku, Tokyo) | ET&S | Data communication facilities | | — (— | ) | 527 | 69,385 | 5,177 | 1,900 | |||||||||||||||
Sony Global Manufacturing & Operations Corporation (Kohda Site, etc.) (Minato-ku, Tokyo) | ET&S, I&SS, All Other | Production facilities for electronic devices, etc. | | 5,543 (468 | ) | 10,870 | 16,430 | 5,517 | 4,000 | |||||||||||||||
Sony Semiconductor Solutions Corporation (Atsugi-shi, Kanagawa) | I&SS | Research facilities for image sensors, etc. | | — (— | ) | 1,326 | 36,070 | 19,525 | 7,300 | |||||||||||||||
Sony Semiconductor Manufacturing Corporation (Nagasaki TEC, etc.) (Kikuchi-gun, Kumamoto) | I&SS | Production facilities for image sensors, etc. | | 11,244 (622 | ) | 144,569 | 545,869 | 10,075 | 8,100 | |||||||||||||||
Sony Semiconductor Energy Management Corporation (Nagasaki TEC, etc.) (Kikuchi-gun, Kumamoto) | I&SS | Energy supply facilities for the manufacturing of image sensors, etc. | | — (— | ) | 25,638 | 87,833 | 35,638 | 100 | |||||||||||||||
Sony Music Entertainment (Japan) Inc. *5 (Chiyoda-ku, Tokyo) | Music | Music facilities and in-house software | | 22,548 (320 | ) | 11,009 | 55,105 | 10,595 | 4,200 | |||||||||||||||
Sony Financial Group Inc. *5 (Chiyoda-ku, Tokyo) | Financial Services | In-house software | | 6,324 (25 | ) | 6,290 | 70,064 | 84,023 | 13,500 | |||||||||||||||
Sony Global Solutions Inc. (Minato-ku, Tokyo) | Corporate | In-house software | | — (— | ) | 490 | 21,889 | 995 | 600 | |||||||||||||||
Outside Japan (Subsidiaries): | ||||||||||||||||||||||||
Sony Corporation of America *5 (New York, United States) | ET&S, I&SS | Production facilities for electronic products, etc. | | 317 (112 | ) | 18,875 | 3,841 | 3,395 | 1,300 | |||||||||||||||
| Music | Music catalogs, etc. | | 80 (4 | ) | 9,401 | 797,219 | 41,901 | 6,900 | ||||||||||||||||
| Pictures | Production facilities for motion pictures, television programming, video software, etc. | | 11,070 (268 | ) | 45,917 | 814,019 | 39,486 | 9,100 | ||||||||||||||||
| All Other, Corporate | Office buildings and machinery, etc. | | 871 (142 | ) | 10,473 | 15,516 | 17,994 | 1,600 | ||||||||||||||||
| Sony Interactive Entertainment LLC *5 (California, United States) | G&NS | Cloud-related facilities, etc. | | — (— | ) | 6,909 | 150,792 | 104,119 | 6,100 | |||||||||||||||
Sony Europe B.V. *5 (Surrey, United Kingdom) | ET&S, I&SS, All Other | Office buildings and sales facilities, etc. | | 2,344 (45 | ) | 3,822 | 11,956 | 9,078 | 3,900 | |||||||||||||||
| Sony EMCS (Malaysia) Sdn. Bhd. (Selangor, Malaysia) | ET&S | Production facilities for electronic devices, etc. | | — (— | ) | 4,589 | 8,482 | 185 | 4,900 | |||||||||||||||
Sony Electronics (Singapore) Pte. Ltd. (Singapore) | ET&S, I&SS, All Other, Corporate | In-house software | | — (— | ) | 88 | 11,802 | 1,633 | 400 | |||||||||||||||
*1 “Machinery, equipment and other assets” represents machinery, equipment and other tangible fixed assets, as well as content assets and other intangible assets.
- 36 -
*2 Numbers of employees of subsidiaries are rounded to the nearest hundred.
*3 Includes facilities leased from subsidiaries in Japan. In addition to the abovelisted facilities, Sony has a number of other plants for electronic products throughout the world. Sony owns R&D facilities,Group Corporation leases its land, buildings and structures mainly to subsidiaries and affiliates in Japan. Furthermore, Sony Group Corporation’s headquarters building, with a total floor spaceCorporation subleases itsassets mainly to subsidiaries and affiliates in Japan.
Right-of-use
*4 “Others” primarily includes Sony City Osaki and Atsugi TEC.
*5 Figures for Sony Network Communications Inc., Sony Music Entertainment (Japan) Inc., Sony Financial Group Inc., Sony Corporation of approximately 1,753,000 square feet, in Tokyo, Japan, where administrative functions and product development activities are carried out. Sony Interactive Entertainment Inc. has its corporate headquarters in Sony Group Corporation’s headquarters building and leases additional office space in Tokyo from a third party, where administrative functions, product development, and software development are carried out.America, Sony Interactive Entertainment LLC and Sony Interactive Entertainment Europe Ltd. leaseB.V. are consolidated financial figures, which include their offices in the U.S. and Europe, respectively.
Item 4A. | Unresolved Staff Comments |
None
Item 5. | Operating and Financial Review and Prospects |
The following discussion covers the fiscal years ended March 31, 20212022 and 2022. Sony adopted IFRS starting in the three months ended June 30, 2021, in lieu of the previously applied U.S. GAAP. The results for the fiscal year ended March 31, 2021 are also presented in accordance with IFRS for the purpose of comparative analysis. For details of adjustments made in accordance with the transition from U.S. GAAP to IFRS, please refer to Note 34 of the consolidated financial statements.2023.
A. | Operating Results |
Operating Performance
The following discussion covers the fiscal years ended March 31, 2022 and 2023. For the discussion covering the fiscal year ended March 2021, refer to “Item 5.A.” of Sony’s Form
20-F
for the fiscal year ended March 31, 2022 filed with the SEC on June 28, 2022.Fiscal year ended March 31 | Fiscal year ended March 31 | |||||||||||||||
| 2021 | 2022 | 2022 | 2023 | |||||||||||||
(Yen in billions) | (Yen in billions) | |||||||||||||||
Sales and financial services revenue | 8,998.7 | 9,921.5 | 9,921.5 | 11,539.8 | ||||||||||||
Operating income | 955.3 | 1,202.3 | 1,202.3 | 1,208.2 | ||||||||||||
Income before income taxes | 998.0 | 1,117.5 | 1,117.5 | 1,180.3 | ||||||||||||
Net income attributable to Sony Group Corporation’s stockholders | 1,029.6 | 882.2 | 882.2 | 937.1 | ||||||||||||
Sales
For the fiscal year ended March 31, 2022,2023, sales increased 922.91 trillion 618.3 billion yen compared to the fiscal year ended March 31, 20212022to 911 trillion 921.5539.8 billion yen. This significant increase was mainly due to significant increases in sales in the G&NS, I&SS, Music and Pictures EPsegments as well as an increase in sales in the ET&S and Music segments.segment. A further breakdown of sales figures is presented under “Operating Performance by Business Segment” below.
(“year-on-year”)
Cost of Sales, Selling, General and Administrative Expenses and Other Operating (Income) Expense, net
“Sales” in the analysis of the ratio of “cost of sales” to sales, the ratio of “R&D costs” to sales, and the ratio of “selling, general and administrative expenses” (“SGA expenses”) to sales refers only to the net sales portions
of consolidated sales (which excludes financial services revenue). This is because financial services expenses are recorded separately from cost of sales and SGA expenses in the consolidated financial statements. The calculations of all ratios below that pertain to reportable segments include intersegment transactions.
For the fiscal year ended March 31, 2022,2023, cost of sales increased 779.91 trillion 328.9 billion yento 57 trillion 845.8174.7 billion yen. The ratio of cost of sales to sales deterioratedfrom 69.1%69.6% to 69.6%71.1%. Cost of sales in the previous fiscal year included 7.4 billion yen in inventory write-downs of certain image sensors for mobile products, recorded within the I&SS segment.
year-on-year
year-on-year
R&D costs (all R&D costs are included within cost of sales) increased 73.0117.3 billion yento 618.4735.7 billion yen. The ratio of R&D costs to sales remained unchanged fromwas 7.3%, compared to 7.4% in the fiscal year ended March 31, 2021 at 7.4%.2022. For further details, refer to “” in Item 5.C.
year-on-year
Research and Development
SGA expenses increased 115.3380.7 billion yento 1 trillion 588.5969.2 billion yen. The ratio of SGA expenses to sales improveddeterioratedfrom 20.1%18.9% to 18.9%19.5%.
year-on-year
year-on-year
- 37 -
Other operating (income) expense, net, improved 79.7decreased 53.5 billion yento income of 65.512.0 billion yen. This significant improvementdeterioration was mainly due to the following factors that occurred in the fiscal year ended March 31, 2022 and the absence of the following factors that occurred in the fiscal year ended March 31, 2021. Refer to Note 23a gain of the consolidated financial statements.
year-on-year
consolidated financial statements.
Share of profit of investments accounted for using the equity method
For the fiscal year ended March 31, 2022,2023, the share of profit (loss) of investments accounted for using the equity method increased 12.1was income of 24.4 billion yen, essentially flatyear-on-yearyear-on-year.to income of 23.6 billion yen. This increaseresult was mainly due to increases in the share of profit of investments in the Music and Pictures segments, substantially offset by a decrease in the share of profit of the investment in M3 Inc. (“M3”). This decrease in the share of profit of the investment in M3 was mainly due to the absence of the recording of 5.1 billion yen in the share of profit of the investment in M3 Inc. (“M3”) related to a gain on a change in M3’s equity interest in an affiliated company in the fiscal year ended March 31, 2022, resulting from the issuance of new shares in connection with the affiliated company’s public listing.
Operating Income
For the fiscal year ended March 31, 2022,2023, operating income increased 247.1was 1 trillion 208.2 billion yen, essentially flatyear-on-yearyear-on-year.to 1 trillion 202.3 billion yen. This significant increaseresult was primarily due to significant increases in operating income in the Financial Services, I&SS and Music segments as well as a significant decrease in the operating loss in Corporate and elimination, substantially offset by significant decreases in operating income in the Pictures and EPG&NS segments and a decrease in operating income in the ET&S segments.segment. Operating income for the current fiscal year as well as the previous fiscal year included the above-mentioned factorsfactor being recorded as other operating (income) expense, net. Operating income for the previous fiscal year also included 5.3 billion yen in expenses related to the Sony Global Relief Fund forCOVID-19within Corporate and elimination, recorded mainly as SGA expenses. Operating income for the current fiscal year included aone-timeloss of 16.8 billion yen recorded due to an unauthorized withdrawal of funds at a subsidiary of Sony Life within Financial Services expenses and a settlement gain of 5.5 billion yen in connection with the termination of the defined benefit pension plan at certain U.S. subsidiaries, mainly within Corporate and elimination. Operating income for the current fiscal year included the impact of litigation settlements, net of expenses, of 5.7 billion yen received in relation to lawsuits for Recorded Music and Music Publishing and the recovery of 22.1 billion yen of an unauthorized withdrawal of funds at a subsidiary of Sony Life which occurred in the previous fiscal year.
Financial Income and Expenses
For the fiscal year ended March 31, 2022,2023, financial income decreasedincreased by 64.511.8 billion yento 19.331.1 billion yen, while financial expenses increaseddecreased by 63.145.2 billion yento 104.159.0 billion yen. The net effect of financial income and expenses was an expense of 84.827.9 billion yen, compared to incomean improvement of 42.756.9 billion yen in the previous fiscal year. This deteriorationsignificant improvement was primarily due to the recording ofa decrease in unrealized losses, mainly on Sony’s shares of Spotify Technology S.A. in the current fiscal year, compared to the recording of unrealized gains on such shares in the previous fiscal year.
year-on-year,
year-on-year,
year-on-year.
Income before Income Taxes
For the fiscal year ended March 31, 2022,2023, income before income taxes increased 119.562.8 billion yento 1 trillion 117.5180.3 billion yen.
year-on-year
Income Taxes
During the fiscal year ended March 31, 2022,2023, Sony recorded 229.1236.7 billion yen of income tax expenses, includedexpenses. The effective tax rate of 20.1% in whichthe current fiscal year was lower than the effective tax rate of 20.5% in the previous fiscal year. The effective tax rate in the current fiscal year reflects the impact of an increase in tax credits in Japan, and the benefit from a decrease in the deferred tax benefitliabilities related to Japan controlled foreign company taxation. The effective tax rate in the previous fiscal year reflected the impact of 33.4 billion yen resulting from the reversal of a previous write-down of certain deferred tax assets at certain companies in Japan. The effective tax rate of 20.5% in the current fiscal year was higher than the effective tax rate of negative 4.6% in the previous fiscal year, mainly due to the fact that the reversal of a previous write-down of a significant portion of the deferred tax assets of the consolidated tax filing group in Japan and the local taxes at some companies in Japan resulted in tax benefits of 214.3 billion yen and 7.6 billion yen, respectively, in the previous fiscal year. Additionally in the previous fiscal year, the reversal of a previous write-down of the deferred tax assets for foreign tax credits and certain research and development credits of the consolidated tax filing group in the United States resulted in tax benefits of 21.3 billion yen and 13.6 billion yen, respectively. Refer to Note 25 of the consolidated financial statements.
Net Income Attributable to Noncontrolling Interests
For the fiscal year ended March 31, 2022,2023, net income attributable to noncontrolling interests of 6.26.5 billion yen was recorded, a decreasean increase of 8.10.3 billion yenThis was primarily due to making SFGI a wholly-owned subsidiary. Refer to Note 20 of the consolidated financial statements.
year-on-year.
- 38 -
Net Income Attributable to Sony Group Corporation’s Stockholders
For the fiscal year ended March 31, 2022,2023, net income attributable to Sony Group Corporation’s stockholders, which excludes net income attributable to noncontrolling interests, decreased 147.4increased 54.9 billion yento 882.2937.1 billion yen.
year-on-year
Basic net income per share and diluted net income per share, attributable to Sony Group Corporation’s stockholders for the fiscal year ended March 31, 20222023 were 758.38 yen and 754.95 yen, respectively, compared with 711.84 yen and 705.16 yen, respectively, compared with 836.75 yen and 823.77 yen, respectively, for the fiscal year ended March 31, 2021.2022. Refer to Note 26 of the consolidated financial statements.
Operating Performance by Business Segment
The following discussion is based on segment information. Sales in each business segment represents sales recorded before intersegment transactions are eliminated. Operating income (loss) in each business segment represents operating income (loss) reported before intersegment transactions are eliminated and excludes unallocated corporate expenses. Refer to Note 4 of the consolidated financial statements.
Game & Network Services (G&NS)
Key Financial Figures
Fiscal year ended March 31 | Fiscal year ended March 31 | |||||||||||||||
| 2021 | 2022 | 2022 | 2023 | |||||||||||||
(Yen in millions) | (Yen in millions) | |||||||||||||||
Sales to external customers by product category | ||||||||||||||||
Digital Software and Add-on Content | 1,454,654 | 1,424,459 | 1,424,459 | 1,523,045 | ||||||||||||
Network Services | 382,950 | 409,355 | 409,355 | 464,676 | ||||||||||||
Hardware & Others | 767,109 | 840,542 | 840,542 | 1,550,812 | ||||||||||||
Sales to external customers | 2,604,713 | 2,674,356 | 2,674,356 | 3,538,533 | ||||||||||||
Intersegment sales | 51,565 | 65,407 | 65,407 | 106,065 | ||||||||||||
G&NS segment total sales | 2,656,278 | 2,739,763 | 2,739,763 | 3,644,598 | ||||||||||||
G&NS segment operating income | 341,718 | 346,089 | 346,089 | 250,006 | ||||||||||||
(Units in millions) | (Units in millions) | |||||||||||||||
Major product unit sales | ||||||||||||||||
PS4 ™ hardware | 5.7 | 1.0 | ||||||||||||||
PS5 ™ hardware | 7.8 | 11.5 | 11.5 | 19.1 | ||||||||||||
For the fiscal year ended March 31, 2022,2023, sales increased 83.5904.8 billion yento 23 trillion 739.8644.6 billion yen. This significant increase in sales was mainly due to the impact of foreign exchange rates, as well as an increase in sales of hardware and an increase in sales of first-party titles, partially offset primarily by a decrease in software sales, mainly fromnon-first-partytitles includingadd-oncontent.
year-on-year
non-first-party
titles includingadd-on
content.Operating income decreased 96.1 billion yento 250.0 billion yen. This significant decrease was primarily due to an increase in costs, mainly for game software development and expenses associated with acquisitions completed in the current fiscal year, including Bungie*, in addition to the impact of the above-mentioned decrease in sales of15.732.4 billion yen positivenegative impact from foreign exchange rate fluctuations.
year-on-year
non-first-party
titles. This decrease in operating income was partially offset by the impact of the above-mentioned increase in sales of first-party titles as well as a decrease in losses from hardware. During the current fiscal year, there was a * 52.7 billion yen was recorded as expenses associated with acquisitions completed in the current fiscal year. For details regarding the acquisition of Bungie, refer to Note 30 of the consolidated financial statements.
Business Environment and Strategy
The operating performance of the G&NS segment for the fiscal year ended March 31, 20222023 reflected steadystrong sales of softwarehardware and peripheral devices resulting from a significant improvement in PS5continued high levelsthe positive impact of user engagement eventhe launch of the new three-tiered PlayStation
™
supply in the second half of the fiscal year and a continuous stable revenue contribution from network services resulting from ®
Plus service. On the other hand, software sales were impacted by a reduction in users’ game spend as opportunities to go outside increased due to a reduction in- 39 -
COVID-19
God of War Ragnarök.
™
™
user base, which is driving user engagement. Regarding portfolio expansion, Sony intends to strengthen year-on-year
Marvel’s
Spider-Man
The Last of Us Part 1
The Last of Us,
Music
Key Financial Figures
Fiscal year ended March 31 | Fiscal year ended March 31 | |||||||||||||||
| 2021 | 2022 | 2022 | 2023 | |||||||||||||
(Yen in millions) | (Yen in millions) | |||||||||||||||
Sales to external customers by product category | ||||||||||||||||
Recorded Music — Streaming | 337,100 | 462,368 | 462,368 | 598,868 | ||||||||||||
Recorded Music — Others | 179,167 | 206,412 | 206,412 | 286,270 | ||||||||||||
Music Publishing | 156,862 | 200,334 | 200,334 | 276,665 | ||||||||||||
Visual Media & Platform | 254,121 | 231,418 | 231,418 | 203,012 | ||||||||||||
Sales to external customers | 927,250 | 1,100,532 | 1,100,532 | 1,364,815 | ||||||||||||
Intersegment sales | 12,617 | 16,417 | 16,417 | 15,817 | ||||||||||||
Music segment total sales | 939,867 | 1,116,949 | 1,116,949 | 1,380,632 | ||||||||||||
Music segment operating income | 184,786 | 210,933 | 210,933 | 263,107 | ||||||||||||
The Music segment results include the
yen-based
results of SMEJ and theyen-translated
results of SME and SMP, which aggregate the results of their worldwide subsidiaries on a U.S. dollar basis.For the fiscal year ended March 31, 2022,2023, sales increased 177.1263.7 billion yen to 1 trillion 116.9380.6 billion yen. This significant increase in sales was primarily due to the impact of foreign exchange rates as well as increases in sales for Recorded Music and Music Publishing, resulting frompartially offset by lower sales for Visual Media and Platform due to a decrease in sales in the anime business. The increases in sales for Recorded Music and Music Publishing were primarily due to higher revenuerevenues from paid subscription streaming services, as well as advertising-supported streaming services which were impacted byCOVID-19also benefited from the success of a number of new releases in the previous fiscal year, and the impact of foreign exchange rates.Recorded Music.
Operating income significantly increased 26.152.2 billion yento 210.9263.1 billion yen, primarily due to the positive impact of foreign exchange rates and the impact of the above-mentioned increase in sales for Recorded Music and Music Publishing, as well as the positive impact of foreign exchange rates,litigation settlements, net of expenses, of 5.7 billion yen received in relation to lawsuits for Recorded Music and Music Publishing, partially offset
year-on-year
by the absenceimpact of a 7.2 billion yen gain on the sale of a portion of shares of Pledisabove-mentioned decrease in sales for Visual Media and a 5.9 billion yen gain in connection with the transfer of an overseas business, both of which were recorded in the previous fiscal year.
Platform.Business Environment and Strategy
As digital streaming continued to expand globally, including due to the recovery from the impact ofCOVID-19,the operating performance of the Music segment for the fiscal year ended March 31, 20222023 reflected an increase in revenues from streaming services resulting from the enhanced discovery and development of artists, strengthening ofincluding Sony’ship-hopand rap repertoire, and past proactive acquisitions including the acquisition of thesuch as Alamo Records, label.Som Livre and AWAL. In this environment, demand for music content is continuingSony aims to grow, and Sony has continued toachieve continuous growth that outpaces the market by proactively makemaking investments to strengthentoward strengthening its content IP and its relationships with artists, for future growth. For example, Sony strengthened itsstrengthening services for independentdistributed labels centered around The Orchard, ensuring early contact with emerging artists through its acquisition ofchannels such as AWAL in the fiscal year ended March 31, 2022. Additionally, in order to capitalize on the increasing penetration of streaming services in emerging markets, Sony is continuing to strengthenand strengthening its approach in emerging markets by proactively investing in local talent and collaborating with local companies. For example, in the fiscal year ended March 31, 2022, Sony reinforced its business foundation in the Latin American market through the acquisition of the independent Brazilian music label Som Livre. Additionally, new business opportunities in theareas such as social media and gaming continue to grow, and fitness areas are growing rapidly, andSony intends to further collaborate with various service partners in the fiscal year ended March 31, 2022, Sony acquired Somethin’ Else, a leading podcast and audio producer in the U.K. In these new business areas by collaborating with various service partners, Sony plans to continue to work toboth expand its earnings base by creating new opportunities for
- 40 -
the use of music content, and to strengthen its relationships with artists by creating opportunities for artists to increase their own earnings. In addition,Additionally, by capitalizing onleveraging the Music segment’s position as a partdiversity of the diverse Sony Group, Sony aims to provide a wide variety of marketing opportunities to its artists going forward. In Visual Media and Platform, Sony will workaims to maximize the lifetime value ofgrow its anime IP through diversificationbusiness by expanding its merchandising and deploymentrevenues from outside of Japan as well as strengthening its content to a wider varietyanime production capabilities, and grow its game business by improving fan engagement and accelerating the development of channels, such as its own distribution through Crunchyroll and enhanced collaboration with other distribution partners.high-quality games.
Pictures
Key Financial Figures
Fiscal year ended March 31 | Fiscal year ended March 31 | |||||||||||||||
| 2021 | 2022 | 2022 | 2023 | |||||||||||||
(Yen in millions) | (Yen in millions) | |||||||||||||||
Sales to external customers by product category | ||||||||||||||||
Motion Pictures | 265,301 | 518,840 | 518,840 | 464,043 | ||||||||||||
Television Productions | 267,123 | 419,494 | 419,494 | 536,250 | ||||||||||||
Media Networks | 219,376 | 298,065 | 298,065 | 364,594 | ||||||||||||
Sales to external customers | 751,800 | 1,236,399 | 1,236,399 | 1,364,887 | ||||||||||||
Intersegment sales | 1,187 | 2,512 | 2,512 | 4,535 | ||||||||||||
Pictures segment total sales | 752,987 | 1,238,911 | 1,238,911 | 1,369,422 | ||||||||||||
Pictures segment operating income | 79,851 | 217,393 | 217,393 | 119,255 | ||||||||||||
The Pictures segment results are the
yen-translated
results of SPE, which aggregates the results of its worldwide subsidiaries on a U.S. dollar basis. Management analyzes the results of SPE in U.S. dollars, so discussion of certain portions of its results is specified as being on “a U.S. dollar basis.”For the fiscal year ended March 31, 2022,2023, sales increased 485.9130.5 billion yen, a 65%an 11% increase(a 55% increasean 8% decrease on a U.S. dollar basis), to 1 trillion 238.9369.4 billion yen. This significant increase in salesdecrease on a U.S. dollar basis was due to higher sales in all categories. Sales for Motion Pictures increased primarily due to higherlower theatrical revenues as a resultin Motion Pictures compared to the prior fiscal year which benefited from the strong performance of the contribution ofseveral franchise films includingand other theatrical releases, as well as higher, lower licensing revenues from digital streaming services for new film titles and higher licensing revenues for catalog product. These increases were partially offset by lower home entertainment and licensing revenues generated from prior year releases, due to the absence of significant theatrical releases in the previous fiscal year. Sales for Television Productions (“TV Productions”) increased primarily due toas the recording of revenuesprior fiscal year benefitted from the licensing ofand lower licensing revenues in Motion Pictures as the prior fiscal year benefitted from a greater number of new films licensed to digital streaming services. These decreases in sales were partially offset primarily by an increase in series deliveries and the impact of acquisitions of Industrial Media and Bad Wolf in Television Productions, as well as an increase in deliveries of current year titles, as the previous fiscal year was negatively impacted by production delays due toCOVID-19.Sales for Media Networks increased primarily due tohigher revenues from anime streaming services including the impact of the acquisition of Crunchyroll.
year-on-year
Spider-Man:
No Way HomeVenom: Let There Be Carnage
Seinfeld,
Operating income increased 137.5decreased 98.1 billion yento 217.4119.3 billion yen.yen (a 54% decrease on a U.S. dollar basis). This significant increasedecrease in operating income on a U.S. dollar basis was primarily due to the impactabsence of the above-mentioned increase in sales, and the recording of a 70.0 billion yen gain recognized from the transfer of GSN Games, a division of Game Show Network, LLC, partially offset byin the prior fiscal year and the impact of higher marketing expenses for theatrical releasesthe above-mentioned decrease in Motion Pictures.sales.
year-on-year
Business Environment and Strategy
Seinfeld
Spider-Man:
Across the Spider-VerseKraven the Hunter
Uncharted
The Last of Us
- 41 -
DTC services, including Crunchyroll and SonyLIV. For example, in the anime streaming servicefiscal year ended March 31, 2023, Crunchyroll strengthened its eCommerce offerings to fans through the acquisition of which was completed in August 2021, and SonyLIV, a digital streaming service in India.the anime goods retailer Right Stuf, Inc. The signing of definitive agreements for the merger of SPNI and Zee was announced in December 2021, and Sony believes that the merger represents an opportunity to further accelerate the expansion and digitization of its business by using the strengths of both companies to strengthen its digital distribution service in the rapidly-growing Indian media and entertainment market. Additionally, Sony aims to proactively seek out opportunities for revenue from its existing IP in the area of location-based entertainment.
Key Financial Figures
Fiscal year ended March 31 | Fiscal year ended March 31 | |||||||||||||||
| 2021 | 2022 | 2022 | 2023 | |||||||||||||
(Yen in millions) | (Yen in millions) | |||||||||||||||
Sales to external customers by product category | ||||||||||||||||
TVs | 709,007 | 858,837 | 858,837 | 733,251 | ||||||||||||
Audio & Video | 313,975 | 326,704 | 326,704 | 391,608 | ||||||||||||
Still and Video Cameras | 338,694 | 414,898 | 414,898 | 565,018 | ||||||||||||
Mobile Communications | 358,580 | 365,864 | 365,864 | 356,771 | ||||||||||||
Other | 296,631 | 331,583 | 331,583 | 390,091 | ||||||||||||
Sales to external customers | 2,016,887 | 2,297,886 | 2,297,886 | 2,436,739 | ||||||||||||
Intersegment sales | 51,200 | 41,300 | 41,300 | 39,286 | ||||||||||||
EP&S segment total sales | 2,068,087 | 2,339,186 | ||||||||||||||
ET&S segment total sales | 2,339,186 | 2,476,025 | ||||||||||||||
EP&S segment operating income | 127,859 | 212,942 | ||||||||||||||
ET&S segment operating income | 212,942 | 179,461 | ||||||||||||||
(Units in millions) | (Units in millions) | |||||||||||||||
Major product unit sales | ||||||||||||||||
TVs | 9.3 | 8.5 | 8.5 | 6.6 | ||||||||||||
For the fiscal year ended March 31, 2022,2023, sales increased 271.1136.8 billion yento 2 trillion 339.2476.0 billion yen. This significant increase in sales was primarily due to the impact of foreign exchange rates as well as an increase in sales of televisions and digital cameras resulting from an improvementhigher unit sales, partially offset by a decrease in the product mix, as well as the impactsales of foreign exchange rates.televisions resulting from lower unit sales.
year-on-year
Operating income increased 85.1decreased 33.5 billion yento 212.9179.5 billion yen. This significant increasedecrease in operating income was mainly due to an improvement in the product mix of digital cameras and televisions as well as the positive impact of foreign exchange rates,the above-mentioned decrease in sales of televisions, partially offset by the impact of decreasesthe above-mentioned increase in unit sales of televisions and digital cameras. During the current fiscal year, there was a 27.29.4 billion yen positive impact from foreign exchange rate fluctuations.
year-on-year
Business Environment and Strategy
In the fiscal year ended March 31, 2022, extreme changes occurred2023, in thea challenging business environment includingimpacted by disruption in production and logistics due to the intermittent resurgence ofsupply restrictions for semiconductorsin China and other componentsa slowdown in the market mainly in Europe and increases in panel prices. However,the U.S., the operating performance of the EPET&S segment reflected the resultresults of various measures implemented to respond promptly to this change in the business environment,these conditions, such as by carrying out thorough supply chain management and reduction of fixed costs, as well as promotingthe promotion of a shift to high-value-added products centered on TVs and digital cameras. In this environment, Sony plans to conduct its business based on the direction of establishing a business structure with two axes: the “profit axis business area,” which aims to maintain and increase profitability, and the “growth axis business area,” which aims to realize growth through the creation and expansion of new businesses. In the profit axis business area, Sony intends to further evolvestrengthen operations by promoting the high value-added channels foradvancement of consistent digital transformation and automation from production to sale. Additionally, by adding creative solutions utilizing technologies such as in communications and cloud to its strengths in capturing devices that make use of its original technology thattechnologies in sound and imaging, Sony has developed with creators in each product category, strengthen applications by working with other companies and promote collaboration between product categoriesaims to create new customer value. By doing so, Sony aimsexperience value with creators and shift to continuea business portfolio with a recurring business model, striving to strengthen the appeal of its products. Additionally, Sony plans to promote consistent data coordination from production to sale, and strengthen its operations through digital transformation.reduce volatility. In the growth axis business area, in order to create future entertainment together with creators, Sony plans to work with internalevolve its business models through collaboration both within and external partners to create a recurring solutions business that provides new value to creators in the areasoutside of the virtual production and media cloud businesses.Sony Group, aiming to build a new business model to achieve sustainable growth. Sony also plans to promote businesses suchthe virtual production business and software solutions business, which aim to free creators from the constraints of time, space and hardware functionality to enable new video and creative expression, as the camera SDK business andwell as the sports business, aimingwhich aims to realize
COVID-19
- 42 -
new sports entertainment that connects “live”connecting “real” and “virtual.” Additionally, Sony intends to expand and strengthen itsin the life science business and the network service business, withSony aims to contribute to the aimrealization of providing customers with peace of minda safe and a sustainable society by utilizing the technologytechnologies it has cultivated.cultivated until now.
Imaging & Sensing Solutions (I&SS)
Key Financial Figures
Fiscal year ended March 31 | Fiscal year ended March 31 | |||||||||||||||
| 2021 | 2022 | 2022 | 2023 | |||||||||||||
(Yen in millions) | (Yen in millions) | |||||||||||||||
Sales to external customers | 937,859 | 992,200 | 992,200 | 1,301,481 | ||||||||||||
Intersegment sales | 74,638 | 84,224 | 84,224 | 100,706 | ||||||||||||
I&SS segment total sales | 1,012,497 | 1,076,424 | 1,076,424 | 1,402,187 | ||||||||||||
I&SS segment operating income | 145,884 | 155,597 | 155,597 | 212,214 | ||||||||||||
For the fiscal year ended March 31, 2022,2023, sales increased 63.9325.8 billion yento 1 trillion 76.4402.2 billion yen. This significant increase in sales was mainly due to the impact of foreign exchange rates and an increase in unit sales of image sensors for digital cameras as well as for industrial equipment. These increases were partially offset by a decrease in sales of image sensors for mobile products due to a deteriorationresulting from an improvement in the product mix, despite an increasepartially offset by a decrease in unit sales.
year-on-year
Operating income increased 9.756.6 billion yento 155.6212.2 billion yen. This significant increase was mainly due to the impact of the above-mentioned increase in sales, the positive impact of foreign exchange rates and the absenceimpact of the 7.2 billion yen of inventory write-downs recordedabove-mentioned increase in the previous fiscal year for certain image sensors for mobile products whose shipments were suspended as a result of U.S. export restrictions. The increase wassales, partially offset by an increase in research and developmentR&D expenses as well as depreciation and amortization expenses, and the impact of the above-mentioned decreasean increase in sales of image sensors for mobile products.manufacturing costs. During the current fiscal year, there was an 18.5a 120.9 billion yen positive impact from foreign exchange rate fluctuations.
year-on-year
Business Environment and Strategy
high-end
smartphones, despite continued weakness in the Chinese smartphone ™
. The automotive area has been growing steadily, and Sony will continue to work to build and strengthen relationships with OEMs and platformers with the aim of increasing revenue from automotive sensors. In the area of industrial sensors, Sony plans to take advantage of its diverse product lineup to provide solutions that can contribute to solving variouson-site
issues, including labor-saving and automation, which Sony expects to lead tomid-
to long-term business growth. mid-
to Financial Services
The Financial Services segment results include SFGI and SFGI’s consolidated subsidiaries such as Sony Life, Sony Assurance, and Sony Bank. The results of Sony Life discussed in the Financial Services segment differ from the results that SFGI and Sony LifeSFGI’s consolidated subsidiaries disclose separately on a Japanese statutory basis.
Key Financial Figures
Fiscal year ended March 31 | Fiscal year ended March 31 | |||||||||||||||
| 2021 | 2022 | 2022 | 2023 | |||||||||||||
(Yen in millions) | (Yen in millions) | |||||||||||||||
Financial services revenue | 1,674,002 | 1,533,829 | 1,533,829 | 1,454,546 | ||||||||||||
Financial Services segment operating income | 154,765 | 150,111 | 150,111 | 223,935 | ||||||||||||
- 43 -
For the fiscal year ended March 31, 2023, financial services revenue decreased 140.279.3 billion yento 1 trillion 533.8454.5 billion yen, mainly due to a decrease in revenue at Sony Life. Revenue at Sony Life decreased 131.0108.4 billion yen*yento 1 trillion 350.5242.1 billion yen, mainly due to a decrease in net gains on investments in the separate accounts, partially offset by an increase in insurance premium revenue.accounts.
year-on-year
year-on-year
Operating income decreased 4.7increased 73.8 billion yento 150.1223.9 billion yen,yen. This significant increase in operating income was mainly due to the recordingrecovery of aone-timeloss22.1 billion yen of 16.8 billion yenan unauthorized withdrawal of funds at a subsidiary of Sony Life partially offset by anin the fiscal year ended March 31, 2023 which was recorded as a 16.8 billion yen loss in the fiscal year ended March 31, 2022, as well as a significant increase in operating income at Sony Life. Operating income at Sony Life increased 13.729.7 billion yento 147.2177.0 billion yen. This increase in operating income was mainly due to higher insurance premium revenue reflecting an increase in the policy amount in force, a decrease in expenses related toCOVID-19and a gain recorded on the sale of bonds,real estate as well as an increase in profits due to accumulation of policy amount in force, partially offset by an increase primarily in the provision of policy reserves dueinsurance payments related to fluctuations in the stock market and interest rates.
year-on-year
year-on-year
Business Environment and Strategy
The operating performance of the Financial Services segment for the fiscal year ended March 31, 20222023 reflected conditions in the Japanese economy and bond market. As in the previous fiscal year, the Japanese economy continuedfaced headwinds due to be significantly impacted by theApril 2021, another stateaddition, rising imports prices, which accelerated after Russia’s military invasion of emergency was declared byUkraine, put pressure on household budgets through rising food and gasoline prices. However, as the Japanese government due tonormalization of economic activities progressed gradually, the economy continued on a gradual recovery trend. In the first quarter ended June 30, 2022, as the spread of the virus,Omicron variant that began at the beginning of the year came to a halt, demand for outings for travel and shopping picked up, mainly during the economic recovery, especiallylong holidays in personal consumption,May. After that, there was hindered by reduced business ina period when the restaurant industry and people’s self-restraint from going out. Frominfection with the summer, infection by the DeltaOmicron variant spread rapidly, further reinforcingagain, but the trend of voluntary restraint from going out. DuringJapanese government postponed the same period, local manufacturers’ business activities stagnated due to the spread of infection in Southeast Asia, leading to shortages of semiconductorsrequest for movement restrictions and other components.self-restraint. As a result, productionthe economy was underpinned by the normalization of economic activities, including an increase in the automobile industry stagnatednumber of people going out and the Japanese economy worsened.full-scale easing of restrictions on immigration. On the other hand, Japan’s GDP growth rate returned to positive growthproduction in the October-December period,manufacturing industry slowed down in the second half of the fiscal year due to factors such as the Japanese government rapidly promoted vaccinationslowdown in overseas economies and the infection situation improved significantly fromdecline in- 38 -
COVID-19
pandemic. In IT-related
®
sales specialist at Sony Life is improving due to the increase in the new policy amount in the corporate business, which is an area of focus, and the number of Lifeplanner®
sales specialists is steadily increasing. Going forward, Sony will continue to work to expand profit growth by making a qualitative shift toward higher productivity of Lifeplanner®
sales specialists and improvement of profitability. Additionally, Sony plans to promote efforts aimed at increasing the value it provides to customers by accelerating enhancement of its technological competitiveness through collaboration within the Sony Group, strengthening its acquisition of knowledge and technology from outside partners, and utilizing data that transcends the boundaries between the businesses within the Financial Services segment. The Financial Services segment also intends to focus on advancing sustainability and thoroughly enhancing governance in the financial group to fulfill its social responsibility as part of the Sony Group. Furthermore, over themid-
to long-term, Sony plans to expand its customer base and touchpoints with customers through wider applications of technology and strategic alliances, as well as through its increasing efforts to deepen relationships with core customers, aiming to maximize the lifetime customer value.Information on Operations Separating Out the Financial Services segment
The following schedules show unaudited condensed statements of income for the Financial Services segment and all other segments excluding the Financial Services segment. These presentations are not in accordance with IFRS,International Financial Reporting Standards (“IFRS”), which is used by Sony to prepare its consolidated financial statements. However, because the Financial Services segment is different in nature from Sony’s other segments, Sony believes that a comparative presentation may be useful in understanding and analyzing Sony’s consolidated financial statements. Transactions between the Financial Services segment and Sony without the Financial Services segment including noncontrolling interests, are included in those respective presentations, then eliminated in the consolidated figures shown below.
- 3944 -
Fiscal year ended March 31 | Fiscal year ended March 31 | |||||||||||||||
Financial Services segment | 2021 | 2022 | 2022 | 2023 | ||||||||||||
(Yen in millions) | (Yen in millions) | |||||||||||||||
Financial services revenue | 1,674,002 | 1,533,829 | 1,533,829 | 1,454,546 | ||||||||||||
Financial services expenses | 1,510,685 | 1,383,054 | 1,383,054 | 1,234,758 | ||||||||||||
Other operating (income) expense, net | 8,552 | 664 | 664 | (4,147 | ) | |||||||||||
| 1,519,237 | 1,383,718 | 1,383,718 | 1,230,611 | |||||||||||||
Share of profit (loss) of investments accounted for using the equity method | — | — | — | — | ||||||||||||
Operating income | 154,765 | 150,111 | 150,111 | 223,935 | ||||||||||||
Financial income (expenses), net | — | — | — | — | ||||||||||||
Income before income taxes | 154,765 | 150,111 | 150,111 | 223,935 | ||||||||||||
Income taxes | 42,939 | 45,402 | 45,402 | 63,865 | ||||||||||||
Net income | 111,826 | 104,709 | 104,709 | 160,070 | ||||||||||||
Net income of Financial Services | 111,133 | 104,216 | 104,216 | 159,698 | ||||||||||||
Net income attributable to noncontrolling interests | 693 | 493 | 493 | 372 | ||||||||||||
Fiscal year ended March 31 | Fiscal year ended March 31 | |||||||||||||||
Sony without Financial Services segment | 2021 | 2022 | 2022 | 2023 | ||||||||||||
(Yen in millions) | (Yen in millions) | |||||||||||||||
Sales | 7,339,940 | 8,402,217 | 8,402,217 | 10,101,979 | ||||||||||||
Costs of sales | 5,076,858 | 5,856,925 | 5,856,925 | 7,186,767 | ||||||||||||
Selling, general and administrative | 1,468,672 | 1,582,850 | 1,582,850 | 1,961,906 | ||||||||||||
Other operating (income) expense, net | 5,698 | (66,158 | ) | (66,158 | ) | (5,566 | ) | |||||||||
| 6,551,228 | 7,373,617 | 7,373,617 | 9,143,107 | |||||||||||||
Share of profit (loss) of investments accounted for using the equity method | 11,551 | 23,646 | 23,646 | 24,449 | ||||||||||||
Operating income | 800,263 | 1,052,246 | 1,052,246 | 983,321 | ||||||||||||
Financial income (expenses), net | 62,523 | (45,698 | ) | (45,698 | ) | 13,437 | ||||||||||
Income before income taxes | 862,786 | 1,006,548 | 1,006,548 | 996,758 | ||||||||||||
Income taxes | (89,162 | ) | 183,689 | 183,689 | 172,528 | |||||||||||
Net income | 951,948 | 822,859 | 822,859 | 824,230 | ||||||||||||
Net income of Sony without Financial Services | 949,824 | 817,123 | 817,123 | 818,106 | ||||||||||||
Net income attributable to noncontrolling interests | 2,124 | 5,736 | 5,736 | 6,124 | ||||||||||||
Fiscal year ended March 31 | ||||||||||||||||
Consolidated | 2021 | 2022 | ||||||||||||||
(Yen in millions) | ||||||||||||||||
Sales | 7,333,670 | 8,396,702 | ||||||||||||||
Financial services revenue | 1,664,991 | 1,524,811 | ||||||||||||||
Total sales and financial services revenue | 8,998,661 | 9,921,513 | ||||||||||||||
Costs of sales | 5,065,879 | 5,845,804 | ||||||||||||||
Selling, general and administrative | 1,473,154 | 1,588,473 | ||||||||||||||
Financial services expenses | 1,501,674 | 1,374,037 | ||||||||||||||
Other operating (income) expenses, net | 14,250 | (65,494 | ) | |||||||||||||
| 8,054,957 | 8,742,820 | |||||||||||||||
Share of profit (loss) of investments accounted for using the equity method | 11,551 | 23,646 | ||||||||||||||
Operating income | 955,255 | 1,202,339 | ||||||||||||||
Financial income (expenses), net | 42,710 | (84,836 | ) | |||||||||||||
Income before income taxes | 997,965 | 1,117,503 | ||||||||||||||
Income taxes | (45,931 | ) | 229,097 | |||||||||||||
Net income | 1,043,896 | 888,406 | ||||||||||||||
Net income attributable to Sony Group Corporation’s Stockholders | 1,029,610 | 882,178 | ||||||||||||||
Net income attributable to noncontrolling interests | 14,286 | 6,228 | ||||||||||||||
Fiscal year ended March 31 | ||||||||
Consolidated | 2022 | 2023 | ||||||
(Yen in millions) | ||||||||
Sales | 8,396,702 | 10,095,841 | ||||||
Financial services revenue | 1,524,811 | 1,443,996 | ||||||
Total sales and financial services revenue | 9,921,513 | 11,539,837 | ||||||
Costs of sales | 5,845,804 | 7,174,723 | ||||||
Selling, general and administrative | 1,588,473 | 1,969,170 | ||||||
Financial services expenses | 1,374,037 | 1,224,208 | ||||||
Other operating (income) expenses, net | (65,494 | ) | (12,021 | ) | ||||
| 8,742,820 | 10,356,080 | |||||||
Share of profit (loss) of investments accounted for using the equity method | 23,646 | 24,449 | ||||||
Operating income | 1,202,339 | 1,208,206 | ||||||
Financial income (expenses), net | (84,836 | ) | (27,893 | ) | ||||
Income before income taxes | 1,117,503 | 1,180,313 | ||||||
Income taxes | 229,097 | 236,691 | ||||||
Net income | 888,406 | 943,622 | ||||||
Net income attributable to Sony Group Corporation’s Stockholders | 882,178 | 937,126 | ||||||
Net income attributable to noncontrolling interests | 6,228 | 6,496 | ||||||
- 4045 -
All Other
Sales for the fiscal year ended March 31, 20222023 decreased 2.011.2 billion yento 98.887.6 billion yen. Operating income increased 10.8decreased 1.1 billion yento 18.016.8 billion yen. This significant increase in operating income was primarily due to an increase in the share of profit of the investment in M3.
year-on-year
year-on-year
Foreign Exchange Fluctuations and Risk Hedging
During the fiscal year ended March 31, 2022,2023, the average rates of the yen were 112.3135.4 yen against the U.S. dollar and 130.5140.9 yen against the euro, which were 6.323.1 yen and 6.810.4 yen lower,weaker, respectively, than the fiscal year ended March 31, 2021.2022.
For the fiscal year ended March 31, 2022,2023, consolidated sales increased 922.91 trillion 618.3 billion yen (10%(16%)to 911 trillion 921.5539.8 billion yen. On a constant currency basis, sales increased approximately 6%4%
year-on-year
year-on-year.
The table below indicates the foreign exchange impact on sales and operating results in each of the G&NS, EPET&S and I&SS segments. For further details, refer to “” which discusses the impact of foreign exchange rates within segments and categories where foreign exchange rate fluctuations had a significant impact.
Operating Performance by Business Segment
Fiscal year ended March 31 | Impact of changes in foreign exchange rates | Fiscal year ended March 31 | Impact of changes in foreign exchange rates | |||||||||||||||||||||||||
| 2021 | 2022 | 2021 to 2022 | 2022 | 2023 | 2022 to 2023 | |||||||||||||||||||||||
(Yen in billions) | (Yen in billions) | |||||||||||||||||||||||||||
G&NS | Sales | 2,656.3 | 2,739.8 | +124.5 | Sales | 2,739.8 | 3,644.6 | +419.8 | ||||||||||||||||||||
Operating income | 341.7 | 346.1 | +15.7 | Operating income | 346.1 | 250.0 | -32.4 | |||||||||||||||||||||
EP&S | Sales | 2,068.1 | 2,339.2 | +103.8 | ||||||||||||||||||||||||
ET&S | Sales | 2,339.2 | 2,476.0 | +237.5 | ||||||||||||||||||||||||
Operating income | 127.9 | 212.9 | +27.2 | Operating income | 212.9 | 179.5 | +9.4 | |||||||||||||||||||||
I&SS | Sales | 1,012.5 | 1,076.4 | +55.5 | Sales | 1,076.4 | 1,402.2 | +202.7 | ||||||||||||||||||||
Operating income | 145.9 | 155.6 | +18.5 | Operating income | 155.6 | 212.2 | +120.9 | |||||||||||||||||||||
During the fiscal year ended March 31, 2022,2023, sales for the Music segment increased 19%24%to 1 trillion 116.9380.6 billion yen, while sales increased approximately 14%8%on a constant currency basis. In the Pictures segment, sales increased 65%11%to 1 trillion 238.9369.4 billion yen, while sales increaseddecreased approximately 55%8% on a U.S. dollar basis. For a detailed analysis of segment performance, refer to the Music and Pictures segments under “” Sony’s Financial Services segment consolidates the
year-on-year
year-on-year
year-on-year
Operating Performance by Business Segment.
yen-based
results of SFGI. As most of the operations in this segment are based in Japan, Sony management analyzes the performance of the Financial Services segment on a yen basis only.During the fiscal year ended March 31, 2022,2023, Sony estimated that a one yen appreciation against the U.S. dollar would have decreased sales in the G&NS, EPET&S and I&SS segments by approximately 26.829.9 billion yen, with a corresponding decrease in operating income of approximately 1.70.4 billion yen. A one yen appreciation against the euro was estimated to decrease sales in these segments by approximately 10.011.1 billion yen, with a corresponding decrease in operating income of approximately 5.56.6 billion yen. For more details, refer to “Risk Factors” in “Item 3.”
Key Information.
Sony’s consolidated operating results are subject to foreign currency rate fluctuations primarily due to different currency composition of revenue and costs. In the G&NS segment, a significant proportion of costs is incurred in U.S. dollars but sales are recorded in Japanese yen, U.S. dollars or euros. As a result, the yen appreciation against the U.S. dollar has a positive impact on operating income while the yen appreciation against the euro has a negative impact. In the EPET&S segment, yen appreciation against the U.S. dollar has a positive impact on operating income, mainly due to a high proportion of manufacturing and other costs for certain key products being incurred in U.S. dollars. Meanwhile, a large portion of sales for certain key products is in emerging markets, resulting in yen appreciation against the currencies of emerging markets having a negative impact on operating profit in the EPET&S segment. In the I&SS segment, a significant proportion of sales contracts are denominated in U.S. dollars, but manufacturing operations are located in Japan, and, therefore, yen appreciation against the U.S. dollar has a significantly negative impact on operating income.
In order to reduce the risk caused by foreign exchange rate fluctuations, Sony employs derivatives, including foreign exchange forward contracts and foreign currency option contracts, in accordance with a consistent risk management strategy. Such derivatives are used primarily to mitigate the effect of foreign
- 46 -
currency exchange rate fluctuations on cash flows generated or anticipated by Sony’s transactions and accounts receivable and payable denominated in foreign currencies.
Sony Global Treasury Services Plc (“SGTS”) in the U.K. provides integrated treasury services for Sony Group Corporation, its subsidiaries, and affiliated companies. Sony’s policy is that Sony Group Corporation and all subsidiaries with foreign exchange exposures should enter into commitments with SGTS to hedge their exposures. Sony Group Corporation and most of its subsidiaries utilize SGTS for this purpose. Sony’s policy of concentrating its foreign exchange exposures means that SGTS and Sony Group Corporation hedge most of the net foreign exchange exposure within the Sony group. Sony has a policy on the use of derivatives that, in principle, SGTS should centrally deal with and manage derivatives with financial institutions for risk management purposes. SGTS enters into foreign exchange transactions with creditworthy third-party financial institutions. Most of these transactions are entered into against projected exposures before the actual export and import transactions take place. In general, SGTS hedges the projected exposures for a period of one month before the actual transactions take place. Sony enters into foreign exchange transactions with financial institutions primarily for hedging purposes. Sony does not use these derivative financial instruments for trading or speculative purposes except for certain derivatives in the Financial Services segment. In the Financial Services segment, Sony uses derivatives primarily for asset liability management.
Changes in the fair value of derivatives designated as cash flow hedges are initially recorded in accumulated other comprehensive income and reclassified into earnings when the hedged transaction affects earnings. Foreign exchange forward contracts, foreign currency option contracts and other derivatives that do not qualify as hedges arewith changes in value recognized in financial income and expenses. The net fair value of all the foreign exchange derivative contracts as of March 31, 20212022 and 20222023 was a liability of 4.56.4 billion yen and 6.4an asset of 1.4 billion yen, respectively. Refer to Note 15 of the consolidated financial statements.
marked-to-market
Sales on a Constant Currency Basis and the Impact of Foreign Exchange Rate Fluctuations
The descriptions of sales on a constant currency basis reflect sales calculated by applying the yen’s monthly average exchange rates from the previous fiscal year to local currency-denominated monthly sales in the current fiscal year. For SME and SMP in the Music segment, and in the Pictures segment, the constant currency amounts are calculated by applying the monthly average U.S. dollar / yen exchange rates after aggregation on a U.S. dollar basis.
Results for the Pictures segment are described on a U.S. dollar basis as the Pictures segment reflects the operations of SPE, a U.S.-based operation that aggregates the results of its worldwide subsidiaries in U.S. dollars.
The impact of foreign exchange rate fluctuations on sales is calculated by applying the change in the yen’s periodic weighted average exchange ratesrate for the previous fiscal year from the current fiscal year to the major transactional currencies in which the sales are denominated. The impact of foreign exchange rate fluctuations on operating income (loss) is calculated by subtracting from the impact on sales the impact on cost of sales and selling, general and administrativeSGA expenses calculated by applying the same major transactional currencies calculation process to cost of sales and selling, general and administrativeSGA expenses as for the impact on sales. The I&SS segment enters into its own foreign exchange hedging transactions, and the impact of those transactions is included in the impact of foreign exchange rate fluctuations on sales and operating income (loss) for that segment. The descriptions of sales on a constant currency basis reflect sales obtained by applying the yen’s monthly average exchange rates from the fiscal year ended March 31, 2021 to local currency-denominated monthly sales in the fiscal year ended March 31, 2022. For SME and SMP in the Music segment, and in the Pictures segment, the constant currency amounts are calculated by applying the monthly average U.S. dollar / yen exchange rates after aggregation on a U.S. dollar basis.
This information is not a substitute for Sony’s consolidated financial statements measured in accordance with IFRS. However, Sony believes that these disclosures provide additional useful analytical information to investors regarding the operating performance of Sony.
Assets, Liabilities and Stockholders’ Equity
The following schedule shows unaudited condensed statements of financial position for the Financial Services segment and all other segments excluding the Financial Services segment. These presentations are not in accordance with IFRS, which is used by Sony to prepare its consolidated financial statements. However, because the Financial Services segment is different in nature from Sony’s other segments, Sony believes that a comparative presentation may be useful in understanding and analyzing Sony’s consolidated financial statements. Both financial statements include transactions between the Financial Services segment and Sony without the Financial Services segment (including noncontrolling interests).segment. The figures shown in the respective presentations for the Financial Services segment and Sony without the Financial Services segment are prior to the elimination and/or offset of such transactions and deferred tax assets and deferred tax liabilities of each. The “consolidated” column is presented net of the elimination and/or offset of such intercompany balances and deferred tax assets and liabilities.
- 4247 -
Condensed Statements of Financial Position
Yen in millions | Yen in millions | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial Services | Sony without Financial Services | Consolidated | Financial Services | Sony without Financial Services | Consolidated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| April 1, 2020 | March 31, 2021 | March 31, 2022 | April 1, 2020 | March 31, 2021 | March 31, 2022 | April 1, 2020 | March 31, 2021 | March 31, 2022 | March 31, 2022 | March 31, 2023 | March 31, 2022 | March 31, 2023 | March 31, 2022 | March 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Current assets: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents *1 | ¥ | 550,039 | ¥ | 497,218 | ¥ | 889,140 | ¥ | 962,484 | ¥ | 1,289,764 | ¥ | 1,160,496 | ¥ | 1,512,523 | ¥ | 1,786,982 | ¥ | 2,049,636 | ¥ | 889,140 | ¥ | 756,493 | ¥ | 1,160,496 | ¥ | 724,407 | ¥ | 2,049,636 | ¥ | 1,480,900 | ||||||||||||||||||||||||||||||
Investments and advances in the Financial Services segment *2 | 327,092 | 411,982 | 360,673 | — | — | — | 327,092 | 411,982 | 360,673 | 360,673 | 328,357 | — | — | 360,673 | 328,357 | |||||||||||||||||||||||||||||||||||||||||||||
Trade and other receivables, and contract assets | 115,592 | 119,791 | 169,929 | 1,086,457 | 1,261,321 | 1,478,620 | 1,194,334 | 1,365,493 | 1,628,521 | 169,929 | 134,404 | 1,478,620 | 1,668,257 | 1,628,521 | 1,777,939 | |||||||||||||||||||||||||||||||||||||||||||||
Inventories | — | — | — | 559,779 | 636,668 | 874,007 | 559,779 | 636,668 | 874,007 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Inventories *3 | — | — | 874,007 | 1,468,042 | 874,007 | 1,468,042 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other financial assets | 79,721 | 73,349 | 81,174 | 55,762 | 44,498 | 68,124 | 135,482 | 117,682 | 149,301 | 81,174 | 47,044 | 68,124 | 63,906 | 149,301 | 110,950 | |||||||||||||||||||||||||||||||||||||||||||||
Other current assets | 51,765 | 51,147 | 72,441 | 390,915 | 357,582 | 450,953 | 441,974 | 396,210 | 473,070 | 72,441 | 63,025 | 450,953 | 562,442 | 473,070 | 610,330 | |||||||||||||||||||||||||||||||||||||||||||||
Total current assets | 1,124,209 | 1,153,487 | 1,573,357 | 3,055,397 | 3,589,833 | 4,032,200 | 4,171,184 | 4,715,017 | 5,535,208 | 1,573,357 | 1,329,323 | 4,032,200 | 4,487,054 | 5,535,208 | 5,776,518 | |||||||||||||||||||||||||||||||||||||||||||||
Non-current assets: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investments accounted for using the equity method | — | — | — | 204,291 | 225,086 | 268,513 | 204,291 | 225,086 | 268,513 | — | — | 268,513 | 325,220 | 268,513 | 325,220 | |||||||||||||||||||||||||||||||||||||||||||||
Investments and advances in the Financial Services segment *2 | 16,352,285 | 17,296,546 | 18,445,088 | — | — | — | 16,352,285 | 17,296,546 | 18,445,088 | 18,445,088 | 18,445,728 | — | — | 18,445,088 | 18,445,728 | |||||||||||||||||||||||||||||||||||||||||||||
Investments in Financial Services, at cost | — | — | — | 153,968 | 550,483 | 550,483 | — | — | — | — | — | 550,483 | 550,483 | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Property, plant and equipment | 18,256 | 19,260 | 18,010 | 899,185 | 971,336 | 1,095,241 | 917,198 | 990,541 | 1,113,213 | 18,010 | 15,316 | 1,095,241 | 1,329,219 | 1,113,213 | 1,344,864 | |||||||||||||||||||||||||||||||||||||||||||||
Right-of-use | 57,892 | 65,775 | 73,774 | 315,431 | 292,262 | 339,658 | 373,282 | 358,034 | 413,430 | 73,774 | 84,023 | 339,658 | 395,210 | 413,430 | 478,063 | |||||||||||||||||||||||||||||||||||||||||||||
Goodwill and intangible assets, including content assets | 62,660 | 66,133 | 72,578 | 1,998,413 | 2,113,578 | 2,672,466 | 2,061,073 | 2,179,711 | 2,745,044 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and intangible assets, including content assets *4 | 72,578 | 78,197 | 2,672,466 | 3,322,639 | 2,745,044 | 3,400,836 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deferred insurance acquisition costs | 187,904 | 623,986 | 676,526 | — | — | — | 187,904 | 623,986 | 676,526 | 676,526 | 730,864 | — | — | 676,526 | 730,864 | |||||||||||||||||||||||||||||||||||||||||||||
Deferred tax assets | 8,129 | — | — | 202,217 | 309,341 | 332,330 | 210,333 | 215,669 | 298,589 | — | — | 332,330 | 431,533 | 298,589 | 384,839 | |||||||||||||||||||||||||||||||||||||||||||||
Other financial assets | 34,319 | 28,043 | 37,037 | 291,373 | 671,683 | 663,233 | 321,721 | 695,764 | 696,306 | 37,037 | 46,941 | 663,233 | 789,470 | 696,306 | 832,344 | |||||||||||||||||||||||||||||||||||||||||||||
Other non-current assets | 87,933 | 86,287 | 77,657 | 155,643 | 195,713 | 284,834 | 167,795 | 207,489 | 289,050 | 77,657 | 75,143 | 284,834 | 319,306 | 289,050 | 321,946 | |||||||||||||||||||||||||||||||||||||||||||||
Total non-current assets | 16,809,378 | 18,186,030 | 19,400,670 | 4,220,521 | 5,329,482 | 6,206,758 | 20,795,882 | 22,792,826 | 24,945,759 | 19,400,670 | 19,476,212 | 6,206,758 | 7,463,080 | 24,945,759 | 26,264,704 | |||||||||||||||||||||||||||||||||||||||||||||
Total assets | ¥ | 17,933,587 | ¥ | 19,339,517 | ¥ | 20,974,027 | ¥ | 7,275,918 | ¥ | 8,919,315 | ¥ | 10,238,958 | ¥ | 24,967,066 | ¥ | 27,507,843 | ¥ | 30,480,967 | ¥ | 20,974,027 | ¥ | 20,805,535 | ¥ | 10,238,958 | ¥ | 11,950,134 | ¥ | 30,480,967 | ¥ | 32,041,222 | ||||||||||||||||||||||||||||||
LIABILITIES AND EQUITY | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Short-term borrowings *3 | ¥ | 768,100 | ¥ | 1,160,896 | ¥ | 1,964,776 | ¥ | 154,884 | ¥ | 246,257 | ¥ | 183,187 | ¥ | 922,968 | ¥ | 1,407,153 | ¥ | 2,147,962 | ||||||||||||||||||||||||||||||||||||||||||
Short-term borrowings | ¥ | 1,964,776 | ¥ | 1,891,856 | ¥ | 183,187 | ¥ | 211,020 | ¥ | 2,147,962 | ¥ | 2,102,876 | ||||||||||||||||||||||||||||||||||||||||||||||||
Trade and other payables | 43,975 | 80,189 | 118,921 | 1,273,946 | 1,531,502 | 1,744,011 | 1,310,536 | 1,596,563 | 1,843,242 | 118,921 | 77,595 | 1,744,011 | 1,812,670 | 1,843,242 | 1,865,993 | |||||||||||||||||||||||||||||||||||||||||||||
Deposits from customers in the banking business | 2,347,387 | 2,682,156 | 2,886,361 | — | — | — | 2,347,387 | 2,682,156 | 2,886,361 | 2,886,361 | 3,163,237 | — | — | 2,886,361 | 3,163,237 | |||||||||||||||||||||||||||||||||||||||||||||
Income taxes payables | 22,509 | 5,407 | 4,444 | 62,837 | 79,024 | 101,648 | 85,346 | 84,431 | 106,092 | 4,444 | 13,370 | 101,648 | 139,330 | 106,092 | 152,700 | |||||||||||||||||||||||||||||||||||||||||||||
Participation and residual liabilities in the Pictures segment | — | — | — | 163,007 | 161,433 | 190,162 | 163,007 | 161,433 | 190,162 | — | — | 190,162 | 230,223 | 190,162 | 230,223 | |||||||||||||||||||||||||||||||||||||||||||||
Other financial liabilities | 44,668 | 29,106 | 68,793 | 11,484 | 25,235 | 29,050 | 56,152 | 54,341 | 97,843 | 68,793 | 43,128 | 29,050 | 30,444 | 97,843 | 73,572 | |||||||||||||||||||||||||||||||||||||||||||||
Other current liabilities | 179,652 | 192,728 | 242,937 | 1,085,330 | 1,187,975 | 1,296,205 | 1,263,944 | 1,367,527 | 1,488,488 | 242,937 | 222,039 | 1,296,205 | 1,513,882 | 1,488,488 | 1,720,335 | |||||||||||||||||||||||||||||||||||||||||||||
Total current liabilities | 3,406,291 | 4,150,482 | 5,286,232 | 2,751,488 | 3,231,426 | 3,544,263 | 6,149,340 | 7,353,604 | 8,760,150 | 5,286,232 | 5,411,225 | 3,544,263 | 3,937,569 | 8,760,150 | 9,308,936 | |||||||||||||||||||||||||||||||||||||||||||||
Non-current liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Long-term debt | 276,409 | 361,106 | 470,498 | 662,644 | 692,531 | 733,148 | 939,030 | 1,053,636 | 1,203,646 | 470,498 | 663,353 | 733,148 | 1,104,344 | 1,203,646 | 1,767,696 | |||||||||||||||||||||||||||||||||||||||||||||
Defined benefit liabilities | 34,856 | 35,293 | 37,167 | 294,765 | 231,929 | 217,381 | 329,621 | 267,222 | 254,548 | 37,167 | 37,183 | 217,381 | 198,938 | 254,548 | 236,121 | |||||||||||||||||||||||||||||||||||||||||||||
Deferred tax liabilities | 879,683 | 802,830 | 634,576 | 176,839 | 122,489 | 110,715 | 1,041,156 | 816,587 | 696,492 | 634,576 | 304,838 | 110,715 | 112,938 | 696,492 | 356,324 | |||||||||||||||||||||||||||||||||||||||||||||
Future insurance policy benefits and other *4 | 6,519,577 | 6,614,585 | 7,039,034 | — | — | — | 6,519,577 | 6,614,585 | 7,039,034 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Future insurance policy benefits and other | 7,039,034 | 7,264,421 | — | — | 7,039,034 | 7,264,421 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Policyholders’ account in the life insurance business | 3,640,010 | 4,328,894 | 4,791,295 | — | — | — | 3,640,010 | 4,328,894 | 4,791,295 | 4,791,295 | 5,148,579 | — | — | 4,791,295 | 5,148,579 | |||||||||||||||||||||||||||||||||||||||||||||
Participation and residual liabilities in the Pictures segment | — | — | — | 119,702 | 116,537 | 220,113 | 119,702 | 116,537 | 220,113 | — | — | 220,113 | 192,952 | 220,113 | 192,952 | |||||||||||||||||||||||||||||||||||||||||||||
Other financial liabilities | 115,949 | 109,537 | 128,208 | 33,399 | 32,446 | 86,391 | 146,834 | 139,417 | 211,959 | 128,208 | 153,724 | 86,391 | 199,327 | 211,959 | 350,278 | |||||||||||||||||||||||||||||||||||||||||||||
Other non-current liabilities | 4,217 | 5,309 | 5,864 | 106,693 | 109,808 | 121,558 | 87,320 | 93,022 | 106,481 | 5,864 | 7,225 | 121,558 | 142,096 | 106,481 | 127,593 | |||||||||||||||||||||||||||||||||||||||||||||
Total non-current liabilities | 11,470,701 | 12,257,554 | 13,106,642 | 1,394,042 | 1,305,740 | 1,489,306 | 12,823,250 | 13,429,900 | 14,523,568 | 13,106,642 | 13,579,323 | 1,489,306 | 1,950,595 | 14,523,568 | 15,443,964 | |||||||||||||||||||||||||||||||||||||||||||||
Total liabilities | 14,876,992 | 16,408,036 | 18,392,874 | 4,145,530 | 4,537,166 | 5,033,569 | 18,972,590 | 20,783,504 | 23,283,718 | 18,392,874 | 18,990,548 | 5,033,569 | 5,888,164 | 23,283,718 | 24,752,900 | |||||||||||||||||||||||||||||||||||||||||||||
Equity: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stockholders’ equity of Financial Services | 3,054,361 | 2,928,525 | 2,577,705 | — | — | — | — | — | — | 2,577,705 | 1,811,167 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Stockholders’ equity of Sony without Financial Services | — | — | — | 3,084,820 | 4,341,109 | 5,156,059 | — | — | — | — | — | 5,156,059 | 6,007,177 | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Sony Group Corporation’s stockholders’ equity | — | — | — | — | — | — | 4,874,438 | 6,680,343 | 7,144,471 | — | — | — | — | 7,144,471 | 7,229,709 | |||||||||||||||||||||||||||||||||||||||||||||
Noncontrolling interests | 2,234 | 2,956 | 3,448 | 45,568 | 41,040 | 49,330 | 1,120,038 | 43,996 | 52,778 | 3,448 | 3,820 | 49,330 | 54,793 | 52,778 | 58,613 | |||||||||||||||||||||||||||||||||||||||||||||
Total equity | 3,056,595 | 2,931,481 | 2,581,153 | 3,130,388 | 4,382,149 | 5,205,389 | 5,994,476 | 6,724,339 | 7,197,249 | 2,581,153 | 1,814,987 | 5,205,389 | 6,061,970 | 7,197,249 | 7,288,322 | |||||||||||||||||||||||||||||||||||||||||||||
Total liabilities and equity | ¥ | 17,933,587 | ¥ | 19,339,517 | ¥ | 20,974,027 | ¥ | 7,275,918 | ¥ | 8,919,315 | ¥ | 10,238,958 | ¥ | 24,967,066 | ¥ | 27,507,843 | ¥ | 30,480,967 | ¥ | 20,974,027 | ¥ | 20,805,535 | ¥ | 10,238,958 | ¥ | 11,950,134 | ¥ | 30,480,967 | ¥ | 32,041,222 | ||||||||||||||||||||||||||||||
*1 Refer to “Cash Flows” below for details regarding theincreasedecrease in Cash and cash equivalents as of March 31, 20222023 in all segments excluding the Financial Services segment.
year-on-year
*2 Refer to Note 5 of the consolidated financial statements for the fluctuations of Investments and advances in the Financial Services segment as of March 31, 20212022 and March 31, 2022,2023, respectively.
*3 Short-term borrowingsInventories as of March 31, 20222023 in all segments excluding the Financial Services segment increaseddue to an increase in short-term borrowingsinventories mainly at Sony Life.in the G&NS segment.
year-on-year
*4 Future insurance policy benefitsGoodwill and otherintangible assets, including content assets as of March 31, 20222023 in all segments excluding the Financial Services segment increasedmainly due to the acquisition of the shares of Bungie and an increase in future insurance policy benefits mainly at Sony Life.film costs.
year-on-year
- 48 -
Cash Flows
Operating Activities: During the current fiscal year ended March 31, 2022,2023, there was a net cash inflow of 1 trillion 233.6314.7 billion yen from operating activities, an increasea decrease of 93.4919.0 billion yen
year-on-year.
For all segments excluding the Financial Services segment, there was a net cash inflow of 813.3415.5 billion yen, a decrease of 337.0397.8 billion yenThis decrease was primarily due to a largerincrease in inventories and content assets as well as a smaller increasedecrease in trade payables andcompared to an increase in payments of income taxes,the previous fiscal year, partially offset by the positive impact of aincrease in income before income taxtaxes after taking into accountnet (other than the Financial Services segment))net).
year-on-year.
year-on-year
year-on-year
non-cash
adjustments (including depreciation and amortization, including amortization of contract costs, other operating (income) expense, net and (gain) loss on securities, The Financial Services segment had a net cash outflow of 56.3 billion yen, compared to a net cash inflow of 459.7 billion yen an increase of 449.8 billion yenyear-on-year.in the previous fiscal year. This increasechange was mainly due to a largersmallerincrease in borrowings in the life insurance business and the banking business and a smalleryear-on-yearincrease in investments and advances in the financial services business.
year-on-year
Investing Activities: During the current fiscal year ended March 31, 2022,2023, Sony used 728.81 trillion 52.7 billion yen of net cash in investing activities, an increase of 164.9323.9 billion yen
year-on-year.
For all segments excluding the Financial Services segment, there was a net cash outflow of 711.11 trillion 32.0 billion yen, an increase of 169.0320.9 billion yenThis increase was mainly due to aincrease in payments for fixed asset purchases, the acquisition of shares of Bungie, an additional investment in Epic Games and a payment related to the acquisition of Industrial Media. Additionally, the previous fiscal year included the purchase of the equity interest in Ellation, which operates the anime business Crunchyroll, the purchase of 100% of theall shares and related assets of certain subsidiaries of Kobalt including AWAL, Kobalt’s music distribution business mainly for independent recording artists, and an additional investment in Epic Games, partially offset by the cash inflow from the transfer of GSN Games, a division of Game Show Network, LLC, and ayear-on-yeardecrease in payments for fixed asset purchases. Additionally, the previous fiscal year included a payment for an investment in Bilibili.Games.
year-on-year.
year-on-year
The Financial Services segment used 17.623.8 billion yen of net cash in investing activities, essentially flat
year-on-year.
Financing Activities: Net cash outflowinflow from financing activities during the current fiscal year ended March 31, 2022,2023 was 84.3 billion yen, compared to a net cash outflow of 336.6 billion yen a decrease of 2.0 billion yenyear-on-year.in the previous fiscal year.
For all segments excluding the Financial Services segment, there was a 325.895.5 billion yen net cash inflow, compared to a net cash outflow an increase of 8.3325.8 billion yenyear-on-year.This increase in the previous fiscal year. The cash inflow in the current fiscal year was primarily due to the redemptionprocurement of long-term bank loans and the issuance of straight bonds in this fiscal year, an increase in dividend payments and payments for the repurchase of Sony’s own common stock (7,400,600 shares for a total purchase price of 88.3 billion yen, as of March 31, 2022) which was approved at a meeting of the Board of Directors held on April 28, 2021. The previous fiscal year included the procurement of approximately 2 billion U.S. dollars in the form of a long-term bank loan. Additionally, the previous fiscal year included a total of 396.5 billion yen in short-term bank borrowings to fund the acquisition of all of the shares of SFGI and the related stock acquisition rights for 396.7 billion yen, in order to make SFGI a wholly-owned subsidiary of Sony Group Corporation. These borrowings, which were secured in July and October 2020, were fully repaid by the end of March 2021.bonds.
In the Financial Services segment, there was a 50.152.6 billion yen net cash outflow, an increase of 9.3 billion yenessentially flatThis increase was mainly due to an increase in dividend payments.
year-on-year.
Accounting for the above factors and the effect of fluctuations in foreign exchange rates, the total outstanding balance of cash and cash equivalents atas of March 31, 20222023 was 21 trillion 49.6480.9 billion yen. Cash and cash equivalents of all segments excluding the Financial Services segment was 1 trillion 160.5724.4 billion yen atas of March 31, 2022,2023, a decrease of 129.3436.1 billion yen compared with the balance as of March 31, 2021.2022. Within the Financial Services segment, the outstanding balance of cash and cash equivalents was 889.1756.5 billion yen atas of March 31, 2022, an increase2023, a decrease of 391.9132.6 billion yen compared with the balance as of March 31, 2021.2022.
Information on Cash Flows Separating Out the Financial Services Segment
The following schedule shows unaudited condensed statements of cash flows for the Financial Services segment and all other segments excluding the Financial Services segment. These presentations are not in accordance with IFRS, which is used by Sony to prepare its consolidated financial statements. However, because the Financial Services segment is different in nature from Sony’s other segments, Sony believes that a comparative presentation may be useful in understanding and analyzing Sony’s consolidated financial statements. Transactions between the Financial Services segment and Sony without the Financial Services segment including noncontrolling interests, are included in those respective presentations, then eliminated in the consolidated figures shown below.
Yen in millions | ||||||||||||||||||||||||
Fiscal year ended March 31 | ||||||||||||||||||||||||
| Financial Services | Sony without Financial Services | Consolidated | ||||||||||||||||||||||
| 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | |||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||||||
Income (loss) before income taxes | 154,765 | 150,111 | 862,786 | 1,006,548 | 997,965 | 1,117,503 | ||||||||||||||||||
Adjustments to reconcile income (loss) before income taxes to net cash provided by (used in) operating activities: | ||||||||||||||||||||||||
Depreciation and amortization, including amortization of contract costs | 23,860 | 24,932 | 663,513 | 810,301 | 687,373 | 835,233 | ||||||||||||||||||
Amortization of deferred insurance acquisition costs | 44,738 | 69,237 | — | — | 44,738 | 69,237 | ||||||||||||||||||
Other operating (income) expense, net | 8,552 | 664 | 5,698 | (66,158 | ) | 14,250 | (65,494 | ) | ||||||||||||||||
(Gain) loss on securities, net (other than Financial Services segment) | — | — | (62,704 | ) | 60,402 | (62,704 | ) | 60,402 | ||||||||||||||||
Change in future insurance policy benefits and other | 358,666 | 458,880 | — | — | 358,666 | 458,880 | ||||||||||||||||||
Change in policyholders’ account in the life insurance business, less cash impact | 558,539 | 238,309 | — | — | 558,539 | 238,309 | ||||||||||||||||||
Net cash impact of policyholders’ account in the life insurance business | 134,299 | 227,262 | — | — | 134,299 | 227,262 | ||||||||||||||||||
Changes in assets and liabilities: | ||||||||||||||||||||||||
(Increase) decrease in trade receivables and contract assets | (4,597 | ) | (53,819 | ) | (141,064 | ) | (121,684 | ) | (137,939 | ) | (171,094 | ) | ||||||||||||
(Increase) decrease in inventories | — | — | (56,509 | ) | (194,624 | ) | (56,509 | ) | (194,624 | ) | ||||||||||||||
(Increase) decrease in investments and advances in the Financial Services segment | (1,901,928 | ) | (1,529,665 | ) | — | — | (1,901,928 | ) | (1,529,665 | ) | ||||||||||||||
(Increase) decrease in content assets | — | — | (325,664 | ) | (489,617 | ) | (325,664 | ) | (489,617 | ) | ||||||||||||||
(Increase) decrease in deferred insurance acquisition costs | (98,122 | ) | (117,337 | ) | — | — | (98,122 | ) | (117,337 | ) | ||||||||||||||
Increase (decrease) in trade payables | 37,044 | 37,885 | 258,994 | 93,660 | 288,854 | 126,989 | ||||||||||||||||||
Increase (decrease) in deposits from customers in the banking business | 333,075 | 230,236 | — | — | 333,075 | 230,236 | ||||||||||||||||||
Increase (decrease) in borrowings in the life insurance business and the banking business | 462,751 | 905,139 | — | — | 462,751 | 905,139 | ||||||||||||||||||
Other | (101,728 | ) | (182,124 | ) | (54,785 | ) | (285,560 | ) | (157,427 | ) | (467,716 | ) | ||||||||||||
Net cash provided by (used in) operating activities | 9,914 | 459,710 | 1,150,265 | 813,268 | 1,140,217 | 1,233,643 | ||||||||||||||||||
Cash flows from investing activities: | ||||||||||||||||||||||||
Payments for property, plant and equipment and other intangible assets | (19,368 | ) | (20,562 | ) | (458,700 | ) | (420,542 | ) | (477,931 | ) | (441,096 | ) | ||||||||||||
Payments for investments and advances (other than Financial Services segment) | — | — | (103,351 | ) | (91,082 | ) | (103,351 | ) | (91,082 | ) | ||||||||||||||
Proceeds from sales or return of investments and collections of advances (other than Financial Services segment) | — | — | 20,352 | 16,081 | 20,352 | 16,081 | ||||||||||||||||||
Other | (2,514 | )�� | 2,914 | (466 | ) | (215,597 | ) | (2,980 | ) | (212,683 | ) | |||||||||||||
Net cash provided by (used in) investing activities | (21,882 | ) | (17,648 | ) | (542,165 | ) | (711,140 | ) | (563,910 | ) | (728,780 | ) | ||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||||||
Increase (decrease) in borrowings, net | (10,389 | ) | (10,975 | ) | 139,062 | (151,721 | ) | 128,683 | (162,696 | ) | ||||||||||||||
Dividends paid | (30,454 | ) | (39,159 | ) | (61,288 | ) | (74,342 | ) | (61,288 | ) | (74,342 | ) | ||||||||||||
Other | (10 | ) | (6 | ) | (395,279 | ) | (99,702 | ) | (405,928 | ) | (99,540 | ) | ||||||||||||
Net cash provided by (used in) financing activities | (40,853 | ) | (50,140 | ) | (317,505 | ) | (325,765 | ) | (338,533 | ) | (336,578 | ) | ||||||||||||
Effect of exchange rate changes on cash and cash equivalents | — | — | 36,685 | 94,369 | 36,685 | 94,369 | ||||||||||||||||||
Net increase (decrease) in cash and cash equivalents | (52,821 | ) | 391,922 | 327,280 | (129,268 | ) | 274,459 | 262,654 | ||||||||||||||||
Cash and cash equivalents at beginning of the fiscal year | 550,039 | 497,218 | 962,484 | 1,289,764 | 1,512,523 | 1,786,982 | ||||||||||||||||||
Cash and cash equivalents at end of the fiscal year | 497,218 | 889,140 | 1,289,764 | 1,160,496 | 1,786,982 | 2,049,636 | ||||||||||||||||||
- 4549 -
Condensed Statements of Cash Flows
Yen in millions | ||||||||||||||||||||||||
Fiscal year ended March 31 | ||||||||||||||||||||||||
| Financial Services | Sony without Financial Services | Consolidated | ||||||||||||||||||||||
| 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | |||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||||||
Income (loss) before income taxes | 150,111 | 223,935 | 1,006,548 | 996,758 | 1,117,503 | 1,180,313 | ||||||||||||||||||
Adjustments to reconcile income (loss) before income taxes to net cash provided by (used in) operating activities: | ||||||||||||||||||||||||
Depreciation and amortization, including amortization of contract costs | 24,932 | 26,333 | 810,301 | 978,257 | 835,233 | 1,004,590 | ||||||||||||||||||
Amortization of deferred insurance acquisition costs | 69,237 | 84,523 | — | — | 69,237 | 84,523 | ||||||||||||||||||
Other operating (income) expense, net | 664 | (4,147 | ) | (66,158 | ) | (5,566 | ) | (65,494 | ) | (12,021 | ) | |||||||||||||
(Gain) loss on securities, net (other than Financial Services segment) | — | — | 60,402 | 4,469 | 60,402 | 4,469 | ||||||||||||||||||
Change in future insurance policy benefits and other | 458,880 | 234,102 | — | — | 458,880 | 234,102 | ||||||||||||||||||
Change in policyholders’ account in the life insurance business, less cash impact | 238,309 | 15,523 | — | — | 238,309 | 15,523 | ||||||||||||||||||
Net cash impact of policyholders’ account in the life insurance business | 227,262 | 346,455 | — | — | 227,262 | 346,455 | ||||||||||||||||||
Changes in assets and liabilities: | ||||||||||||||||||||||||
(Increase) decrease in trade receivables and contract assets | (53,819 | ) | 35,524 | (121,684 | ) | (110,668 | ) | (171,094 | ) | (70,448 | ) | |||||||||||||
(Increase) decrease in inventories | — | — | (194,624 | ) | (560,382 | ) | (194,624 | ) | (560,382 | ) | ||||||||||||||
(Increase) decrease in investments and advances in the Financial Services segment | (1,724,164 | ) | (1,250,078 | ) | — | — | (1,724,164 | ) | (1,250,078 | ) | ||||||||||||||
(Increase) decrease in content assets | — | — | (502,253 | ) | (603,314 | ) | (502,253 | ) | (603,314 | ) | ||||||||||||||
(Increase) decrease in deferred insurance acquisition costs | (117,337 | ) | (118,096 | ) | — | — | (117,337 | ) | (118,096 | ) | ||||||||||||||
Increase (decrease) in trade payables | 37,885 | (40,071 | ) | 93,660 | (64,765 | ) | 126,989 | (109,336 | ) | |||||||||||||||
Increase (decrease) in deposits from customers in the banking business | 230,236 | 300,201 | — | — | 230,236 | 300,201 | ||||||||||||||||||
Increase (decrease) in borrowings in the life insurance business and the banking business | 905,139 | 111,314 | — | — | 905,139 | 111,314 | ||||||||||||||||||
Increase (decrease) in taxes payable other than income taxes, net | (5 | ) | 112 | 17,845 | 4,071 | 17,840 | 4,183 | |||||||||||||||||
Other | 12,380 | (21,912 | ) | (290,769 | ) | (223,387 | ) | (278,421 | ) | (247,307 | ) | |||||||||||||
Net cash provided by (used in) operating activities | 459,710 | (56,282 | ) | 813,268 | 415,473 | 1,233,643 | 314,691 | |||||||||||||||||
Cash flows from investing activities: | ||||||||||||||||||||||||
Payments for property, plant and equipment and other intangible assets | (20,562 | ) | (24,195 | ) | (420,542 | ) | (590,320 | ) | (441,096 | ) | (613,635 | ) | ||||||||||||
Payments for investments and advances (other than Financial Services segment) | — | — | (91,082 | ) | (191,129 | ) | (91,082 | ) | (191,129 | ) | ||||||||||||||
Proceeds from sales or return of investments and collections of advances (other than Financial Services segment) | — | — | 16,081 | 13,548 | 16,081 | 13,548 | ||||||||||||||||||
Other | 2,914 | 393 | (215,597 | ) | (264,125 | ) | (212,683 | ) | (261,448 | ) | ||||||||||||||
Net cash provided by (used in) investing activities | (17,648 | ) | (23,802 | ) | (711,140 | ) | (1,032,026 | ) | (728,780 | ) | (1,052,664 | ) | ||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||||||
Increase (decrease) in borrowings, net | (10,975 | ) | (11,226 | ) | (151,721 | ) | 273,195 | (162,696 | ) | 261,969 | ||||||||||||||
Dividends paid | (39,159 | ) | (41,335 | ) | (74,342 | ) | (86,568 | ) | (74,342 | ) | (86,568 | ) | ||||||||||||
Other | (6 | ) | (2 | ) | (99,702 | ) | (91,100 | ) | (99,540 | ) | (91,101 | ) | ||||||||||||
Net cash provided by (used in) financing activities | (50,140 | ) | (52,563 | ) | (325,765 | ) | 95,527 | (336,578 | ) | 84,300 | ||||||||||||||
Effect of exchange rate changes on cash and cash equivalents | — | — | 94,369 | 84,937 | 94,369 | 84,937 | ||||||||||||||||||
Net increase (decrease) in cash and cash equivalents | 391,922 | (132,647 | ) | (129,268 | ) | (436,089 | ) | 262,654 | (568,736 | ) | ||||||||||||||
Cash and cash equivalents at beginning of the fiscal year | 497,218 | 889,140 | 1,289,764 | 1,160,496 | 1,786,982 | 2,049,636 | ||||||||||||||||||
Cash and cash equivalents at end of the fiscal year | 889,140 | 756,493 | 1,160,496 | 724,407 | 2,049,636 | 1,480,900 | ||||||||||||||||||
B. | Liquidity and Capital Resources |
The description below covers basic financial policy and figures for Sony’s consolidated operations except for the Financial Services segment and certain subsidiaries, which secure liquidity on their own. Furthermore, the Financial Services segment is described separately in this section.
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Liquidity Management and Market Access
An important financial objective of Sony is to maintain the strength of its financial condition, while securing adequate liquidity for business activities. Sony defines its liquidity sources as the amount of cash and cash equivalents (“cash balance”) (excluding restrictions on capital transfers mainly due to national regulations) and the unused amount of committed lines of credit.
Funding requirements that arise from maintaining liquidity are principally covered by cash flow from operating and investing activities (including asset sales) and by the available cash balance; however, Sony also raises funds as needed from financial and capital markets through means such as corporate bonds, commercial paper (“CP”)CP and bank loans.
Sony Group Corporation, SGTS and Sony Capital Corporation (“SCC”), a finance subsidiary in the U.S., maintain CP programs with access to the Japanese, U.S. and European CP markets. The borrowing limits under these CP programs, translated into yen, were 1,111.61,166.3 billion yen in total for Sony Group Corporation, SGTS and SCC as of March 31, 2022.2023. There were no amounts outstanding under the CP programs as of March 31, 2022.2023.
If disruption and volatility occur in financial and capital markets and Sony becomes unable to raise sufficient funds from these sources, Sony may also draw down funds from contractually committed lines of credit from various financial institutions. Sony has a total, translated into yen, of 611.4641.5 billion yen in unused committed lines of credit, as of March 31, 2022.2023. Details of those committed lines of credit are: a 275.0 billion yen committed line of credit contracted with a syndicate of Japanese banks, a 1.7 billion U.S. dollar multicurrencymulti-currency committed line of credit also contracted with a syndicate of Japanese banks and a 1,050 million U.S. dollar multi-currency committed line of credit contracted with a syndicate of foreign banks. Sony currently believes that it can sustain sufficient liquidity through access to committed lines of credit with financial institutions, together with its available cash balance, even in the event that financial and capital markets become illiquid.
Sony considers one of management’s top priorities to be the maintenance of stable and appropriate credit ratings in order to ensure financial flexibility for liquidity and capital management and continued adequate access to sufficient funding resources in the financial and capital markets. However, in the event of a downgrade in Sony’s credit ratings, there are no financial covenants in any of Sony’s material financial agreements with financial institutions that would cause an acceleration of the obligation. Even though the cost of borrowing for some committed lines of credit could change according to Sony’s credit ratings, there are no financial covenants that would cause any impairment on the ability to draw down on unused facilities.
Cash Management
Sony manages its global cash management activities primarily through Sony Group Corporation in Japan, SCC in the U.S. and SGTS in other regions. The excess or shortage of cash at most of Sony’s subsidiaries is invested or funded by Sony Group Corporation, SGTS and SCC on a net basis, although Sony recognizes that fund transfers are limited in certain countries and geographic areas due to restrictions on capital transactions. In order to pursue more efficient cash management, cash surpluses among Sony’s subsidiaries are deposited with Sony Group Corporation, SGTS and SCC, and cash shortfalls among subsidiaries are covered by loans through Sony Group Corporation, SGTS and SCC, so that Sony can make use of excess cash balances and reduce third-party borrowings. Where local restrictions prevent an efficient intercompany transfer of funds, Sony’s intent is that cash balances remain outside of Sony Group Corporation, SGTS and SCC and that Sony meets its liquidity needs through ongoing cash flows, external borrowings, or both. Sony does not expect restrictions of capital transactions on amounts held outside of Japan to have a material effect on Sony’s overall liquidity, financial condition or results of operations.
Financial Services segment
The management of SFGI, Sony Life, Sony Assurance and Sony Bank recognizes the importance of securing sufficient liquidity to cover the payment of obligations that these companies incur in the ordinary course of business. Sony Life, Sony Assurance and Sony Bank maintain a sufficient cash balance and secure sufficient
means to meet their obligations while abiding by laws and regulations such as the Insurance Business Act or the Banking Act of Japan, and restrictions imposed by the FSA and other regulatory authorities as well as establishing and operating under company guidelines that comply with these regulations. Sony Life and Sony Assurance establish a sufficient level of liquidity for the smooth payment of insurance claims by investing, primarily in securities, their cash inflows, which come mainly from policyholders’ insurance premiums. Sony Bank maintains a necessary level of liquidity for the smooth settlement of transactions by using its cash inflows,
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which come mainly from customers’ deposits in local currency, to offer mortgage loans to individuals and to invest mainly in marketable securities. Cash inflows from customers’ deposits in foreign currencies are invested mainly in investment instruments of the same currency.
In addition, Sony’s subsidiaries in the Financial Services segment are subject to the Japanese Insurance Business Act and the Banking Act, which require insurance and banking business companies to maintain their financial credibility and to secure protection for policyholders and depositors in view of the public nature of insurance and banking services. As such, lending and borrowing between subsidiaries in the Financial Services segment and the other companies within Sony Group is strictly limited. Sony’s subsidiaries in the Financial Services segment are managed separately from Sony’s cash management activities through Sony Group Corporation, SGTS and SCC as mentioned above.
For further information about Sony’s views regarding utilization of cash flow from operating activities generated within the Sony Group for strategic investments, shareholder returns and as cash on hand, refer to “Issues Facing Sony and Management’s Response to those Issues: Fourth
Mid-Range
Plan — Financial Targets and their Progress.”Off-balance
Sheet Sony has certainarrangementstransactions that provide liquidity, capital resources and/or credit risk support.
off-balance
sheet These transactions in which Sony has relinquished control of trade receivables are accounted for as sales. Certain trade receivable sales programs also involve structured entities. Refer to Note 28 of the consolidated financial statements for various arrangements with structured entities, including those where Sony does not control the entities and therefore does not consolidate such entities.
statements.Contractual Obligations, Commitments, and Contingent Liabilities
Sony’s contractual obligations, commitments and contingent liabilities are summarized as follows:
Short-term borrowings and long-term debt
Refer to Note 6 and Note 14 of the consolidated financial statements.
Loan commitments, purchase commitments and litigation
Refer to Note 33 of the consolidated financial statements.
Insurance contract liabilities
Refer to Note 13 of the consolidated financial statements.
C. | Research and Development |
For the world to continue to be filled with emotion (Kando), Sony also believesmust continue to create technologies that it isunleash people’s creativity and make our civilization sustainable. To clarify this commitment, Sony has set “Push our civilization forward and make this planet sustainable” as its R&D mission.
A wide range of technological domains are essential to align itself with the motivationsrealize Sony’s Purpose. The three domains of both creators and users in order to achieve its corporate direction of “getting closer to people.” Sony aims to contribute to solving the challenges that people, societysensing, AI and the planet face through its diverse products, content and services, which have evolved based on people and technology.
The Sony Group’s research and development organization (“Corporate R&D&D”) carries out various research and developmentR&D activities in collaboration with multiple R&D organizations located in Japan, China, India, Europe, and the United States, India and China, utilizing the different characteristics and strengths of each area. In addition to aiming to acquire excellent local R&D personnel, Sony will strive to promote further collaboration among the businesses within the Sony Group, while also aiming to strengthen collaboration with external creators and academia. Sony is already promoting various activities such as joint development with universities around the world, and plans to further expand such activities in the future.
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R&D costs for the fiscal year ended March 31, 20222023 increased by 73.0117.3 billion yen (19%) to 618.4735.7 billion yen. The ratio of R&D costs to total revenue excluding the Financial Services segment was 7.4%7.3%, unchanged fromcompared to 7.4% in the previous fiscal year.
The following table shows a breakdown of R&D costs for each business segment and Corporate R&D in the fiscal years ended March 31, 20212022 and 2022.2023.
Fiscal year ended March 31 | Fiscal year ended March 31 | |||||||||||||||
| 2021 | 2022 | 2022 | 2023 | |||||||||||||
(Yen in billions) | (Yen in billions) | |||||||||||||||
R&D costs | ||||||||||||||||
G&NS | 144.6 | 175.7 | 175.7 | 271.1 | ||||||||||||
EP&S* | 142.3 | 141.8 | ||||||||||||||
ET&S | 141.8 | 155.7 | ||||||||||||||
I&SS | 168.9 | 198.0 | 198.0 | 223.7 | ||||||||||||
Corporate R&D | 43.3 | 48.7 | 48.7 | 46.4 | ||||||||||||
D. | Trend Information |
This section contains forward-looking statements about the possible future performance of Sony and should be read in light of the cautionary statement on that subject, which appears on the inside front cover page and applies to this entire document.
Issues Facing Sony and Management’s Response to those Issues
In the fiscal year ended March 31, 2022,2023, the global economy recovered moderately as balanced measurescontinued to curbCOVID-19infections and expandbe greatly affected by inflation. While economic activities were implemented aroundhave started to normalize following the world, despitestagnation caused by the impact a resurgence of new strains ofCOVID-19.On the other hand, the outlook for the global economy remains difficult to predict due to the economic sanctions, rapid fluctuations in foreign exchange rates and heightened resource prices triggered by Russia’s military invasion of Ukraine that began in February 2022 as well asaccelerated increases in global commodity prices and inflation mainlyreached historic levels. Under these circumstances, in March 2022, the Federal Reserve Board of the United States lifted its zero interest rate policy and began raising interest rates, resulting in the interest rate differential between Japan and the United States.States widening and the yen’s exchange rate against the U.S. dollar in October 2022 hitting its weakest level in 32 years. In addition, the recent interest rate hikes in various countries have led to instability in financial systems, particularly in Europe and the United States, and uncertainty regarding the future of the global economy has further heightened.
COVID-19
pandemic that began in 2020, the prolongation ofSony has a wide range of businesses globally. In addition to theseThese changes in the global economy, continuingin addition to increased geopolitical risk due to tensions between the U.S. and China, the rise of new technologies such as AI, and responses to global shortages of semiconductorsenvironmental challenges and other components and disruptionssocial division, are causing major changes in logistics are impactingthe environment surrounding each of Sony’s business segments.
Sony has responded swiftly to changes in the business environment and worked to strengthen the profit structure of each business, while continuing to prioritize management with a long-term view, with the goal of enhancing the corporate value of the entire Sony Group.
On May 18, 2022,2023, Sony held its Corporate Strategy Meeting for the fiscal year ending March 31, 2023.2024. Chairman President and CEO Kenichiro Yoshida explained that Sony continues to engage inspoke on Sony’s management withdirection, while President, COO and CFO Hiroki Totoki focused on the growth strategies of each business. Kenichiro Yoshida first looked back at the expansion of Sony’s businesses from a long-term view,perspective, from its founding through to recent initiatives to reorganize Sony Group’s architecture, strengthen creativity, and expand the Kando space, based on itsSony’s Purpose (or reason for being) to “fill the world with emotion (or Kando) through the power of creativity and technology,technology.” and its corporate direction of getting closer to people. He also emphasized Sony’s “Responsibility”commitment to creativity, and “Contribution” to people, society and the Earth, and outlined the investment and growth Sony is making across its three business domains centered on people. He then presented the initiativesstated that Sony is implementingwill continue to supportcreate Kando with creators and contribute to expanding it to the evolutionworld. As an example of this, N.P. Singh, CEO, SPNI underlined the expansion of the Sony Group’s business in India and highlighted growth opportunities.
Hiroki Totoki then provided an overarching view of growth strategies for each of Sony’s businesses from the perspective of group management. He further explained that Sony aims to achieve further growth and enhance its long-term value by continuing to evolve the diversity of its people and businesses and connect them organically.
The details are as follows.
1. Management from a Long-Term Perspective
Sony has continued to expand its business from a long-term perspective, from its origins of sound, to businesses such as electronics, entertainment throughand semiconductors. The life insurance business within the power of creativity and
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In 2019, Sony defined its Purpose with Kando as a keyword. Then, in Three Business Domains Centered on People2020, Sony announced a restructuring of its Group architecture that aimed to connect each business at an equal distance. This included spinning off the electronics business from the Group headquarters and making the Financial Services business a wholly-owned subsidiary. This reorganization has boosted synergies not only between electronics and entertainment, but also between the content IP used by Sony’s entertainment businesses.
3. Enhancement of Creativity
Sony intends to strengthen its creation across business areas including content and technologies with the aim of being the brand most chosen by creators around the world who generate Kando.
(1) Enhancing Content IP
In order to strengthen its creativity in areas such as music, pictures, games and anime, Sony has focused on getting closer to creators and creating Kando, and at the same time has invested in the ability to create Kando. In terms of content IP, Sony has invested approximately 1 trillion yen over the past five years.
Partner collaboration and group collaboration on content IP
Together with its partners, Sony is working to deliver the Kando content developed by creators to even more people, to “fill the world with emotion.”
The Last of Us
®
title that Under the past four yearslong-term vision of expanding the number of people directly connected to the Sony has executed overGroup to 1 trillion yenbillion people, Sony aims to continue delivering Kando in strategic investmentsspecific areas where communities are born, such as anime, games, and in India, learning from its users, and making use of them in its creations.
Crunchyroll, a DTC service specializing in anime, feeds back user viewing data to enhance its content IP and DTC services.creators.
In India, Sony is engaged in initiatives to create new value, such as local Kando creation and delivery through SonyLIV, SPNI’s DTC service, and a joint venture between the DTC space,Music and Pictures businesses to provide opportunities for local artists and creators. Furthermore, through the expected merger of SPNI and Zee, Sony values its relationships with partners, and has a long-term vision of directly connecting the Sony Group with 1 billion people interestedaims to further expand creation rooted in entertainment.local culture.
(2) Enhancing creation through products and services
Sony Interactive Entertainment signed definitive agreements for the acquisition of Bungie, which represents a major step in becoming more multi-platform and enhancing Sony’s live game services.
Hawk-Eye
(3) Creation semiconductors that converts athletes’ movementscreate Kando
CMOS image sensors are contributing to capturing the moment and helping users around the world become creators, through Alpha
™
full-frame mirrorless cameras and smartphone cameras.- 54 -
Over the past five years, Sony has invested more than 1 trillion yen in this area. Sony intends to continue to focus on the business of image sensors as key devices that support creation.
4. Expansion of Kando space
Leveraging technologies such as VR and AI, Sony is also working on the challenge of expanding the field of Kando from real space into data using advanced AI.the virtual and mobility spaces from a long-term perspective.
(1) Virtual space
Sony is providing a place of creation where people connect with each other through live service games, live performances by music artists and initiatives that increase sports fan engagement.
Sony is extending the creativity of creators with AI represented by “Gran Turismo Sophy,” a racing AI agent that gets closerenhances the value of the experience within the game space. Sony intends to continue to promote R&D in this area, alongside social implementation.
(2) Mobility space
Sony is contributing to the evolution of mobility in areas such as imaging and sensing technologies and entertainment, as well as communications and networks including 5G, and also plans to provide these technologies to the production model being developed under Sony Honda Mobility’s new brand, “AFEELA.”
Through its collaboration with Epic Games, Sony is pursuing new entertainment possibilities using the Unreal Engine 3D creation tool.
(3) Outer space
Sony will conduct exploration activities to bring emotional experiences through the STAR SPHERE project’s nano satellite “EYE.”
5. Progress on the fourth
mid-range
planThree-year cumulative adjusted EBITDA, which is the KPI of the fourth
mid-range
plan (“fourthmid-range
plan”) that charts the path forward for Sony over the three fiscal years started on April 1, 2021 and ending on March 31, 2024, has progressed significantly beyond the initial plan. In the fiscal year ending March 31, 2024, which is the final year of its fourthmid-range
plan, Sony intends to promote business operations with a focus on risk management amidst an unstable business environment, and ensure the achievement of its KPIs. For more detailed discussion on the fourthmid-range
plan, refer to “FourthMid-Range
Plan — Financial Targets and their Progress” below.6. Growth strategies for each business segment
G&NS segment: Increasing the number of active users
™
. Shipped 6.3 million units of PS5 during the fourth quarter of the fiscal year ended March 31, 2023. Continue to manufacture at full capacity.Knowledge sharing from Bungie to enhance Sony’s ability to develop and operate live service games. Aim to increase the number of active users on PCs.
Music segment: Outpace the market growth of streaming services and emerging media
1) Promote new songs from Sony Music’s wholly owned labels and signed artists to increase market share. 2) Expand services for distributed labels centered around The Orchard. 3) Ensure early contact with emerging artists through channels such as AWAL. 4) Further explore emerging markets, including unearthing local artists.
Strengthen initiatives to monetize emerging media such as social media and live concerts within games and increase returns for artists.
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Pictures segment: Maximize IP value over the long-term
Leverage Sony’s strengths as a strategic supplier, limiting the burden of investment Sony would incur by having Sony’s own distribution platform, and instead allocating these investment resources to the creative side, enhancing production quality, and supplying content to the distribution platforms that best understand the appeal of each product.
Improve long-term profit by maintaining focus on theatrical releases, which are also supported by the industry.
Across entertainment businesses: Maximizing value by deepening the deployment of IP
Synergies generated between entertainment businesses
Expansion of game IP: Continue work on the production of film and TV adaptations of first-party PlayStationVR2 next-generationtitles including,and.
®
The Last of Us
Gran Turismo
Twisted Metal
Accelerating the growth of anime: Collaboration betweenproducer Aniplex and Crunchyroll.
Demon Slayer: Kimetsu no Yaiba
Location Based Entertainment
Water theme park “Columbia Pictures Aquaverse” in Thailand
A ride attraction in Spain with projections showing the world of
Uncharted
“Sword Art Online — Anomaly Quest” at indoor interactive attraction “THE TOKYO MATRIX” in Japan
ET&S segment: Expand the array of solutions and services offered to a wide range of creators
For photographers and broadcasters, expand Sony’s business in the area of services such as efficient virtual reality system, an AI agent that increasesproduction on the valuecloud, and also optimize these technologies and services for individual creators.
For filmmakers, evolve creation technologies such as the “VENICE” camera series and virtual production to unleash creators from the constraints of time and space.
I&SS segment: Further strengthen No. 1 position in image sensors.
Shift to larger sizes and higher performance CMOS image sensors for smartphones.
Expand business opportunities for sensors in the automotive field, where Sony can contribute to safe mobility, and in the industrial and social infrastructure field, to contribute to the shift to smart societies.
Financial Services segment: Brand reinforcement, leveraging Group infrastructure and investment for growth
Reinforcement of branding, leveraging the Sony Group’s infrastructure, and investing in growth are the keys to growth in the Financial Services business.
To realize further growth within the Financial Services business, Sony will begin the assessment of a partialexperiencelisting of the shares of SFGI that operates this business.
spin-off
based on the premise of the Sony will proceed with its assessment based on the premise that Sony will continue to own a portion (slightly less than 20%) of the shares of SFGI, so that the Financial Services business can continue to utilize the Sony brand, including in their company name, and continue to generate synergies with Sony Group companies after the game space, and aibo, which stays close to and grows together with people by acting on its own innate curiosity.execution of the
spin-off.
The timing of the execution of the
spin-off
has not been determined; however, Sony will proceed with its assessment leading up to the end of the fiscal year ending March 31, 2024, giving consideration to executing thespin-off
within the next two to three years.7. Continuous evolution of businesses and people diversity
Through diverse individuals sharing their knowledge and activities beyond boundaries, evolving Sony’s business diversity, and connecting organically, Sony aims to achieve further growth and enhance long-term value across the overall Sony Group.
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Fourth
Mid-Range
Plan — Financial Targets and their Progress<Financial Targets>
On April 28, 2021, Sony announced the financial targets for athe fourthplan (“fourthmid-rangeplan”) that charts the path forward for Sony over the next three fiscal years, started on April 1, 2021 and ending on March 31, 2024.plan. In order to continue managing Sony with a long-term view, Sony’s management established a three-year cumulative key performance indicator. That indicator, which is the most important metric of group performance for the fourth
mid-range
mid-range
plan (“Group KPI”), is Adjusted EBITDA*. Sony announced that it would target total Adjusted EBITDA of 4.3 trillion yen on a consolidated basis for the three fiscal years started on April 1, 2021 and ending on March 31, 2024. Management believes that Adjusted EBITDA is a performance metric suitable for the long-term management that Sony prioritizes. This is because (i) it represents the sustainable earnings power of a business as it does not include the effects ofone-time
gains and losses, (ii) it enables management to confirm that all the businesses of the Sony Group, including the Financial Services business, are expanding over themid-
to long-term through cycles of investment and return, and (iii) it is often used to calculate corporate value.Regarding the capital allocation plan in the fourth
mid-range
plan, Sony established a capital expenditure target of 1.5 trillion yen and a strategic investment target of 2 trillion yen or more including share repurchases as it aims to grow its business over the longer-term, beyond the duration of the plan. As in the past, Sony plans to increase dividends in a stable manner over the long term. Sony expects to fund its allocation of capital through expected cash generation of 3.8 trillion yen or more over the three fiscal years started on April 1, 2021 and ending on March 31, 2024. The expected cash generation includes 3.1 trillion yen or more of consolidated operating cash flow excluding the Financial Services segment, 300 billion or more of cash flow generated from the sale of businesses and assets executed as needed as well as borrowing with a strict eye on financial discipline, and 400 billion of cash left-over from the period of the thirdmid-range
plan started on April 1, 2018 and ended on March 31, 2021 and before.<Progress>
Adjusted EBITDA for the fiscal year ended March 31, 20222023 was 1 trillion 597.9703.4 billion yen**. Sales are on a higher growth curve than originally expected, driven by growthThree-year cumulative adjusted EBITDA, which is the Group KPI, has progressed significantly beyond the initial plan, mainly in Sony’s four priority investment areas: the G&NS, Music and Pictures and I&SS segments. Sony also expects operating income to increase significantly compared to the thirdmid-rangeplan started on April 1, 2018 and ended on March 31, 2021.
Regarding capital allocation, Sony planscapital expenditures are expected to increase from the initial plan to 1.9 trillion yen, with an additional 0.4 trillion yen mainly allocated to image sensor capital expenditures in the I&SS segment by approximately 200 billion yen comparedand server investments in Corporate R&D and G&NS. In terms of strategic investment, since Sony decided to increase working capital and capital expenditures, and in consideration of the originalcurrent M&A market environment, Sony reduced the amount from the initial plan to respond to the robust demand for image sensors and to capture growth opportunities, while the plan to make strategic investments of 2 trillion yen or more remains unchanged. A total of approximately 1to 1.8 trillion 60 billion yen of strategic investments have been executed or determined already (as of May 10, 2022), including 97.4 billion yen in repurchases of Sony’s stock (as of April 28, 2022), and Sony believes that investments for the long term growth are progressing steadily. In terms of share repurchases, Sony has obtained an additional authorization to repurchase a maximum of 200 billion yen of Sony’s stock for the period from May 11, 2022 to May 10, 2023. These repurchases continue to be part of Sony’s strategic investments and are expected to be implemented in a flexible manner.yen.
* Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) = Net income attributable to Sony Group Corporation’s stockholders + Net income attributable to noncontrolling interests + Income taxes + Interest expenses, net, recorded in Financial income and Financial expense — Gain on revaluation of equity instruments, net, recorded in Financial income and Financial expense + Depreciation and amortization expense excluding amortization for film costs, and broadcasting rights and internally developed game content and master recordings included in Content assets as well as for deferred insurance acquisition costs — the profit and loss amount that Sony deems to be.
non-recurring****.
Adjusted EBITDA is not a measure in accordance with IFRS. However, Sony believes that this disclosure may be useful information to investors. Adjusted EBITDA should be considered in addition to, not as a substitute for, Sony’s results and cash flows in accordance with IFRS.
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** The following table shows a reconciliation of net income attributable to Sony Group Corporation’s stockholders reported in accordance with IFRS to Adjusted EBITDA for the fiscal year ended March 31, 2022.2023.
Fiscal year ended March 31 | ||||
(Yen in billions) | ||||
Net income attributable to Sony Group Corporation’s stockholders | ||||
Net income attributable to noncontrolling interests | ||||
Income taxes | ||||
Interest expenses, net, recorded in Financial income and Financial expense | ||||
Gain on revaluation of equity instruments, net, recorded in Financial income and Financial expense | ||||
Depreciation and amortization | ||||
Profit and loss amount that Sony deems non-recurring**** | ( | ) | ||
Adjusted EBITDA | ||||
*** Depreciation and amortization expense excludes amortization of film costs, broadcasting rights and internally developed game content and master recordings included in Content assets, as well as for deferred insurance acquisition costs.
**** The table below shows the details of the profit and loss amount that Sony deems to be2022.2023.
non-recurring
for the fiscal year ended March 31, Fiscal year ended March 31 | ||||
(Yen in billions) | ||||
Total | ||||
For details on the performance of each business segment in the fiscal year ended March 31, 2022,2023, as well as the business environment and strategy of each business segment, also refer to “Operating Results” in “Item 5.”
Operating and Financial Review and Prospects.
E. | Critical Accounting Estimates |
The preparation of the consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, Sony evaluates its estimates, which are based on historical experience, future projections and various other assumptions that are believed to be reasonable under the circumstances. The results of these evaluations form the basis for making judgments about the carrying values of assets and liabilities and the reported amounts of expenses that are not readily apparent from other sources. Actual results may significantly differ from these estimates. The timing and extent to which the spread ofCOVID-19may negatively impact Sony’s business will depend on future developments, which are uncertain. This uncertainty could result in greater variability in accounting estimates and assumptions. Sony considers an accounting estimate to be critical if it is important to its financial condition and results, and requires significant judgment and estimates on the part of management in its application. Sony believes that the following represents its critical accounting estimates. The critical accounting estimates should be read in conjunction with Note 3 of the consolidated financial statements regarding Sony’s significant accounting policies.
Financial instruments
Sony recognizes a financial instrument as a financial asset or a financial liability when Sony becomes party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value.
Financial instruments held by Sony are classified according to the measurement method, and for financial instruments measured at fair value, future fluctuations in fair value may have a significant impact on the consolidated financial statements.
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The assessment of credit losses for debt securities is often subjective in nature and involves certain assumptions and estimates concerning the credit risk ratings, expected operating results, business plans and
future cash flows of the issuer of the security. Accordingly, it is possible that Sony will record an allowance for credit losses for debt securities in the future, where such an allowance for credit losses is not currently recorded based on the assessment of subsequently available information such as a deterioration in the credit risk rating, continued poor operating results, future broad declines in the value of worldwide equity markets and the effect of worldwide interest rate fluctuations. As a result, downward adjustments in income may be recorded in the future due to the recording of such allowance for credit losses.
Impairment of
non-financial
assetsSony reviews the recoverability of its
non-financial
assets, except for inventories, contract costs and deferred tax assets, whenever there is any indication that an asset or a cash-generating unit (“CGU”) may be impaired. In addition, an annual impairment test for goodwill, intangible assets with indefinite useful lives or intangible assets not yet available for use is performed during the fourth quarter of the fiscal year for each CGU or group of CGUs to which the carrying amount of these assets is allocated.For all CGUs or groups of CGUs with goodwill, the recoverable amount exceeded the carrying amount, and therefore no impairment existed in the fiscal year ended March 31, 2022.2023. Also, the recoverable amount of each CGU or group of CGUs with significant goodwill exceeded their respective carrying values by at least 10.0%. For intangible assets with indefinite useful lives or intangible assets not yet available for use, the recoverable amount exceeded the carrying amount, and therefore no impairment existed.
A discussion of the significant assumptions, other than the20222023 is included below:
mid-range
plan, including a sensitivity analysis with respect to their impact, of the recoverable amount of each CGU or group of CGUs for the impairment analysis for goodwill performed for the fiscal year ended March 31, The3.2%2.6% to 15.0%. A hypothetical one percentage point increase in the discount rate, holding all other assumptions constant, would not have resulted in an impairment.
post-tax
discount rates ranged from The growth rates applied to the terminal values for the CGUs within the G&NS, EPET&S, and I&SS and Financial Services segments ranged from approximately 1.0% to 1.5%. The growth rates beyond the2.5%3.0%, and in the Pictures segment ranged from (5.0%) to 16.0%21.0%. A hypothetical one percentage point decrease in the growth rate, holding all other assumptions constant, would not have resulted in an impairment.
mid-range
plan period for the CGUs in the Music segment ranged from 1.0% to The earnings multiple used to calculate the terminal value in the Pictures CGU was 6.0x1.5x to 11.0x12.0x and the revenue multiple was 1.5x1.3x to 2.0x.1.5x. A hypothetical reduction in earnings multiple by 1.0x and revenue multiple by 0.25x, respectively, holding all other assumptions constant, would not have resulted in ana significant impairment.
Management believes that the assumptions used in the impairment tests are reasonable, including, but not limited to, the potential impacts arising from the spread ofCOVID-19;however,reasonable. However, in the future, changes in estimates resulting in lower recoverable amounts due to unforeseen changes in assumptions could negatively affect the valuations, which may result in Sony recognizing impairment losses for
non-financial
assets.Business combinations
Sony recognizes identifiable assets acquired and the liabilities assumed of an acquiree at their fair values at the acquisition date with limited exceptions. Sony recognizes goodwill when the aggregate of the consideration transferred in a business combination, the amount of any
non-controlling
interests in the acquiree and the fair value of Sony’s previously held equity interest in the acquiree exceeds the net amount of the identifiable assets and liabilities of the acquiree at the acquisition date. If the aggregate above is less than the net amount of identifiable assets and liabilities, the difference is recognized as a gain.Due to the inherent uncertainties involved in making the estimates and assumptions, the consideration transferred could be valued and allocated to the identifiable assets acquired and liabilities assumed differently. Actual results may differ, or unanticipated events and circumstances may affect such estimates, which could require Sony to record an impairment of an identifiable asset acquired and goodwill, or an increase in the amounts recorded for identifiable liabilities assumed.
Estimation of ultimate revenue in the Pictures segment
An aspect of film accounting that requires the exercise of management’s judgment relates to the process of estimating the total revenues to be received throughout a film’s life cycle. Such estimate of a film’s ultimate
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revenue is important for the measurement of film costs and participation and residual liabilities in the Pictures segment.
While a film is being produced and the related costs are being capitalized, it is necessary for management to estimate the ultimate revenue, less additional costs to be incurred, including exploitation costs which are expensed as incurred, in order to determine whether the value of a film has been impaired and thus requires an immediate
write-off
of unrecoverable film costs. In addition, the amount of film costs recognized as cost of sales for a given film as it is exhibited in various markets throughout its life cycle is based on the ratio of current period actual revenues to the estimated remaining total revenues.Management bases its estimates of ultimate revenue for each film on several factors including the historical performance of similar genre films, the star power of the lead actors, the expected number of theaters at which the film will be released, anticipated performance in the home entertainment, television and other ancillary markets, and agreements for future sales. Management updates such estimates on a regular basis based on the actual results to date and estimated future results for each film. For example, a film with lower than expected theatrical revenues in its initial weeks of release would generally have its theatrical, home entertainment and television distribution ultimate revenues adjusted downward; a failure to do so would result in the understatement of amortized film costs for the period. Also, participation and residual liabilities are accrued based on the ratio of current period actual revenues to the estimated remaining total revenues.
Valuation of deferred tax assets
Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which the assets can be utilized. Accordingly, the valuation of deferred tax assets is assessed periodically with available evidence related to the realizability of the deferred tax assets.
The valuation of deferred tax assets, which is based on currently enacted tax laws and rates as of the end of the reporting period, reflects management’s judgment and best estimate of the likely future tax consequences of events that have been recognized in Sony’s financial statements and tax returns, the ability to implement various tax planning strategies and, in certain cases, future forecasts, business plans and other expectations about business outcomes. Changes in existing tax laws or rates in tax jurisdictions in which Sony operates could affect actual tax results, and market or economic deterioration or failure of management to achieve its restructuring objectives could affect future business results, either of which could affect the valuation of deferred tax assets over time. If future results are less than projected, if the results of tax examinations or the negotiations of advance pricing agreements covering transfer pricing of intercompany transactions result in a different allocation of profits and losses than currently anticipated, if tax planning alternatives are no longer viable, or if there is no excess appreciated asset value over the tax basis of the assets contemplated for sale, outstanding deferred tax assets may be required to be written down in the future. On the other hand, a forecasted improvement and consistency in future earnings or other factors, such as business reorganizations, could lead in the future, as a result of a review of all relevant factors, to the reversal of the previous write down of the deferred tax assets which would be recorded as a reduction to tax expense. These possible factors and other changes, that are not anticipated in current estimates, could have a material impact on Sony’s earnings or financial condition in the period or periods in which the impact is recorded or reversed.
Deferred insurance acquisition costs
Costs that vary with and are directly related to the acquisition or renewal of insurance policies are deferred as long as they are recoverable. The deferred insurance acquisition costs include such items as commissions, medical examination costs and inspection report fees, and are subject to recoverability testing at least annually to ensure that the capitalized amounts do not exceed the present value of anticipated gross profits or premiums less benefits and maintenance expenses, as applicable. The deferred insurance acquisition costs for traditional life insurance contracts are amortized over the premium-paying period of the related insurance policies using assumptions consistent with those used in computing future insurance policy benefits. The deferred insurance acquisition costs for
non-traditional
life insurance contracts are amortized over the expected life at a constant rate based on the present value of the estimated gross profit. Investment yields, mortality rates, lapse rates and discount rates are used as important assumptions for the present value of the estimated gross profit.Future insurance policy benefits
Liabilities for future insurance policy benefits are primarily comprised of the present value of estimated future payments to policyholders. These liabilities are computed by the net level premium method based upon the
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assumptions as to future investment yield, morbidity rates, mortality rates, lapse rates and other factors. These assumptions are reviewed on a periodic basis. Liabilities for future policy benefits include the liabilities for the minimum guarantee benefits of individual variable annuities and variable life insurance contracts.
Policyholders’ account in the life insurance business
Liabilities for policyholders’ account in the life insurance business represent the contract value that has accrued to the benefit of the policyholders as of the end of the reporting period. This liability is generally equal to the accumulated account deposits, plus interest credited, less policyholder withdrawals and other charges assessed against the account balances. Liabilities for policyholders’ account in the life insurance business include the liabilities related to the individual variable annuities and variable life insurance contracts with minimum guarantee benefits.
Item 6. | Directors, Senior Management and Employees |
A. | Directors and Senior Management |
Set forth below are the current members of the Board of Directors and Corporate Executive Officers of Sony Group Corporation (the “Corporation”), their responsibility as a director or officer, date of birth, the number of years they have served as a director or officer, and other principal business activities outside the Corporation as of June 28, 2022.20, 2023.
Chair of the Nominating Committee | ||
Member of the Nominating Committee | ||
Member of the Nominating Committee Member of the Compensation Committee | ||
Director in charge of Information Security | ||
| Fixed remuneration (*3) | Remuneration linked to business results | Stock acquisition rights (*6) | Restricted stock (*3/*8) | Phantom Restricted Stock Plan (*9) | ||||||||||||||||
| Number of persons | Amount | Number of persons | Amount | Number of persons | Amount | Number of persons | Amount | Number of persons | Amount | |||||||||||
| Million Yen | Million Yen | Million Yen | Million Yen | Million Yen | ||||||||||||||||
Directors | 10 | 170 | — | — | — | — | 10 | 40 | — | — | ||||||||||
| (*4) | (*7) | |||||||||||||||||||
(Outside Directors) (*1, 2) | (9) | (149) | (—) | (—) | (—) | (—) | (9) | (36) | (—) | (—) | ||||||||||
Corporate Executive Officers | 6 | 539 | 6 | 777 | 6 | 540 | 6 | 796 | 1 | 135 | ||||||||||
| (*5) | ||||||||||||||||||||
Total | 16 | 708 | 6 | 777 | 6 | 540 | 16 | 835 | 1 | 135 | ||||||||||
Name | Position (*1) | Fixed Remuneration (*2) (Yen in millions) | Remuneration linked to business results (*2) (*3) (Yen in millions) | Phantom restricted stock plan (Yen in millions) | Total (*2) (Yen in millions) | Granted number of stock acquisition rights (*4) (Ten thousand shares) | Granted number of restricted stock (*5) (Ten thousand shares) | |||||||
Kenichiro Yoshida | Director, Chairman, President & CEO, and Representative Corporate Executive Officer (*6) (*7) | 215 | 391 | — | 606 | 15 | 7.5 | |||||||
Hiroki Totoki | Director, Executive Deputy President & CFO, and Representative Corporate Executive Officer (*6) (*7) | 77 | 143 | — | 220 | 5 | 2.5 | |||||||
Shigeki Ishizuka | Vice Chairman, Former Representative Corporate Executive Officer (Until June 28, 2022) (*7) | 68 | 69 | — | 137 | 2 | 0.5 | |||||||
Toru Katsumoto | Former Executive Deputy President, Former Corporate Executive Officer (Until June 28, 2022) (*7) | 64 | 66 | 135 | 265 | 3 | 1.5 | |||||||
Shiro Kambe | Senior Executive Vice President, Corporate Executive Officer (*7) | 52 | 55 | — | 106 | 2 | 0.6 | |||||||
Kazushi Ambe | Senior Executive Vice President, Corporate Executive Officer (*7) | 51 | 53 | — | 104 | 2 | 0.6 |
March 31, 2022 (Consolidated) | ||||||
yen per share amounts) | ||||
Board of Directors
Kenichiro Yoshida | ||
Responsibility as a Director: — | ||
Date of Birth: October 20, 1959 | ||
Number of Years Served as a Director: 9 years | ||
Principal Business Activities Outside the Corporation: Outside Director, M3, Inc. | ||
Brief Personal History: | ||
April 1983 | Joined the Corporation | |
July 2000 | Joined Sony Communication Network Corporation (currently Sony Network Communications Inc.) | |
September 2000 | Outside Director, So-net M3, Inc. (currently M3, Inc.) (present) | |
May 2001 | SVP, Sony Communication Network Corporation | |
April 2005 | President and Representative Director, Sony Communication Network Corporation | |
December 2013 | EVP, CSO and Deputy CFO, Corporate Executive Officer, the Corporation | |
April 2014 | EVP and CFO, Representative Corporate Executive Officer, the Corporation | |
June 2014 | Director, the Corporation (present) | |
April 2015 | Executive Deputy President and CFO, Representative Corporate Executive Officer, the Corporation | |
April 2018 | President and CEO, Representative Corporate Executive Officer, the Corporation | |
June 2020 | Chairman, President and CEO, Representative Corporate Executive Officer, the Corporation | |
April 2023 | Chairman and CEO, Representative Corporate Executive Officer, the Corporation (present) | |
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Hiroki Totoki | ||
Responsibility as a Director: — | ||
Date of Birth: July 17, 1964 | ||
Number of Years Served as a Director: 4 years | ||
Principal Business Activities Outside the Corporation: Outside Director, Recruit Co., Ltd. | ||
Brief Personal History: | ||
April 1987 | Joined the Corporation | |
February 2002 | Representative Director, Sony Bank Incorporated | |
June 2005 | Director, Corporate Executive Officer and Senior Managing Director, Sony Communication Network Corporation (currently Sony Network Communications Inc.) | |
April 2012 | Representative Director, Corporate Executive Officer and Senior Managing Director, So-net Entertainment Corporation (currently Sony Network Communications Inc.) | |
April 2013 | Representative Director, Corporate Executive Officer, Deputy President and CFO, So-net Entertainment Corporation | |
December 2013 | SVP, Corporate Executive, the Corporation | |
November 2014 | President and CEO, SOMC (currently Sony Corporation) | |
June 2015 | Director, Chairman, So-net Corporation (currently Sony Network Communications Inc.) | |
April 2016 | EVP, Corporate Executive Officer, the Corporation Officer in charge of New Business Platform Strategy, the Corporation President and Representative Director, So-net Corporation | |
June 2017 | CSO, the Corporation Officer in Charge of Mid-to-Long | |
April 2018 | Representative Corporate Executive Officer, CFO, the Corporation | |
June 2018 | Senior EVP, the Corporation Outside Director, Recruit Holdings Co., Ltd. (present) | |
June 2019 | Director, the Corporation (present) | |
June 2020 | Executive Deputy President and CFO, Representative Corporate Executive Officer, the Corporation | |
April 2023 | President, COO and CFO, Representative Corporate Executive Officer, the Corporation (present) | |
Yoshihiko Hatanaka | ||
Responsibility as a Director: Chairman of the Board Chair of the Nominating Committee | ||
Date of Birth: April 20, 1957 | ||
Number of Years Served as a Director: 4 years | ||
Brief Personal History and Principal Business Activities Outside the Corporation: | ||
April 1980 | Joined Fujisawa Pharmaceutical Co., Ltd. (currently Astellas Pharma Inc.) | |
June 2005 | Corporate Executive, Vice President, Corporate Planning, Corporate Strategy, Astellas Pharma Inc. | |
April 2006 | Corporate Executive of Astellas Pharma Inc. and President & CEO, Astellas US LLC and President & CEO, Astellas Pharma US, Inc. | |
June 2008 | Senior Corporate Executive of Astellas Pharma Inc. and President & CEO, Astellas US LLC and President & CEO, Astellas Pharma US, Inc. | |
April 2009 | Senior Corporate Executive, Chief Strategy Officer and Chief Financial Officer, Astellas Pharma Inc. | |
June 2011 | Representative Director, President & CEO, Astellas Pharma Inc. | |
April 2018 | Representative Director, Chairman of the Board, Astellas Pharma Inc. | |
June 2019 | Director, the Corporation (present) | |
March 2023 | Outside Director, Shiseido Company, Limited (present) | |
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Toshiko Oka | ||
Responsibility as a Director: Chair of the Audit Committee Member of the Nominating Committee | ||
Date of Birth: March 7, 1964 | ||
Number of Years Served as a Director: 5 years | ||
Brief Personal History and Principal Business Activities Outside the Corporation: | ||
April 1986 | Joined Tohmatsu Touche Ross Consulting Limited | |
July 2000 | Joined Asahi Arthur Anderson Limited | |
September 2002 | Principal, Deloitte Tohmatsu Consulting Co., Ltd. (currently ABeam Consulting Ltd.) | |
April 2005 | President and Representative Director, ABeam M&A Consulting Ltd. (currently PwC Advisory LLC) | |
April 2016 | Partner, PwC Advisory LLC | |
June 2016 | CEO, Oka & Company Ltd. (present) | |
June 2018 | Director, the Corporation (present) | |
June 2019 | Outside Director, Happinet Corporation (present) | |
June 2020 | Outside Director, ENEOS Holdings, Inc. (present) | |
April 2021 | Professor, Professional Graduate School, Graduate School of Global Business, Meiji University (present) | |
June 2021 | Outside Director, Hitachi Construction Machinery Japan Co., Ltd. (present) | |
Sakie Akiyama | ||
Responsibility as a Director: Member of the Compensation Committee | ||
Date of Birth: December 1, 1962 | ||
Number of Years Served as a Director: 4 years | ||
Brief Personal History and Principal Business Activities Outside the Corporation: | ||
April 1987 | Joined Arthur Andersen & Co. | |
April 1994 | Founder and CEO, Saki Corporation | |
October 2018 | Founder, Saki Corporation (present) | |
June 2019 | Director, the Corporation (present) Outside Director, Japan Post Holdings Co., Ltd. (present) Outside Director, Orix Corporation (present) | |
June 2020 | Outside Director, Mitsubishi Corporation (present) | |
Wendy Becker | ||
Responsibility as a Director: Chair of the Compensation Committee Member of the Nominating Committee | ||
Date of Birth: November 2, 1965 | ||
Number of Years Served as a Director: 4 years | ||
Brief Personal History and Principal Business Activities Outside the Corporation: | ||
September 1987 | Brand Manager, Procter & Gamble Company | |
September 1993 | Consultant, McKinsey & Company, Inc. | |
December 1998 | Partner, McKinsey & Company, Inc. | |
February 2008 | Managing Director, Residential, TalkTalk, The Carphone Warehouse Ltd. Board member, Member of Remuneration Committee, Whitbread plc | |
September 2009 | Chief Marketing Officer, Vodafone Group plc | |
September 2012 | Chief Operating Officer, Jack Wills Ltd. | |
October 2013 | CEO, Jack Wills Ltd. | |
February 2017 | Board member, Chair of Remuneration Committee, Great Portland Estates plc | |
September 2017 | Board member, Logitech International S.A. (present) | |
June 2019 | Director, the Corporation (present) | |
September 2019 | Chair of the Board, Chair of Nominating Committee, Logitech International S.A. (present) | |
June 2021 | Board member, Chair of Remuneration Committee, Oxford Nanopore Technologies plc (present) | |
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Keiko Kishigami | ||
Responsibility as a Director: Member of the Audit Committee | ||
Date of Birth: January 28, 1957 | ||
Number of Years Served as a Director: 3 years | ||
Brief Personal History and Principal Business Activities Outside the Corporation: | ||
October 1985 | Joined Peat Marwick Minato (currently Ernst & Young ShinNihon LLC) | |
August 1989 | Registered as Certified Public Accountant (present) | |
December 1997 | Partner, Century Audit Corporation (currently Ernst & Young ShinNihon LLC) | |
May 2004 | Representative Partner (Senior Partner), Ernst & Young ShinNihon (currently Ernst & Young ShinNihon LLC) | |
September 2018 | Board Member, WWF Japan (present) | |
June 2019 | Outside Auditor, Okamura Corporation (present) | |
June 2020 | Director, the Corporation (present) | |
June 2021 | Outside Director, Sumitomo Seika Chemicals Company, Limited (present) | |
March 2023 | Outside Auditor, DIC Corporation (present) | |
Joseph A. Kraft Jr. | ||
Responsibility as a Director: Member of the Audit Committee Director in charge of Information Security | ||
Date of Birth: May 12, 1964 | ||
Number of Years Served as a Director: 3 years | ||
Brief Personal History and Principal Business Activities Outside the Corporation: | ||
July 1986 | Joined Morgan Stanley Inc. | |
January 2000 | Managing Director, Morgan Stanley Inc. | |
April 2007 | Managing Director, Head of Capital Markets Division, Dresdner Kleinwort Japan | |
March 2010 | Deputy Branch Manager & Managing Director, Bank of America Merrill Lynch Japan | |
July 2015 | CEO, Rorschach Advisory Inc. (present) | |
June 2020 | Director, the Corporation (present) | |
Neil Hunt | ||
Responsibility as a Director: Director in charge of Information Security | ||
Date of Birth: January 12, 1962 | ||
Number of Years Served as a Director: — | ||
Brief Personal History and Principal Business Activities Outside the Corporation: | ||
June 1989 | Founder, CTO, Iconicon | |
October 1991 | Director of Engineering, Pure Atria, Inc. | |
December 1999 | Chief Product Officer, Netflix, Inc. | |
September 2010 | Board member, Member of Compensation Committee, Logitech, Inc. | |
June 2017 | Board member, Member of Compensation Committee, Roku, Inc. (present) | |
January 2020 | Founder and Chief Product Officer, Vibrant Planet, PBC (present) | |
June 2023 | Director, the Corporation (present) | |
William Morrow | ||
Responsibility as a Director: Member of the Compensation Committee | ||
Date of Birth: July 2, 1959 | ||
Number of Years Served as a Director: — | ||
Brief Personal History and Principal Business Activities Outside the Corporation: | ||
September 1980 | Director, Pacific Bell Inc. | |
November 2001 | President, Japan Telecom Holdings Co. Ltd | |
February 2004 | CEO, Vodafone UK Limited | |
April 2005 | President, VODAFONE K.K. Limited | |
May 2006 | CEO Europe, Vodafone Limited | |
August 2006 | President & CEO, Pacific Gas and Electric Company | |
June 2008 | Outside Director, Broadcom Inc. | |
March 2009 | CEO, Clearwire Incorporated | |
March 2012 | CEO, Vodafone Hutchison Australia | |
April 2014 | CEO, NBN Co, Limited | |
December 2018 | Outside Director, IkeGPS Group Limited | |
February 2021 | CEO, DirecTV LLC (present) | |
June 2023 | Director, the Corporation (present) | |
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Corporate Executive Officers
In addition to Kenichiro Yoshida and Hiroki Totoki, the four individuals set forth below are the current Corporate Executive Officers of Sony Group Corporation as of June 20, 2023. Refer to “Board Practices” below.
Toshimoto Mitomo | ||
Responsibility as an Officer: Executive Deputy President and CSO, Officer in charge of Intellectual Property, Business Strategy, Business Development and Business Incubation Platform | ||
Date of Birth: January 6, 1963 | ||
Number of Years Served as a Corporate Executive Officer: 1 year | ||
Principal Business Activities Outside Sony: None | ||
Brief Personal History: | ||
April 1985 | Joined the Corporation | |
June 2013 | SVP, Corporate Executive, the Corporation | |
June 2019 | EVP, the Corporation | |
April 2022 | Senior EVP, Corporate Executive Officer, the Corporation | |
April 2023 | Executive Deputy President and CSO, Corporate Executive Officer, the Corporation (present) | |
Shiro Kambe | ||
Responsibility as an Officer: Senior EVP, Officer in charge of Legal, Compliance, Privacy, Corporate Communications, Brand, Sustainability, External Relations, Quality Management, and the Board Secretariat | ||
Date of Birth: December 18, 1961 | ||
Number of Years Served as a Corporate Executive Officer: 9 years | ||
Principal Business Activities Outside Sony: None | ||
Brief Personal History: | ||
April 1984 | Joined the Corporation | |
June 2010 | SVP, Corporate Executive, the Corporation | |
June 2014 | EVP, Corporate Executive Officer, the Corporation | |
June 2020 | Senior EVP, Corporate Executive Officer, the Corporation (present) | |
Kazushi Ambe | ||
Responsibility as an Officer: Senior EVP, Officer in charge of Human Resources, General Affairs, Lead of Group Diversity, Equity & Incubation and the Corporate Executive Office and Sony Group China Representative | ||
Date of Birth: April 23, 1961 | ||
Number of Years Served as a Corporate Executive Officer: 7 years | ||
Principal Business Activities Outside Sony: None | ||
Brief Personal History: | ||
April 1984 | Joined the Corporation | |
October 2001 | Vice President, Sony Ericsson Mobile Communications | |
April 2006 | Senior Vice President, Sony Corporation of America | |
November 2014 | SVP, Corporate Executive, the Corporation | |
June 2016 | EVP, Corporate Executive Officer, the Corporation | |
June 2020 | Senior EVP, Corporate Executive Officer, the Corporation (present) | |
Hiroaki Kitano | ||
Responsibility as an Officer: Senior EVP and CTO, Officer in charge of R&D and AI Collaboration | ||
Date of Birth: March 16, 1961 | ||
Number of Years Served as a Corporate Executive Officer: 1 year | ||
Principal Business Activities Outside Sony: None | ||
Brief Personal History: | ||
April 1984 | Joined NEC Corporation | |
August 1993 | Joined Sony Computer Science Laboratories, Inc. | |
June 2002 | Director, Deputy Head of Research, Sony Computer Science Laboratories, Inc. | |
July 2008 | Director, Head of Research, Sony Computer Science Laboratories, Inc. | |
July 2011 | President and CEO, Sony Computer Science Laboratories, Inc. (present) | |
June 2016 | Corporate Executive, the Corporation | |
June 2018 | SVP, the Corporation | |
April 2020 | CEO, Sony AI Inc. (currently Sony Research Inc.) (present) | |
June 2020 | EVP, the Corporation | |
April 2022 | Senior EVP and CTO, Corporate Executive Officer, the Corporation (present) | |
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Kenichiro Yoshida, Hiroki Totoki, Toshimoto Mitomo, Shiro Kambe, Kazushi Ambe and Hiroaki Kitano are engaged on a full-time basis by Sony Group Corporation. There is no family relationship between any of the persons named above. There is no arrangement or understanding with major shareholders, customers, suppliers, or others pursuant to which any person named above was selected as a Director or a Corporate Executive Officer.
B. | Compensation |
Under the Financial Instruments and Exchange Act of Japan and related regulations, Sony Group Corporation is required to disclose the total remuneration paid by Sony Group Corporation to Directors and Corporate Executive Officers, as well as remuneration of any Director or Corporate Executive Officer who receives total aggregate annual remuneration exceeding 100 million yen from Sony in a fiscal year, on an individual basis. The following table and accompanying footnotes show the information on such matters that Sony Group Corporation has disclosed in its annual Securities Report for the fiscal year ended March 31, 2023 filed on June 20, 2023 with the Director General of the Kanto Local Finance Bureau of the Ministry of Finance in Japan.
(1) Total amounts of remuneration for Directors and Corporate Executive Officers and the number thereof
| Fixed remuneration | Remuneration linked to business results | Stock acquisition rights (*6) | Restricted stock (*8/*9) | Phantom Restricted Stock Plan (*9/*10) | ||||||||||||||||
| Number of persons | Amount (Yen in millions) | Number of persons | Amount (Yen in millions) | Number of persons | Amount (Yen in millions) | Number of persons | Amount (Yen in millions) | Number of persons | Amount (Yen in millions) | |||||||||||
Directors | 8 | 186 | — | — | — | — | 8 | 46 | 1 | 95 | ||||||||||
| (*3) | (*7) | (*11) | ||||||||||||||||||
(Outside Directors) (*1) | (7) | (159) | (—) | (—) | (—) | (—) | (7) | (41) | (—) | (—) | ||||||||||
Corporate Executive Officers | 8 | 574 | 7 | 751 | 6 | 681 | 6 | 1,131 | 1 | 221 | ||||||||||
| (*2) | (*4) | (*5) | (*12) | |||||||||||||||||
Total | 16 | 760 | 7 | 751 | 6 | 681 | 14 | 1,178 | 2 | 316 | ||||||||||
*1 The number of persons does not include two Directors who concurrently serve as Corporate Executive Officers, because Sony Group Corporation does not pay any additional remuneration for services as a Director to Directors who concurrently serve as Corporate Executive Officers.
*2 The number of persons includes two Corporate Executive Officers who resigned on the day of the Ordinary General Meeting of Shareholders held on June 28, 2022.
*3 Sony Group Corporation does not pay remuneration linked to business results to Directors who do not concurrently serve as Corporate Executive Officers.
*4 The number of persons includes one Corporate Executive Officer who resigned on the day of the Ordinary General Meeting of Shareholders held on June 28, 2022.
*5 This is the amount of remuneration linked to business results for the fiscal year ended March 31, 2023 that was paid in June 2023.
*6 This is the amount of expenses Sony Group Corporation recorded during the fiscal year ended March 31, 2023 applicable to the stock acquisition rights that were granted.
*7 Sony Group Corporation does not grant stock acquisition rights to Directors who do not concurrently serve as Corporate Executive Officers.
*8 This is the amount of expenses Sony Group Corporation recorded during the fiscal year ended March 31, 2023 applicable to restricted stock.
*9 Due to rounding, individual sums may not total 100%.
*10 The phantom restricted stock plan referenced above includes the amount which is to be paid to one Director who resigned on the day of the Ordinary General Meeting of Shareholders held on June 20, 2023 and one former Corporate Executive Officer who resigned on March 31, 2023. Sony Group Corporation recorded 69 million yen in expenses during the fiscal year ended March 31, 2023 applicable to the phantom restricted stock plan for Directors and Corporate Executive Officers.
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*11 The amount above is equivalent to points accumulated during the terms of the Director up to the fiscal year ended March 31, 2017, when Sony had granted points under the phantom restricted stock plan to certain Directors.
*12 The amount above is equivalent to points accumulated during the terms of the Corporate Executive Officers from April 2015 to June 2018 and from June 2020 to June 2022.
(2) Amounts of remuneration for Directors and Corporate Executive Officers on an individual basis
Name | Position (*1) | Fixed Remuneration (*2) (Yen in millions) | Remuneration linked to business results (*2) (*3) (Yen in millions) | Phantom restricted stock plan (*2) (Yen in millions) | Total (*2) (Yen in millions) | Granted number of stock acquisition rights (*4) (Ten thousand shares) | Granted number of restricted stock (*5) (Ten thousand shares) | |||||||
Tim Schaaff | Former Director (Until June 20, 2023) | 27 | — | 95 (*6) | 122 | — | 0.1 | |||||||
Kenichiro Yoshida | Director, Chairman, CEO, and Representative Corporate Executive Officer (*7) (*8) | 240 | 411 | — | 651 | 16 | 8.0 | |||||||
Hiroki Totoki | Director, President, COO, CFO, and Representative Corporate Executive Officer (*7) (*8) | 80 | 143 | — | 223 | 5 | 2.5 | |||||||
Shigeki Ishizuka | Former Vice Chairman, Former Representative Corporate Executive Officer (Until March 31, 2023) | 17 | 13 | 221 (*9) | 251 | — | — | |||||||
Toshimoto Mitomo | Executive Deputy President, CSO, and Corporate Executive Officer (*8) | 52 | 49 | — | 101 | 2 | 0.6 | |||||||
Shiro Kambe | Senior Executive Vice President, and Corporate Executive Officer (*8) | 52 | 51 | — | 103 | 2 | 0.6 | |||||||
Kazushi Ambe | Senior Executive Vice President, and Corporate Executive Officer (*8) | 52 | 50 | — | 102 | 2 | 0.6 | |||||||
Hiroaki Kitano | Senior Executive Vice President, CTO and Corporate Executive Officer | 52 (*10) | 49 (*10) | — | 101 (*10) | 2 | 1.0 |
*1 This chart shows remuneration for Directors and Corporate Executive Officers who received, or who became likely to receive, total remuneration exceeding 100 million yen from Sony Group Corporation and its subsidiaries during the fiscal year ended March 31, 2023. Titles are as of the date of submission of this document.
*2 Due to rounding, individual sums may not total 100%.
*3 For the metrics and actual financial results used to determine the amount of remuneration linked to business results, refer to “Corporate Executive Officer remuneration linked to business results for the fiscal year ended March 31, 2023” below.
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*4 The weighted-average fair value per share at the date of grant of stock acquisition rights granted during the fiscal year ended March 31, 2023 was 3,123 yen and was estimated using the Black-Scholes option-pricing model with several assumptions. Refer to Note 21 of the consolidated financial statements for details. The weighted-average fair value per share does not indicate the actual value that would be realized by a Corporate Executive Officer upon the exercise of the above-mentioned stock acquisition rights. The actual value, if any, that is realized by a Corporate Executive Officer upon the exercise of any stock acquisition rights will depend on the extent to which the market value of Sony Group Corporation’s common stock (“Common Stock”) exceeds the exercise price of the stock acquisition rights on the date of exercise, and several other restrictions imposed on the exercise of the stock acquisition rights, including the period when a Corporate Executive Officer could exercise the stock acquisition rights. Accordingly, there is no assurance that the value realized or to be realized by a Corporate Executive Officer upon the exercise of the stock acquisition rights is or will be at or near the weighted-average fair value per share presented above. In addition, the above weighted-average fair value per share was calculated to recognize compensation expense for the fiscal year ended March 31, 2023 for accounting purposes and should not be regarded as any indication or prediction of Sony with respect to its future stock performance.
*5 This indicates the total number of shares of restricted stock granted in the fiscal year ended March 31, 2023 for Directors and Corporate Executive Officers. The issue price per share of restricted stock was 11,586 yen.
*6 As noted above, the amount is equivalent to points accumulated during the terms of the Director up to the fiscal year ended March 31, 2017, when Sony had granted points under the phantom restricted stock plan to certain Directors.
*7 As noted above, Sony Group Corporation does not pay any remuneration for services as a Director to Directors who concurrently serve as Corporate Executive Officers.
*8 Apart from the remuneration contained in the table, Sony Group Corporation also provided certain personal benefits and perquisites, including fringe benefits and in some instances amounts to pay income taxes related to perquisites, totaling 7 million yen to Kenichiro Yoshida, 1 million yen to Hiroki Totoki, 18 million yen to Toshimoto Mitomo, 1 million yen to Shiro Kambe, and 1 million yen to Kazushi Ambe during the fiscal year ended March 31, 2023.
*9 As noted above, the amount is equivalent to points accumulated during the terms of the Corporate Executive Officers from April 2015 to June 2018 and from June 2020 to June 2022.
*10 Remuneration paid to Hiroaki Kitano includes 10 million yen in fixed compensation and 10 million yen in performance-based compensation from Sony Computer Science Laboratories, Inc. and 5 million yen in fixed compensation and 5 million yen in performance-based compensation from Sony Research Inc. (formerly Sony AI Inc.).
(3) Basic policy regarding Director and Senior Executive remuneration
The basic policy regarding remuneration for respective Directors and Senior Executives determined by the Compensation Committee is as follows:
(a) Basic policy regarding Director remuneration
The primary duty of Directors is to supervise the performance of business operations of Sony as a whole. In order to improve this supervisory function over the business operations of Sony, which is a global company, the following two elements have been established as the basic policy for the determination of remuneration of Directors. No Director remuneration is paid to those Directors who concurrently serve as Corporate Executive Officers.
Attracting and retaining an adequate talent pool of Directors possessing the requisite abilities to excel in the global marketplace; and
Ensuring the effectiveness of the supervisory function of Directors.
Based on the above, Director remuneration shall consist of the following components. The amount of each component and its percentage of total remuneration shall be at an appropriate level determined in accordance with the basic policy above and based on research conducted by a third party regarding remuneration of directors of both Japanese and
non-Japanese
companies.- 68 -
Type of remuneration | Description | |
| Fixed remuneration | • The amount of fixed remuneration shall be at an appropriate level determined in accordance with the basic policy above and based on research conducted by a third party regarding remuneration of directors of both Japanese and non-Japanese companies. | |
Stock-based compensation (restricted stock or restricted stock units) | • Restricted stock or restricted stock units (“RSUs”) are granted to further promote shared values between Directors and shareholders and incentivize Directors to develop and maintain a sound and transparent management system. • Any Director to whom restricted stock is granted may not sell or transfer the granted shares during his/her tenure, and in principle, such restriction is to be released when such Director resigns. • In principle, RSUs held by Directors will be vested when he/she resigns, and the Common Stock of the company will then be delivered to the Directors. | |
| Phantom restricted stock plan | • Points determined every year by the Compensation Committee and granted to certain Directors every year during their term in office, with the remuneration amount calculated at the time of resignation by multiplying the Common Stock price (closing price) by the individual’s accumulated points. * Because Sony replaced the phantom restricted stock plan for Directors with restricted stock as from the fiscal year ended March 31, 2018, Sony did not grant new points to Directors during the fiscal year ended March 31, 2023. | |
(b) Basic policy regarding Senior Executive remuneration
Senior Executives are key members of management responsible for executing the operations of Sony as a whole, or their respective businesses of Sony. In order to further improve the business results of Sony, the following two elements have been established as the basic policy for the determination of remuneration of Senior Executives.
Attracting and retaining an adequate talent pool possessing the requisite abilities to excel in the global marketplace; and
Providing effective incentives to improve business results on a short-, medium- and long-term basis.
Based on the above, Senior Executive remuneration shall basically consist of the following components. The amount of each component and its percentage of total remuneration shall be at an appropriate level determined in accordance with the above basic policy and the individual’s level of responsibility and based on research conducted by a third party regarding remuneration of management of both Japanese and
non-Japanese
companies, with emphasis on linking Senior Executive remuneration to business results and shareholder value.Type of remuneration | Description | |
| Fixed remuneration | • The amount of fixed remuneration shall be at an appropriate level determined based on research conducted by a third party regarding remuneration of management of both Japanese and non-Japanese companies, according to his/her responsibility, and in order to maintain competitiveness in recruiting talent. | |
| Remuneration linked to business results | • Structured appropriately and based on appropriate indicators to ensure that such remuneration effectively incentivizes Senior Executives to achieve the medium- to long-term as well as the corresponding fiscal year’s, corporate targets. • Specifically, the amount to be paid to Senior Executives shall be determined based on the level of achievements of the targets of indicators of (1) and (2) below, and can fluctuate, in principle, within the range from 0% to 200% of the standard payment amount (“Business Results Linked Standard Payment Amount”) based on the achievement of the below-mentioned targets. | |
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Type of remuneration | Description | |
(1) Certain key performance indicators linked to consolidated or individual business results of Sony during the corresponding fiscal year, such as Adjusted EBITDA and Adjusted EPS (net income attributable to Sony Group Corporation’s stockholders per share), and which indicators are selected based on the areas for which each Senior Executive is responsible. (2) The individual performance of the area(s) for which each Senior Executive is responsible. • Efforts to accelerate value creation through collaborations among businesses of Sony, sustainability initiatives related to social value creation and ESG and engagement indicators based on employee surveys shall be included in the evaluation factors for individual performance. • The Business Results Linked Standard Payment Amount shall be determined so that such amount is within a certain percentage of the cash compensation (total of the fixed remuneration and the remuneration linked to business results), which percentage shall be determined in accordance with each individual’s level of responsibility. | ||
Stock-based compensation (Stock acquisition rights, and restricted stock or restricted stock units) | • Stock acquisition rights, and restricted stock or RSUs are granted to incentivize Senior Executives to increase mid- to long-term shareholder value.• The exercise of the stock acquisition rights is, in principle, restricted during a one-year period from the allotment date, andone-third of the total number of exercisable stock acquisition rights will be vested and exercisable each year thereafter. (All of the allocated stock acquisition rights will be exercisable on and after three years from the allotment date.)• The Senior Executives to whom restricted stock is granted, in principle, may not sell or transfer the granted stock before the third anniversary date of the Ordinary General Meeting of Shareholders of the fiscal year when the subject restricted stock was granted. • In principle, all RSUs held by the Senior Executives will be vested after three years have passed since the date of grant of the RSUs, and the Common Stock of the company will be delivered to the Senior Executives. • As a general policy, remuneration for a Senior Executive who has greater management responsibility and influence over Sony as a whole has a higher proportion of stock-based compensation, which is directly linked to the corporate value. (Please see below Reference: Executive Compensation Package Design to Focus on Long-Term Management.) • The amount of stock-based compensation shall be determined so that the amount is within a certain percentage of the total cash compensation (total of the fixed remuneration and the remuneration linked to business results) and stock-based compensation. | |
| Phantom restricted stock plan | • Points determined every year by the Compensation Committee shall be granted to Senior Executives every year during his/her tenure, and at the time of resignation, the remuneration amount shall be calculated by multiplying the Common Stock price (closing price) by the individual’s accumulated points. | |
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(Reference: Executive Compensation Package Designed to Focus on Long-Term Management)
The bar chart below shows the components of remuneration for Corporate Executive Officers for the fiscal year ended March 31, 2023. For this chart, the remuneration linked to business results is based on the Business Results Linked Standard Payment Amount for each Corporate Executive Officer. As to the stock-based compensation, the underlying amount is calculated based on the fair value of a stock acquisition right as of the date such stock acquisition right was granted in the fiscal year ended March 31, 2023 and the issue price of the restricted stock when granted. Accordingly, the components of remuneration based on the amounts actually paid will be different from the chart below.
*Due to rounding, individual sums may not total 100%.
(Reference: Stock-based Compensation)
Sony Group Corporation introduced stock acquisition rights, restricted stock and RSUs as forms of stock-based compensation, granted to the Directors and the Senior Executives including Corporate Executive Officers.
The purpose of the stock-based compensation for the
non-executive
Directors including outside Directors is to incentivize these Directors to develop and maintain a sound and transparent management system by further promoting shared values between the shareholders and these Directors. Furthermore, the purpose of the stock-based compensations for the Senior Executives including Corporate Executive Officers is to further reinforce management’s alignment with shareholder value, and to incentivize management to improvemid-
to long- term performance and increase shareholder value.The details of such stock-based compensation, including vesting conditions, recipients and number of grants, are determined or supervised by the Compensation Committee based on research conducted by a third party regarding stock-based compensation of both Japanese and
non-Japanese
companies. In addition, in determining the number of shares or units to be granted, the impact on dilution of the value of the shares of Sony Group Corporation is monitored.(4) Procedures to determine remuneration of Directors and Senior Executives
Based on the policy outlined above, the amount and content of the compensation for each Director and Senior Executive including Corporate Executive Officers are determined by the Compensation Committee or otherwise under the supervision of the Compensation Committee.
Specifically, in principle, as for Directors, each year at the meeting of the Compensation Committee held after the Ordinary General Meeting of the Shareholders, the amount of basic remuneration and the content of compensation for the corresponding fiscal year are determined. Thereafter, at the meeting of the Compensation Committee held after the corresponding fiscal year end, the final amount of compensation of each Director is determined. As for the Senior Executives, each year at the meeting of the Compensation Committee held at the end of the previous fiscal year, in principle, the amount of basic remuneration and the content of compensation for the corresponding fiscal year are determined or supervised. Thereafter, at the meeting of the Compensation Committee held after the corresponding fiscal year end, the final amount of compensation for each Senior Executive is determined or supervised.
For determining the amount of the remuneration linked to business results for each Senior Executive, the Business Results Linked Standard Payment Amount, the targets for the Financial Performance KPIs and the targets for the individual performance of the areas(s) for which each Senior Executive is responsible are determined and thereafter, the amount of such remuneration is determined based on the level of achievement of such targets for the Financial Performance KPIs and the individual performance at the meeting of the Compensation Committee held after the corresponding fiscal year end for Corporate Executive Officers or otherwise under supervision by Compensation Committee for Senior Executives other than Corporate Executive Officers.
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The amount of compensation of each Director and Senior Executive including Corporate Executive Officers for the fiscal year ended March 31, 2023 was also determined by the Compensation Committee or otherwise under supervision by the Compensation Committee according to the procedure above. The Compensation Committee concluded that the amount and content of the compensation was in accordance with the policy set forth in section (3) above.
(5) Corporate Executive Officer remuneration linked to business results for the fiscal year ended March 31, 2023
The Business Results Linked Standard Payment Amount for each Corporate Executive Officer for the fiscal year ended March 31, 2023 was determined to be in the range between 60% and 100% of the amount of the fixed remuneration of such Corporate Executive Officer according to his/her responsibility.
The formula to calculate the amount of the remuneration linked to business results to be paid to Corporate Executive Officers is as follows.
* Business Results Linked Standard Payment Amount: Determined to be in the range between 60% and 100% of the amount of the fixed remuneration of each Corporate Executive Officer.
** Payment rate of the remuneration linked to business results: Determined in principle, within the range from 0 percent to 200 percent based on the achievement of (i) Financial Performance KPIs based on the areas for which each Corporate Executive Officer is responsible and (ii) the individual performance of the area(s) for which each Corporate Executive Officer is responsible.
The financial performance KPIs and the weighting of such financial performance KPIs used for Corporate Executive Officers in the fiscal year ended March 31, 2023 were as follows:
KPI | Weight | Target to be achieved for the fiscal year ended March 31, 2023 (Consolidated) | Result for the fiscal year ended March 31, 2023 (Consolidated) | |||
| Adjusted EBITDA (*1) | 50% | Amount determined in order to achieve the Adjusted EBITDA (defined below) target of 4.3 trillion yen for the three-year period from the fiscal year ended March 31, 2022 | 1,703.4 billion yen | |||
| Adjusted EPS (*2) | 50% | 659.3 yen | 737.06 yen (*3) | |||
Adjusted EBITDA, which is determined as the most important performance KPI under the fourth
mid-range
plan, was selected as a Financial Performance KPI to enhance the growth potential of the entire Sony Group under the fourthmid-range
plan. Adjusted EPS was selected in order to incentivize awareness of shareholder value and capital efficiency.For the target to be achieved for Adjusted EBITDA for the fiscal year ended March 31, 2023, an amount that the Compensation Committee determined as appropriate was set in order to achieve the Adjusted EBITDA target under Sony’s fourth”
mid-range
plan of 4.3 trillion yen for the three-year period from the fiscal year ended March 31, 2022. The target for Adjusted EPS for the fiscal year ended March 31, 2023 was 659.3 yen, which was obtained by dividing the forecast of net income attributable to Sony Group Corporation’s stockholders for the fiscal year ended March 31, 2023, which was disclosed in May, 2022 (830 billion yen) by the number of diluted shares outstanding at the beginning of such fiscal year. The results for the Financial Performance KPIs for the fiscal year ended March 31, 2023 were as follows: Adjusted EBITDA: 1,703.4 billion yen (while net income attributable to Sony Group Corporation’s stockholders for the fiscal year ended March 31, 2023 was 937.1 billion), and Adjusted EPS: 737.06 yen, each exceeding the targeted amount. For reconciliation of Adjusted EBITDA to net income attributable to Sony Group Corporation’s stockholders, refer to “Issues Facing Sony and Management’s Response to those Issues: FourthMid-Range
Plan — Financial Targets and their Progress” in “Item 5.DTrend Information.
As outlined above under “(3) Basic policy regarding Director and Senior Executive remuneration” remuneration linked to business results for Senior Executives for the fiscal year ended March 31, 2023 was determined based on the level of achievement of the indicators which were selected based on the areas of responsibility of the relevant Senior Executive and the individual performance of such areas of responsibility.
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The amounts to be paid to the Senior Executives were, in principle, determined within the range from 0% to 200% of the Business Results Linked Standard Payment Amount. As a result, the ratio of remuneration linked to business results of Corporate Executive Officers for the fiscal year ended March 31, 2023 varied from 155.2% to 178.5% of the Business Results Linked Standard Payment Amount.
*1 “Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization)” = Net income attributable to Sony Group Corporation’s stockholders + Net income attributable to noncontrolling interests + Income taxes + Interest expenses, net, recorded in Financial income and Financial expense — Gain on revaluation of equity instruments, net, recorded in Financial income and Financial expense + Depreciation and amortization expense excluding amortization for film costs, broadcasting rights and internally developed game content and master recordings included in Content assets, as well as for deferred insurance acquisition costs — the profit and loss amount that Sony deems
non-recurring.
*2 “EPS (Earning Per Share)” means net income attributable to Sony Group Corporation’s stockholders per share.
“Adjusted EPS” is calculated by using the value excluding the profit and loss amount that Sony deems
non-recurring
from the value of the net income attributable to Sony Group Corporation’s stockholders.*3 Adjusted EPS result for the fiscal year ended March 31, 2023 is calculated by dividing adjusted net income attributable to Sony Group Corporation’s stockholders for the fiscal year ended March 31, 2023 by diluted weighted average number of shares during the fiscal year. The following table shows a reconciliation of net income attributable to Sony Group Corporation’s stockholders for diluted EPS computation reported in accordance with IFRS to Adjusted EPS for the fiscal year ended March 31, 2023.
Fiscal year ended March 31 | ||||
2023 | ||||
(Yen in billions, yen per share amounts) | ||||
Net income attributable to Sony Group Corporation’s stockholders for diluted EPS computation* | 937.2 | |||
Profit and loss amount that Sony deems non-recurring, including adjustments for income taxes andnon-controlling interests** | (22.2 | ) | ||
Adjusted Net income attributable to Sony Group Corporation’s stockholders for diluted EPS computation | 915.0 | |||
Weighted-average shares for diluted EPS computation (thousands of shares)* | 1,241,377 | |||
Adjusted EPS (yen) | 737.06 | |||
* Refer to Note 26 of the consolidated financial statements.
** This amount is calculated by subtracting the tax effect of 5.6 billion yen from 27.8 billion yen, the total amount of profit and loss that Sony deems.”
non-recurring,
included in income before income tax. For further information about the profit and loss amount that Sony deemsnon-recurring,
refer to “Issues Facing Sony and Management’s Response to those Issues: FourthMid-Range
Plan — Financial Targets and their Progress” in “Item 5.Operating and Financial Review and Prospects
C. | Board Practices |
General
Sony Group Corporation continuously strives to strengthen its corporate governance system based on the understanding that corporate governance is an essential basis to promote our management in order to fulfill the company’s corporate social responsibility and increase corporate value over the
mid-
to long-term. To operate Sony effectively, Sony Group Corporation continues to approach its corporate governance through two basic precepts: (a) the Board of Directors (the “Board”), a majority of which is comprised of independent outside Directors, focuses on effective oversight of management’s operation of the business and maintains a sound and transparent governance framework by utilizing the Nominating Committee, the Audit Committee and the Compensation Committee; and (b) the Board determines Sony’s fundamental management policies and other material matters and delegates to the Senior Executives (including Corporate Executive Officers), who assume important roles for the management of Sony, decision-making authority to conduct Sony’s business operations broadly in line with their respective responsibilities, as defined by the Board, with a view to promoting timely- 73 -
and efficient decision-making within Sony. In furtherance of these efforts, Sony Group Corporation has adopted a “Company with Three Committees” corporate governance system under the Companies Act of Japan () and related regulations (collectively the “Companies Act”). Under this system, Sony Group Corporation has introduced its own requirements to help improve and maintain the soundness and transparency of its governance by strengthening the separation of the Directors’ function from that of management; maintaining what the company believes is an appropriate Board size, which enables the members of the Board to actively contribute to discussion; and advancing the proper functioning of the statutory committees.
Kaishaho
Sony Group Corporation is governed by the Board, the members of which are elected at the Ordinary General Meeting of Shareholders. Under the Companies Act, a “Company with Three Committees” is required to have three committees: a Nominating Committee, an Audit Committee and a Compensation Committee, each consisting of Directors appointed by the Board. The Companies Act also requires the Board to appoint Corporate Executive Officers (), who make decisions regarding the execution of Sony’s business activities within the scope of the authority delegated to them by the Board. Sony Group Corporation has appointed its Chief Executive Officer (“CEO”), who is responsible for Sony’s overall management, and other officers who are responsible for important and extensive headquarters functions as Corporate Executive Officers. Sony Group Corporation has also appointed Corporate Executive Officers, including the CEO and other executives, that assume important roles for the management of Sony as Senior Executives. In addition, Sony grants titles, such as Senior Executive Vice President, Executive Vice President and Senior Vice President, to management team members in accordance with their respective roles and responsibilities.
Shikko-yaku
A summary of the governance system adopted by Sony Group Corporation is set forth below. For an explanation of the significant differences between the NYSE’s corporate governance standards and Sony’s corporate governance practices, refer to “Item 16G..”
Corporate Governance
Board of Directors
(1) Members: 10 Directors including 78 outside Directors (as of June 28, 2022)20, 2023)
Name | Position | |
Kenichiro Yoshida | Director | |
Hiroki Totoki | Director | |
Chairman of the Board Outside Director | ||
Toshiko Oka | Outside Director | |
Sakie Akiyama | Outside Director | |
Wendy Becker | Outside Director | |
Keiko Kishigami | Outside Director | |
Joseph A. Kraft Jr. | Outside Director | |
Neil Hunt | Outside Director | |
William Morrow | Outside Director | |
Under the Companies Act, the term of office of Directors expires at the conclusion of the Ordinary General Meeting of Shareholders held with respect to the last business year ending within one year after their election.
(2) Purpose/Authority
The primary roles of the Board are to: (a) determine Sony’s fundamental management policies; (b) oversee the management of Sony’s business operations as an entity independent from Sony’s management; (c) appoint and dismiss the statutory committee members; (d) appoint and dismiss Corporate Executive Officers and oversee the status of appointment/dismissal of Senior Executives other than Corporate Executive Officers; and (e) appoint and dismiss Representative Corporate Executive Officers.
For the matters to be decided by the Board and the matters to be reported to the Board, refer to Appendices 1 and 2 of the Charter of the Board of Directors (the “Board Charter”) attached as Exhibit 1.3 hereto.
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(3) Policy Regarding Composition of the Board
With a view toward securing effective input and oversight by the Board, the Nominating Committee reviews and selects candidates for the Board with the aim of assuring that a substantial part of the Board is comprised of qualified outside Directors that satisfy the independence requirements established by Sony and by law. The Nominating Committee selects candidates that it views as well-suited to be Directors in light of the Board’s purpose of enhancing Sony’s corporate value. The Nominating Committee broadly considers various relevant factors, including a candidate’s capabilities (such as the candidate’s work and other experience, achievements and expertise), availability, and independence, as well as diversity, including gender and internationality, in the boardroom, the appropriate size of the Board, and the knowledge, experience and talent needed for the role. Under the Board Charter, Sony Group Corporation also requires that the Board consist of not fewer than 8 Directors and not more than 14 Directors. In addition, since 2005 the majority of the members of the Board have been outside Directors.
(4) Qualifications for Directors and Limitation of
Re-election
The qualifications for Directors of Sony Group Corporation under the Board Charter are generally as summarized below. As of June 28, 2022,the date of this report, all Directors satisfy the qualifications for Directors as set forth below, and all outside Directors satisfy the additional qualifications for outside Directors and are also qualified and designated as Independent Directors under the Securities Listing Regulations of the TSE. All Directors must meet the qualifications below:
| (a) | He/she shall not be a director, a statutory auditor, a corporate executive officer, a general manager or other employee of any company in competition with Sony in any of Sony’s principal businesses (a “Competing Company”) or own 3% or more of the shares of any Competing Company. |
| (b) | He/she shall not be or have been a representative partner or partner of Sony’s independent auditor the past three years before being nominated as a Director. |
| (c) | He/she shall not have any connection with any matter that may cause a material conflict of interest in performing the duties of a Director. |
Outside Directors must meet the additional qualifications below:
| (a) | He/she shall not have received directly from Sony, during any consecutive twelve-month period within the last three years, more than an amount equivalent to U.S. $120,000, other than Director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service). |
| (b) | He/she shall not be an executive director, corporate executive officer, general manager or other employee of any company whose aggregate amount of transactions with Sony, in any of the last three fiscal years, exceeds the greater of an amount equivalent to U.S. $1,000,000, or 2% of the annual consolidated sales of such company. |
For additional requirements for outside Directors under the Companies Act, refer to “Item 16G.Disclosure About Differences in Corporate Governance”.
Also, each outside Director may by resolution of the Nominating Committee, be nominated as a Director candidate fortimes.times (nine years, in total).
re-election
up to five times (six years, in total), and thereafter by resolution of the Nominating Committee and by consent of all of the Directors. Even with the consent of all of the Directors, in no event may any outside Director bere-elected
more than eight (5) Matters related to Outside Directors
Sony Group Corporation expects that each outside Director playplays an important role in ensuring proper business decisions by Sony and effective input and oversight by the Board through actively exchanging opinions and having discussions about Sony’s business based on his or her various and broad experience, knowledge and expertise. Considering these expectations, the policy and procedures on the election of Director candidates, including independent outside Director candidates, are set forth as described above. As of June 28, 2022,the date of this report, the Board has 10 Directors, seveneight of whom are outside Directors. The Chairman of the Board and the Vice Chairman of the Board areis an outside Directors;Director; all members of the Nominating Committee, the Compensation Committee and the Audit Committee are outside Directors.
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Pursuant to the Articles of Incorporation, Sony Group Corporation has entered into a liability limitation agreement with allnon-executiveDirectors including outside Directors. A summary of such liability limitation agreement is as follows:
| (i) | In a case where |
| (ii) | In a case where re-assumption without any action or formality. |
In addition, Sony Group Corporation has a directors and officers liability insurance policy covering all Directors as insured parties. For an outline of the directors and officers liability insurance policy, refer to “”.
Outline of the Terms of Directors and Officers Liability Insurance Policy
(6) Policy and Procedure for Selection and Dismissal of Senior Executives
Sony Group Corporation appoints Corporate Executive Officers including the CEO and other officers that assume important roles for the management of Sony as “Senior Executives.”
The Board has the authority to appoint and dismiss and assign the roles and responsibilities of, or to request a report regarding such matters for Senior Executives, including the CEO, and exercises such authority as
necessary. In making decisions on the appointment of Corporate Executive Officers, including the CEO, the Board considers whether candidates for CEO meet certain qualifications for the CEO position which are set by the Nominating Committee and whether candidates for other Corporate Executive Officer positions have the necessary skills, capabilities, experiences and achievements that correspond to such Corporate Executive Officers’ expected roles and responsibilities. The Board also receives a report on the status of appointment and dismissal of Senior Executives other than Corporate Executive Officers.
The term of office of Senior Executives, including the CEO, is one year. The Board discusses, determines and/or oversees their
re-appointment
upon the expiration of each term considering the factors described above as well as their latest performance. The Board dismisses a Corporate Executive Officer, as necessary, in the event that the Board recognizes such Corporate Executive Officer is disqualified after discussions amongst the members of the Board or the Nominating Committee, even in the middle of the term for such Corporate Executive Officer.Nominating Committee
| (1) | Members: 3 outside Directors (as of June |
Name | Position | |
Chair of the Nominating Committee (Outside Director) | ||
Nominating Committee Member (Outside Director) | ||
Wendy Becker | Nominating Committee Member (Outside Director) | |
(2) Purpose/Authority
The primary roles of the Nominating Committee are to: (a) determine the content of proposals regarding the appointment/dismissal of Directors to be submitted for approval at a General Meeting of Shareholders and (b) evaluate management succession plans, which the CEO develops, for the CEO and other executives designated by the Nominating Committee.
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The Nominating Committee determines the content of proposals regarding the appointment and dismissal of Directors, considering the policy on composition of the Board, the qualifications for Directors and the limitation of
re-election
of Directors described above.(3) Policy Regarding Composition of the Nominating Committee
Under the Companies Act, the Nominating Committee shall consist of at least three Directors, the majority of whom shall be outside Directors. In addition, under the Board Charter, the chair is to be selected from among the outside Directors. In determining whether to appoint or remove a member of the Nominating Committee, continuity of the Nominating Committee shall be duly taken into account. As of June 28, 2022,the date of this report, the Nominating Committee is comprised of three outside Directors.
(4) Management Succession Plans
The Nominating Committee evaluates the succession plans, and the implementation of such plans, for the CEO and other executives designated by the Nominating Committee and reports the results of its evaluation to the Board, as appropriate.
Evaluations are conducted by having the CEO periodically submit draft succession plans to the Nominating Committee, which it reviews. As a part of such review, the Nominating Committee considers the development or promotion of the next generation of management and evaluates whether the succession plans have been prepared in a reasonable manner in light of Sony’s purpose to create sustainable social value and to enhance corporate value over the
mid-
to long-term.Audit Committee
(1) Members: 3 outside Directors (as of June 28, 2022)20, 2023)
Name | Position | |
Toshiko Oka | Chair of the Audit Committee (Outside Director) | |
Keiko Kishigami | Audit Committee Member (Outside Director) | |
Joseph A. Kraft Jr. | Audit Committee Member (Outside Director) | |
(2) Purpose/Authority
The primary roles of the Audit Committee are to: (a) monitor the performance of duties by Directors and Corporate Executive Officers and (b) oversee and evaluate the independent auditor.
(3) Policy Regarding Composition of the Audit Committee
Under the Companies Act, the Audit Committee shall consist of at least three Directors, the majority of whom shall be outside Directors. In addition, under the Board Charter, each member of the Audit Committee (“Audit Committee Member”) shall satisfy all of the following qualifications: (a) he/she shall not be a Director engaged in the business operations of Sony Group Corporation or any of its subsidiaries, a Corporate Executive Officer, an accounting counselor, a general manager or other employee of Sony and (b) he/she shall meet the independence requirements or such other equivalent requirements of the U.S. securities laws and regulations as may from time to time be applicable to Sony Group Corporation. The chair is to be selected from among the outside Directors. The Audit Committee Members shall be selected from among the persons who possess appropriate experience and talent as well as the necessary finance, accounting and legal knowledge to serve on the Audit Committee. In determining whether to appoint or remove the Audit Committee Member, continuity of the Audit Committee shall be duly taken into account.
Moreover, at least one Audit Committee Member shall meet the audit committee financial expert requirements or such other equivalent requirements of the U.S. securities laws and regulations as may from time
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to time be applicable to Sony Group Corporation. The Board makes a determination on whether or not such Audit Committee Members meet these requirements. As of June 28, 2022,the date of this report, the Audit Committee is comprised of three outside Directors, two of whom (Toshiko Oka and Keiko Kishigami) are “audit committee financial experts” within the meaning of Item 16A of Form
20-F
under the Exchange Act, as amended.(4) Policy on Selection of Independent Auditor Candidates and Independence of the Independent Auditor
With respect to the candidates for independent auditor nominated by the CEO and other Corporate Executive Officers, the Audit Committee evaluates the nomination, prior to making a decision on the candidates. The Audit Committee continues to evaluate the independence, the qualification and the reasonableness as well as the performance of the independent auditor so appointed.
Compensation Committee
(1) Members: 3 outside Directors (as of June 28, 2022)20, 2023)
Name | Position | |
Wendy Becker | Chair of the Compensation Committee (Outside Director) | |
Sakie Akiyama | Compensation Committee Member (Outside Director) | |
Compensation Committee Member (Outside Director) | ||
(2) Purpose/Authority
The primary roles of the Compensation Committee are to: (a) set policy on the content of individual compensation for Directors, Corporate Executive Officers and other officers and (b) determine the amount and content of individual compensation of Directors and Corporate Executive Officers in accordance with the policy, and oversee the determination regarding the amount and content of individual compensation of Senior Executives other than Corporate Executive Officers.
For the basic policy regarding Director and Corporate Executive Officer compensation, refer to “Item 6B. Compensation”.
(3) Policy Regarding Composition of the Compensation Committee
Under the Companies Act, the Compensation Committee shall consist of at least three Directors, the majority of whom shall be outside Directors. In addition, under the Board Charter, a Director who is a CEO, a Chief Operating Officer (“COO”) or a Chief Financial Officer (“CFO”) of Sony Group Corporation or who holds any equivalent position shall not be a member of the Compensation Committee. In determining whether to appoint or remove a member of the Compensation Committee, continuity of the Compensation Committee shall be duly taken into account. As of June 28, 2022,the date of this report, the Compensation Committee is comprised of three outside Directors.
Senior Executives (Corporate Executive Officer, Senior Executive Vice President and Executive Vice President)
(1) Total number of Senior Executives: 1815 (including 6 Corporate Executive Officers) (as of June 28, 2022)20, 2023)
(2) Purpose/Authority
The primary roles of Senior Executives are to determine and execute Sony’s business activities in accordance with their roles and responsibilities.
(3) Delegation of Authority from the Board
The Board determines the fundamental management policies and other material matters related to the operation of Sony’s business. The Board assigns the duties of Corporate Executive Officers, including the CEO,
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by determining the areas over which each Corporate Executive Officer is in charge and by determining the scope of Senior Executives. Then, it delegates its decision-making authority to the CEO with a view to promoting timely and efficient decision-making within Sony. The CEO further subdelegates a part of such authority to other Senior Executives.
Other Officers (Senior Vice President)
(1) Total number of other officers: 810 (as of June 21, 2022)20, 2023)
(2) Purpose/Authority
The primary roles of other officers are to carry out their assignments within designated areas, such as headquarters functions and/or research and development,R&D, in accordance with the fundamental policies determined by the Board and Senior Executives.
Outline of the Terms of Directors and Officers Liability Insurance Policy
Sony Group Corporation has, at its expense throughin respect of insurance premiums, entered into a directors and officers liability insurance policy for all Directors, Corporate Executive Officers, corporate auditors, and persons in equivalent positions (the “Executives”) of itself and its subsidiaries over which Sony Group Corporation has a direct or indirect ownership more than 50%. The outline of the terms of such directors and officers liability insurance policy is as follows:
| (i) | The insurance policy covers compensation for damages, litigation costs (including attorney’s fees) and other costs that may be incurred by the Executives as a result of assuming responsibility for the execution of their duties or receiving claims related to such responsibility. |
| (ii) | As a measure to ensure the appropriateness of the execution of duties by the Executives, there are certain exemptions, such as in the case of an act committed by the Executives with the knowledge that it constitutes a violation of laws or regulations. |
Support for Activities of Directors, the Board and the Committees
Sony Group Corporation engages in various activities to enhance the oversight function of the Board over management’s operation of Sony’s business as follows:
(1) Outside Director Initiatives
The Chairman of the Board, who is elected from among those Directors that are not also the Representative Corporate Executive Officer, and the Chairmanan outside Director, leads the Board’s activities and secures the appropriate cooperation, communication and arrangement among outside Directors and Senior Executives. ForAs an example of such initiatives, the Board conducted outside Directors’ meetings have been held, generally on the same day as each Board Meeting, was held.for the purpose of exchanging information and sharing information with respect to recognized issues among outside Directors. The Board also conducted Directors’ corporate strategic workshops with management, business site visits by Directors, and meetings ofwith the Chairman and the CEO. All of these activities were aimed at securing better understanding by outside Directors of Sony’s business and management’s initiativeschallenges and encouraging corporate strategic discussions among Directors. In September 2022, the Directors visited the Kumamoto Technology Centre of SSS located in Kumamoto Prefecture, Japan, where they observed manufacturing lines of image sensor products and discussed with the image sensor business’s management the current challenges and future strategies of the business. At a workshop held over two days in December 2022, through direct dialogue with executives in charge of Sony’s main business segments, the Directors intensively discussed a variety of matters, including the business environment and challenges surrounding each of Sony’s businesses and corresponding strategies, as well as Sony’s internal and external conditions related to sustainability and geopolitical risks, which are becoming increasingly important, in addition to Sony’s business portfolio.
(2) Secretariat Offices for the Board and each Committee
The company has established the secretariat offices of the Board and each Committee to support the activities of the members and encourage constructive and proactive discussion at the meetings of the Board and each Committee. Each secretariat office endeavors to distribute necessary materials for the meetings in advance and to provide other information such as accounting information, organizational charts, press releases, external analyst reports and credit rating reports, as appropriate. Each secretariat office explains the meeting agenda to the members and provides them with presentation materials in advance of each meeting date and facilitates deliberation in separate meetings or briefing sessions depending on the nature of matters to be discussed. Each
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secretariat office also provides the absent members with a follow up briefing, as appropriate. In addition, each secretariat office shares the annual schedule of the meetings and anticipated agenda items in advance with the members in order to appropriately set the frequency of meetings and the number of agenda items to be deliberated at each meeting.
(3) Provision of Necessary Information
When the company is requested to provide additional information, each secretariat office endeavors to provide the members such information promptly. Also, each secretariat office verifies appropriately whether requested information is provided smoothly. In the event that the members consult with external specialists, participate in various seminars and so on to perform their duties, the costs and expenses in connection with such activities are borne by the company in accordance with applicable internal rules.
(4) Audit Committee Aide
With the approval of the Board and with the Audit Committee’s consent, the company has established the Audit Committee Aide to support the activities of the Audit Committee. The Audit Committee Aide does not concurrently hold positions related to the business operations of Sony and, upon instruction by each Audit Committee member, conducts investigations into and analyzes auditing matters and engages in physical inspections or visiting audits either by him/herself or by cooperating with relevant departments in order to support the Audit Committee.
(5) Policy on Director Training
Newly appointed Directors receive briefings by Senior Executives and outside experts regarding their expected roles and responsibilities, including their legal duties as a Director or as a member of the Committees, as well as briefings about the business, financial status, organization and governance structure of Sony. Also, throughout their tenure, each Director receives compliance-related training in accordance with internal protocols and briefings on matters relevant to each Director’s fulfillment of his/her roles and responsibilities including the current status of Sony’s business.
Evaluation of the Board and the Committees’ Effectiveness
(1) Policy for Evaluation
Sony Group Corporation believes that it is important to endeavor to improve the effectiveness of the Board and each Committee in order to support Sony’s business operations and enhance the corporate value of Sony. To achieve this goal, Sony Group Corporation conducts evaluations of the effectiveness of the Board and of each Committee (the “Evaluation”) at least annually.
(2) Recent Evaluation
From February through May 2022,April 2023, under the leadership of the Chairman and the Vice Chairman of the Board, the Board conducted the Evaluation mainly in respect of Board and Committee activities in the fiscal year ended March 31, 20222023 after confirming that actions proposed in response to the results of the previous Evaluation were appropriately taken. The recent Evaluation was conducted, as the company did with the previous Evaluation, with the support of a third-party outside counsel with expertise in Japanese and global corporate governance practices (the “Outside Counsel”) in order to ensure transparency and objectivity and to obtain professional advice.
(3) Procedure of the Recent Evaluation
First, the Board discussed and confirmed that the actions proposed to be taken in response to the results of the previous Evaluation were taken, and it discussed and confirmed the proposed procedures for the Evaluation for the fiscal year ended March 31, 2022.2023. Thereafter, the third-party evaluation was conducted by the Outside Counsel in accordance with the following steps:
Reviewed relevant material, such as the minutes of Board meetings, and attended a Board meeting;
Confirmed with the Board secretariat office and each Committee’s secretariat office how meetings of the Board and Committees were conducted;
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Gathered responses to a questionnaire from each Director about the current status and practices of the Board and each Committee, such as the composition of the Board, operation of the Board, commitments of each Director, activities of each Committee and procedures of the previous Evaluation;
Interviewed all the Directors including
through
Researched other global companies’ practices in Japan, the United States and Europe, and compared them with the company’s practices.
The Board then received, reviewed and discussed the Outside Counsel’s report on the results of its evaluation. The Board confirmed the effectiveness of the Board and the Committees.
* Peer Review: Mutual evaluation by Directors. We conducted the Evaluation through interviews in the presence of the Chairman or Vice Chairman of the Board.
(4) Summary of the Results of the Recent Evaluation
Based on the following findings, the Outside Counsel reported that, as assessed in the previous Evaluation, the Board is established and operated in a manner sufficient to be highly regarded, based on various points, including the self-evaluationevaluated:
The results of the questionnaire and interviews show that many Directors rate the effectiveness of the Board highly overall.
Outward factors such as the composition of the Board are comparable with global companies in Europe and North America as well as Japan.
In addition, the Peer Review was conducted in the fiscal year ended on March 31, 2023, and the comparison with benchmarked companiesinvolvement of the Board in Japan, the United Statesprocess of appointment of the new president was appropriate.
The Board also received a favorable assessment on its response to the suggestions made by the Outside Counsel in the previous Evaluation and Europe. on its overall operations.
Following discussiondiscussions and analysis based on the Outside Counsel’s report, the BoardMay 2022.April 2023.
re-affirmed
that the Board and each Committee were functioning effectively as of The Outside Counsel also provided examples of potentialsuggested several possible options based on other companies’ practices, to help further improve effectiveness offor the Board and Committees. The examples include conducting mutual evaluation among Directors (peer review), enhancing the involvement by the Board in sustainability and risk management, and conducting deeper discussion regarding Board succession at Board meetings.Committees to further improve their own effectiveness.
(5) Actions in Response to the Results of the Evaluation
In order to increase the corporate value of Sony, Sony Group Corporation will take appropriate actions to further enhance functions of the Board and the Committees in response to the results of the Evaluation, as well as various comments and opinions given by Directors and the Outside Counsel during the Evaluation process.
For reference, after the previous Evaluation conducted from February through April 2021,May 2022, Sony Group Corporation took the following actions, among others, to help improve the effectiveness of the Board:
Continuously made periodic reports to the Board on sustainability including ESG (Environment Social and Governance)Social) related matters;
Enhanced Board’s supervision over risks regarding economic securitygeopolitics and geopolitics;information security;
Internal Control and Governance Framework
At a Board meeting held on April 26, 2006, the Board reaffirmed the internal control and governance framework in effect as of the date of determination and determined to continue to evaluate and improve such framework going forward, as appropriate. At a Board meetingmeetings held on May 13, 2009 and April 30, 2015, the Board amended and updated the internal control and governance framework, and at a Board meeting held on May 10, 2022,April 28, 2023, the Board reaffirmed that such framework was in effect and determined to continue to evaluate and improve such framework going forward, as appropriate. These determinations were required by and met the requirements of the Companies Act.
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A summary of the principal framework of the internal control and governance framework based on the Board determination above is as follows:
(1) Disclosure Control Framework
The securities of Sony Group Corporation are listed for trading on exchanges in Japan and the U.S. As a result, Sony is obligated to make various disclosures to the public in accordance with applicable securities laws,
regulations and rules in those countries and listing standards of the stock exchanges on which Sony Group Corporation’s shares are listed. Sony is committed to full compliance with all requirements applicable to its public disclosures. Sony Group Corporation’s policy on investor relations activities is to aim to disclose accurate information in a timely and fair manner, as well as to endeavor to promote constructive dialogue with shareholders and investors, with a view to maximizing the corporate value by building a relationship of trust with shareholders and investors. Sony Group Corporation has established disclosure controls and procedures as an approach to implement this policy. All personnel responsible for the preparation of submissions to and filings with the TSE, the SEC and other regulatory entities, or for other public communications made on behalf of Sony, or who provide information as part of that process, have a responsibility to ensure that such disclosures and information are full, fair, accurate, timely and understandable, and in compliance with the established disclosure controls and procedures.
Sony Group Corporation has established “Disclosure Controls and Procedures” outlining the process through which potentially material information is reported from important business units, subsidiaries, affiliated companies and corporate divisions and is reviewed and considered for disclosure in light of its materiality to Sony. As a body to assist the CEO and the CFO of Sony Group Corporation in designing, implementing and evaluating the Disclosure Controls and Procedures, Sony Group Corporation has established the “Disclosure Committee,” which is comprised of members of senior management who are in charge of a part of Sony’s headquarters functions. In order to assure appropriate and timely disclosure, the Disclosure Committee shall evaluate events that are reported from the important business units, subsidiaries, affiliated companies and corporate divisions in accordance with Sony’s internal rules in light of their materiality to Sony. Based on such evaluation, the Disclosure Committee shall review the necessity of disclosure in accordance with applicable securities laws, regulations and rules, as well as the listing standards of the relevant stock exchanges, and report to the CEO and CFO for their determination.
(2) Risk Management Framework
Each business unit, subsidiary/affiliated company and corporate division of Sony periodically reviews and assesses risks and establishes and maintains necessary risk management systems (such as detection, communication, evaluation and response) for the area for which they are responsible. In addition, Senior Executives, including the Corporate Executive Officers, of Sony Group Corporation have established and currently maintain a system to identify and control risks that may cause losses to Sony regarding the areas offor which they are responsible. The Corporate Executive Officer in charge of group risk control shall comprehensively promote and manage the establishment and maintenance of the systems as stated above.
Details of Actions Taken by the Board and the Committees
(1) Details of Actions Taken by the Board
During the fiscal year ended on March 31, 2023, the Board convened 9 times. The attendance records of respective Directors are as follows.
Name *2 | Meeting Records *1 | Attendance Records *1 | ||
Kenichiro Yoshida | 9 Times | 9 Times (100%) | ||
Hiroki Totoki | 9 Times | 9 Times (100%) | ||
Shuzo Sumi | 9 Times | 9 Times (100%) | ||
Yoshihiko Hatanaka | 9 Times | 9 Times (100%) | ||
Tim Shaaff | 9 Times | 9 Times (100%) | ||
Toshiko Oka | 9 Times | 9 Times (100%) | ||
Sakie Akiyama | 9 Times | 9 Times (100%) | ||
Wendy Becker | 9 Times | 9 Times (100%) | ||
Keiko Kishigami | 9 Times | 9 Times (100%) | ||
Joseph A. Kraft Jr. | 9 Times | 9 Times (100%) | ||
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*1 The numbers of the Meeting Records and the Attendance Records are those applicable to the fiscal year ended on March 31, 2023.
*2 Shuzo Sumi and Tim Shaaff, who were Directors during the fiscal year ended on March 31, 2023, retired as Directors at the conclusion of the Ordinary General Meeting of Shareholders on June 20, 2023. Accordingly, Neil Hunt and William Morrow were newly appointed as Directors at the Ordinary General Meeting of Shareholders on June 20, 2023.
During the fiscal year ended on March 31, 2023, the Board of Directors discussed a variety of matters, such as supervision of the progress of the fourth mid-range plan, formulation of a business plan for the fiscal year ending on March 31, 2024, enhancement of Sony’s management structure (including the appointment of Hiroki Totoki as President, COO and CFO), Sony’s business portfolio, strategically important M&A and capital investments, effectiveness of internal control (including the ethics and compliance program and information security), approach to new risks (including geopolitical risks), and Sony’s situation and initiatives related to sustainability and environment as well as Sony’s strategy related to new technologies (including generative AI).
(2) Details of Actions Taken by the Nomination Committee
During the fiscal year ended on March 31, 2023, the Nomination Committee convened 5 times. The attendance records of respective Directors are as follows.
Name | Meeting Records *1 | Attendance Records *1 | ||
Shuzo Sumi *2 | 5 Times | 5 Times (100%) | ||
Yoshihiko Hatanaka | 5 Times | 5 Times (100%) | ||
Wendy Becker | 5 Times | 5 Times (100%) | ||
*1 The numbers of the Meeting Records and the Attendance Records are those applicable to the fiscal year ended on March 31, 2023.
*2 Shuzo Sumi, who was a member of the Nomination Committee during the fiscal year ended on March 31, 2023, retired both as a Director and a member of the Nomination Committee at the conclusion of the Ordinary General Meeting of Shareholders on June 20, 2023. Accordingly, Toshiko Oka was newly appointed as a member of the Nomination Committee pursuant to the resolution at the Board meeting held on June 20, 2023.
During the fiscal year ended on March 31, 2023, the matters given consideration by the Nominating Committee included policies on selecting outside Director candidates, exploring Director prospects, and CEO succession. In addition, the Nominating Committee assessed succession plans for Senior Executives with key management responsibilities for individual business units and headquarters functions, based on management, including CEO, reports. With respect to the selection of candidates for outside Directors, as a priority item for the current fiscal year, the Nominating Committee confirmed the policy that candidates for outside Directors should be selected from persons who have experience as CEOs of major global companies, backgrounds in technology and/or knowledge of the entertainment industry, and the Nomination Committee held discussions based on such policy. As a result, two new outside Director candidates were appointed based on this policy. Regarding the appointment of Senior Executives, Kenichiro Yoshida, Representative Corporate Executive Officer, Chairman, President and CEO, proposed to the Nominating Committee that Hiroki Totoki, Representative Corporate Executive Officer, Executive Deputy President and CFO, assume the position of President, COO and CFO. After a multifaceted review and discussion, including interviews by the Nominating Committee members, the proposal was shared with the outside Directors other than the Nominating Committee members and confirmed.
(3) Details of Actions Taken by the Audit Committee
During the fiscal year ended on March 31, 2023, the Audit Committee convened 6 times. The attendance records of respective Directors are as follows.
Name | Meeting Records *1 | Attendance Records *1 | ||
Toshiko Oka | 6 Times | 6 Times (100%) | ||
Keiko Kishigami | 6 Times | 6 Times (100%) | ||
Joseph A. Kraft Jr. | 6 Times | 6 Times (100%) | ||
*1 The numbers of the Meeting Records and the Attendance Records are those applicable to the fiscal year ended on March 31, 2023.
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Specific considerations by the Audit Committee include review of audit plans in
three-way
audits, identification and audit of priority audit items for each fiscal year, review of financial results and disclosure documents related to financial results, review of development and operation of internal control systems, audit of financial reports and SOX404-related
activities, audit of internal audit activities, review of the content and process for determining the compensation of the independent auditors, audit of the appropriateness of audit by the independent auditors and evaluation of the independent auditors. In addition to these, the Audit Committee held interviews with Senior Executives to receive reports on matters such as the recognition of issues and the status of risk management in the respective areas of responsibility of each business and headquarter function, and engaged in dialogue.The priority audit items for the fiscal year ended on March 31, 2023 were disclosure of
non-financial
information and risk management. Through audit activities conducted in cooperation with the internal audit division and the divisions of the Sony Group responsible for internal control, the Audit Committee was informed about the latest trends in Japan and overseas regarding the disclosure ofnon-financial
information such as climate change disclosure and risk management such as information security, and confirmed the status of internal responses.(4) Details of Actions Taken by the Compensation Committee
During the fiscal year ended on March 31, 2023, the Compensation Committee convened 5 times. The attendance records of respective Directors are as follows.
Name | Meeting Records *1 | Attendance Records *1 | ||
Wendy Becker | 5 Times | 5 Times (100%) | ||
Yoshihiko Hatanaka *2 | 5 Times | 5 Times (100%) | ||
Sakie Akiyama | 5 Times | 5 Times (100%) | ||
*1 The numbers of the Meeting Records and the Attendance Records are those applicable to the fiscal year ended on March 31, 2023.
*2 Yoshihiko Hatanaka, who was a member of the Compensation Committee during the fiscal year ended on March 31, 2023, retired as a member of the Compensation Committee on June 20, 2023. Accordingly, William Morrow was newly appointed as a member of the Compensation Committee pursuant to the resolution at the Board meeting held on June 20, 2023.
The specific matters given consideration by the Compensation Committee included the Corporation’s policy regarding the determination of individual remuneration for Directors and Senior Executives, including Corporate Executive Officers, for each fiscal year, and the amount and content of such remuneration. The Committee also considered the total number of stock acquisition rights to be issued for the purpose of granting stock options to Corporate Executive Officers, employees of the Corporation, Directors and other officers of the Corporation’s subsidiaries, and other stock-based compensation utilizing shares of the Corporation’s stock. In the fiscal year ended March 31, 2023, the Corporation newly introduced RSUs for the purpose of giving the recipients an incentive to contribute towards the improvement of the business performance of the Sony Group, and the Committee confirmed and discussed the scope of and plans for the recipients and the decision-making authority for the grant of RSUs. For the fiscal year ending March 31, 2024 and beyond, the Committee conducted a comprehensive review and discussion on the ideal KPIs for remuneration linked to business results and the ideal governance of executive compensation, with consideration of other companies’ trends and regulatory developments in Japan and other countries.
D. | Employees |
As of March 31, 2023, Sony had approximately 113,000 employees, an increase of approximately 4,100 employees from March 31, 2022. During the fiscal year ended March 31, 2023, although there was a decrease of employees mainly in the ET&S segment (outside of Japan) due to closure of manufacturing sites in Malaysia, employees of the G&NS, I&SS, and Pictures (outside of Japan) segments increased due to the expansion of these businesses, including through mergers and acquisitions. Approximately 9% of the total number of employees were members of labor unions.
As of March 31, 2022, Sony had approximately 108,900 employees, a decrease of approximately 800 employees from March 31, 2021. During the fiscal year ended March 31, 2022, although there was an increase of
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employees mainly in the I&SS, Music (outside of Japan) and G&NS (outside of Japan) segments, there was a decrease of employees in the EPET&S segment (outside of Japan) and All Other (outside of Japan). In the EPET&S segment, this was mainly due to closure of manufacturing sites in Malaysia. Approximately 9% of the total number of employees were members of labor unions.
As of March 31, 2021, Sony had approximately 109,700 employees, a decrease of approximately 2,000 employees from March 31, 2020. During the fiscal year ended March 31, 2021, although there was an increase of employees in the I&SS and Financial Services segments, there was a decrease of employees in the EPET&S and Pictures segments, as well as in All Other. In the EPET&S segment, this was mainly due to closure of manufacturing sites in Malaysia and Brazil. Approximately 10% of the total number of employees were members of labor unions.
The following table shows the number of employees of Sony by segment and region as of March 31, 2020, 2021, 2022 and 2022.2023.
Number of Employees by Segment and Region
March 31 | March 31 | |||||||||||||||||||||||
| 2020 | 2021 | 2022 | 2021 | 2022 | 2023 | |||||||||||||||||||
By segment: | ||||||||||||||||||||||||
G&NS | 9,500 | 9,600 | 10,200 | 9,600 | 10,200 | 12,700 | ||||||||||||||||||
Music | 9,900 | 9,900 | 10,800 | 9,900 | 10,800 | 11,100 | ||||||||||||||||||
Pictures | 8,400 | 8,000 | 8,100 | 8,000 | 8,100 | 9,100 | ||||||||||||||||||
EP&S | 46,800 | 43,700 | 40,200 | |||||||||||||||||||||
ET&S | 43,700 | 40,200 | 38,400 | |||||||||||||||||||||
I&SS | 15,800 | 16,800 | 18,100 | 16,800 | 18,100 | 20,300 | ||||||||||||||||||
Financial Services | 12,300 | 12,900 | 13,200 | 12,900 | 13,200 | 13,500 | ||||||||||||||||||
All Other | 3,200 | 2,800 | 2,300 | 2,800 | 2,300 | 2,100 | ||||||||||||||||||
Unallocated — Corporate employees | 5,800 | 6,000 | 6,000 | 6,000 | 6,000 | 5,800 | ||||||||||||||||||
By region: | ||||||||||||||||||||||||
Japan | 53,700 | 54,500 | 55,100 | 54,500 | 55,100 | 56,400 | ||||||||||||||||||
Outside of Japan | 58,000 | 55,200 | 53,800 | 55,200 | 53,800 | 56,600 | ||||||||||||||||||
Total | 111,700 | 109,700 | 108,900 | 109,700 | 108,900 | 113,000 | ||||||||||||||||||
In addition, the average number of employees for the fiscal years ended March 31, 2020, 2021, 2022 and 20222023 calculated by averaging the total number of employees at the end of each quarter, was approximately 113,000, 110,700, 109,600 and 109,600112,300 respectively.
Sony generally considers its labor relations to be good.
In Japan, Sony Group Corporation and several subsidiaries have labor unions.
In the G&NS, EPET&S and I&SS segments, Sony owns many manufacturing sites, particularly in Asia, where a few sites have labor unions that have union contracts. In China, most employees are members of labor unions. In the Americas, some manufacturing sites have labor unions. Sony has generally maintained good relationships with these labor unions. In Europe, Sony also maintains good labor relations with the European Works Council and the local Unions and Works Councils.
In the Music segment, Sony has severala labor unionsunion and generally considers its labor relations to be good.
In the Pictures segment, Sony also generally considers its labor relations to be good. A number of Pictures’ subsidiaries are signatories to union contracts. During the fiscal year ended March 31, 2022,2023, negotiations have beenwere conducted and agreements reached with a number of unions. Negotiations were successfully concluded with the International Alliance of Theatrical and Stage Employees (“IATSE”) for the Basic Agreement, its Local Agreements in Los Angeles, its Area Standards Agreement, the Video and Electronic Supplement andagreements with IATSE Local 52 in New York. Each of the new IATSE agreements is for a three-year term. New three-year deals were reached with the Teamsters for agreements covering drivers and Location Managers in Los Angeles. Agreements for three-year terms were reached with the International Brotherhood of Electrical Workers, Local 40, the Southern California District Council of Laborers and its affiliate, Studio Utility Employees, Local 724, the Operative Plasterers and Cement Masons International Association of the United States and Canada, Local 755, and the United Association of Journeymen and Apprentices of the Plumbing and Pipe Fitting Industry of the United States and Canada, Local 78. Negotiations were concluded for three-year agreements with the British Columbia Council of Film, the Union of British Columbia Performers, and in Ontario with IATSE Local 873, the Alliance of Canadian Cinema, Television and Radio Artists and the Directors Guild of Canada. An agreement was reached with the American Federation of Musicians to extend the Theatrical and Television Agreements through November 14, 2022. During the fiscal year, amendments to theCOVID-19Return to Work Agreement with the Directors Guild of America, IATSE, the Screen Actors Guild-American Federation of Television and Radio Artists(“SAG-AFTRA”),Teamsters and Basic Crafts coveringCOVID-19safety protocols have been negotiated and are in effect through July 15, 2022. In addition, an agreement was reached withSAG-AFTRAforCOVID-19return to work protocols for theSAG-AFTRANetwork Code agreement. Negotiations have commenced with a number of unions. Negotiations are underway with IATSE for agreements covering The Animation Guild, the Art Directors Guild as well as for additional local agreements in New York. Negotiations have commencedwere also completed with the Teamsters for agreements withfor three-year terms covering Location Managers in New York, Casting Directors in New York and Los Angeles and drivers in Miami. Negotiations are underwayAgreements were also reached for new three-year deals with Screen Actors Guild-American Federation of Television and Radio ArtistsSAG-AFTRA(“SAG-AFTRA”)foron the Network Code and The Animation Guild Agreement and with the Communications Workers of America,have commencedwere completed with the Directors Guild of Canada, British Columbia District Council (“DGC BC”). On April 26, 2022,for a three-year agreement. An agreement was reached with the DGC BC issued a strike notice. It is not anticipated that these negotiations will result in an interruption in production.American Federation of Musicians to extend the Theatrical and Television Agreements through November 13, 2023. During the fiscal year, amendments to the
AFL-CIO
for parking production assistants in New York. Negotiations COVID-19
Return to Work Agreement with the- 7985 -
Directors Guild of America (“DGA”), IATSE,
SAG-AFTRA,
Teamsters and Basic Crafts coveringCOVID-19
safety protocols were negotiated and were in effect through May 11, 2023. The WGA agreement expired on May 1, 2023 and the parties have not reached agreement on the terms of a new deal. The WGA went on strike effective May 2, 2023. Negotiations have been completed with the DGA for new three-year deals on the Basic Agreement and the Film Live Tape Television Agreement subject to ratification by the DGA. Negotiations have commenced withSAG-AFTRA
for the Codified Basic Agreement and the Television Basic Agreement which expire on June 30, 2023. If negotiations to renew expiring collective bargaining agreements are not successful or become unproductive, the affected unions could take actions such as strikes, work slowdowns or work stoppages. Strikes, work slowdowns, work stoppages or the possibility of such actions could result in delays in the production of television programs and feature films or otherwise disrupt operations. The Pictures segment could also incur higher costs from such actions or new collective bargaining agreements that include rate increases.Sony continuously strives to provide competitive wages and benefits and good working conditions for all of its employees.
E. | Share Ownership |
The total number of shares of Common Stock beneficially owned by Directors and Corporate Executive Officers listed in “Directors and Senior Management” above (out of whom 1012 people own shares) was approximately 0.031%0.043% of the total shares outstanding as of June 2, 2022.2023.
During the fiscal year ended March 31, 2022,2023, Sony Group Corporation granted stock acquisition rights, which represent rights to subscribe for shares of Common Stock, to Corporate Executive Officers and employees of Sony Group Corporation as well as directors, officers and employees of its subsidiaries. The stock acquisition rights cannot be exercised for one year from the date of grant and generally vest ratably up to three years from the date of grant and are generally exercisable up to ten years from the date of grant. The following table shows the portion of those stock acquisition rights which were granted by Sony Group Corporation to Directors and Corporate Executive Officers as of June 2, 20222023 and which were outstanding as of the same date.
Year granted (Fiscal year ended March 31) | Total number of shares subject to stock acquisition rights | Exercise price per share | Total number of shares subject to stock acquisition rights | Exercise price per share | ||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
2023 | 290 | 11,390 yen | ||||||||||||||
2022 | 290 | 14,350 yen | 280 | 14,350 yen | ||||||||||||
2021 | 260 | 9,237 yen | 260 | 9,237 yen | ||||||||||||
2020 | 253 | 6,705 yen | 248 | 6,705 yen | ||||||||||||
2019 | 237 | 6,440 yen | 214 | 6,440 yen | ||||||||||||
2018 | 97 | 5,231 yen | 33 | 5,231 yen | ||||||||||||
2017 | 190 | 3,364 yen | 126 | 3,364 yen | ||||||||||||
2016 | 45 | 3,404 yen | 15 | 3,404 yen | ||||||||||||
2015 | 97 | 2,410.5 yen | 86 | 2,410.5 yen | ||||||||||||
2014 | 7 | 2,007 yen | ||||||||||||||
Regarding the above compensation plans, refer to Note 21 of the consolidated financial statements.
Item 7. | Major Shareholders and Related Party Transactions |
A. | Major Shareholders |
As of March 31, 2022,2023, there were 1,261,081,781 shares of Common Stock outstanding, including 24,078,13626,584,521 shares of treasury stock. Out of the total outstanding shares, 119,812,598117,871,924 shares were in the form of American Depositary Receipts (“ADRs”) and 225,103,726215,074,779 shares were held of record in the form of Common Stock by residents in the U.S. As of March 31, 2022,2023, the number of registered ADR holders was 4,8104,697 and the number of registered holders of Common Stock in the U.S. was 397.389.
The Financial Instruments and Exchange Act of Japan requires any person who solely or jointly owns more than 5% of total issued voting shares of a company listed on any Japanese stock exchange to file with the Kanto Local Finance Bureau (the “Bureau”) a Bulk Shareholding Report. The following table summarizes the Bulk Shareholding Reports related to Sony (each a “Report”) submitted to the Bureau, where it is reported that ownership percentage by the reported entity exceeds 5% in the most recent updated Report. The Reports do not specify whether reported ownership is direct or beneficial.
Date of Report* | Reported entities | Reported number of direct or indirect owned and deemed owned shares** | Reported percentage of direct or indirect owned and deemed owned shares** | |||||||
March 22, 2017 | BlackRock Japan Co., Ltd. and 8 Joint Holders | 79,184,569 | 6.27 | |||||||
October 6, 2020 | Nomura Asset Management Co., Ltd. and 3 Joint Holders | 63,156,882 | 5.01 | |||||||
June 6, 2022 | Sumitomo Mitsui Trust Asset Management Co., Ltd. and 1 Joint Holder | 82,189,224 | 6.52 | |||||||
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Date of Report* | Reported entities | Reported number of direct or indirect owned and deemed owned shares** | Reported percentage of direct or indirect owned and deemed owned shares** | |||||||
October 6, 2020 | Nomura Asset Management Co., Ltd. and 3 Joint Holders | 63,156,882 | 5.01 | |||||||
June 6, 2022 | Sumitomo Mitsui Trust Asset Management Co., Ltd. and 1 Joint Holder | 82,189,224 | 6.52 | |||||||
May 18, 2023 | BlackRock Japan Co., Ltd. and 9 Joint Holders | 93,769,348 | 7.43 | |||||||
* The table above contains information from the most recent updated Reports.
** Shares issuable or transferable upon exchange of exchangeable securities, conversion of convertible securities or exercise of warrants or stock acquisition rights (including those incorporated in bonds with stock acquisition rights) are taken into account in determining both the size of the reported entity’s holding and Sony’s total issued share capital.
To the knowledge of Sony Group Corporation, it is not directly or indirectly owned or controlled by any other corporation, by any foreign government or by any other natural or legal person either severally or jointly. As far as is known to Sony Group Corporation, there are no arrangements the operation of which may, at a subsequent date, result in a change in control of Sony Group Corporation.
To the knowledge of Sony Group Corporation, there were no significant changes in the percentage ownership held by any other major beneficial shareholders during the past three fiscal years. Major shareholders of Sony Group Corporation do not have different voting rights from other shareholders.
B. | Related Party Transactions |
In the ordinary course of business, Sony purchases materials, supplies, and services from numerous suppliers throughout the world, including firms with which certain members of the Board of Directors are affiliated.
Refer to Note 32 of the consolidated financial statements for account balances and transactions with associates and joint ventures accounted for under the equity method.
C. | Interests of Experts and Counsel |
Not Applicable
Item 8. | Financial Information |
A. | Consolidated Statements and Other Financial Information |
Refer to the consolidated financial statements and the notes of the consolidated financial statements.
Legal Proceedings
Sony Group Corporation and certain of its subsidiaries are defendants or otherwise involved in pending legal and regulatory proceedings. However, based upon the information currently available, Sony believes that the outcome from such legal and regulatory proceedings would not have a material impact on Sony’s results of operations and financial position.
Dividend Policy
Sony believes that continuously increasing corporate value and providing dividends are essential to rewarding shareholders. It is Sony’s policy to utilize retained earnings, after ensuring the perpetuation of stable dividends, to carry out various investments that contribute to an increase in corporate value, such as those that ensure future growth and strengthen competitiveness. Going forward, Sony will determine the amount of dividends based on an overall consideration of Sony’s consolidated operating results, financial condition and future business expectations.
A fiscal3540 yen per share of Common Stock of Sony Group Corporation was approved at the Board of Directors meeting held on May 10, 2022April 28, 2023 and the payment of such dividend started on June 3, 2022.5,
year-end
dividend of - 87 -
2023. Sony Group Corporation has already paid an interim dividend for Common Stock of 3035 yen per share to each shareholder; accordingly, the total annual dividend per share of Common Stock for the fiscal year ended March 31, 20222023 is 6575 yen.
B. | Significant Changes |
Not applicable
Item 9. | The Offer and Listing |
A. | Offer and Listing Details |
Trading Markets
The principal trading markets for Sony Group Corporation’s ordinary shares are the TSE in the form of Common Stock and the NYSE in the form of ADSs evidenced by ADRs. Each ADS represents one share of Common Stock.
Sony Group Corporation’s Common Stock, with no par value per share, has been listed on the TSE since 1958 under the stock code “6758.”
Sony Group Corporation’s ADRs have been traded in the U.S. since 1961 and have been listed on the NYSE since 1970. As of April 1, 2021, the ticker symbol changed from “SNE” to “SONY.” Sony Group Corporation’s ADRs are issued and exchanged by Citibank, N.A., as the Depositary.
B. | Plan of Distribution |
Not Applicable
C. | Markets |
Offer and Listing Details.
D. | Selling Shareholders |
Not Applicable
E. | Dilution |
Not Applicable
F. | Expenses of the Issue |
Not Applicable
Item 10. | Additional Information |
A. | Share Capital |
Not Applicable
B. | Memorandum and Articles of Association |
Organization
Sony Group Corporation is a joint stock corporationincorporated in Japan under the Companies Actof Japan. It is registered in the Commercial Registermaintained by the Minato Branch Office of the Tokyo Legal Affairs Bureau.
(Kabushiki Kaisha)
(Kaishaho)
(Shogyo Tokibo)
Objects and purposes
The Articles of Incorporation of Sony Group Corporation provide that its purpose is to engage in the following business activities:
| (i) | manufacture and sale of electronic and electrical machines and equipment, medical instruments, optical instruments and other equipment, machines and instruments; |
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| (ii) | planning, production and sale of audio-visual software and computer software programs; |
| (iii) | manufacture and sale of metal industrial products, chemical industrial products and ceramic industrial products, textile products, paper products and wood-crafted articles, daily necessities, foodstuffs and toys, transportation machines and equipment, and petroleum and coal products; |
| (iv) | real estate activities, construction business, transportation business and warehousing business; |
| (v) | publishing business and printing business; |
| (vi) | advertising agency business, insurance agency business, broadcasting enterprise, recreation business such as travel, management of sporting facilities, etc. and other service enterprises; |
| (vii) | financial business; |
| (viii) | Type I and Type II telecommunications business under the Telecommunications Business Law; |
| (ix) | investing in stocks and bonds, etc.; |
| (x) | manufacture, sale, export and import of products which are incidental to or related to those mentioned above; |
| (xi) | rendering of services related to those mentioned above; |
| (xii) | investment in businesses mentioned above operated by other companies or persons; and |
| (xiii) | all businesses which are incidental to or related to those mentioned above. |
Directors
Under the Companies Act, because Sony Group Corporation has adopted the “Company with Three Committees” system, Directors have no power to execute the business of Sony Group Corporation except in limited circumstances as permitted by law. If a Director also serves concurrently as a Corporate Executive Officer, then he or she can execute the business of Sony Group Corporation in the capacity of Corporate Executive Officer. Under the Companies Act, Directors must refrain from engaging in any business competing with Sony Group Corporation unless approved by the Board of Directors, and any Director who has a material interest in the subject matter of a resolution to be taken by the Board of Directors cannot vote on such resolution. The amount of remuneration to each Director is determined by the Compensation Committee, which consists of Directors, the majority of whom are outside Directors (Refer to “Board Practices” in “Item 6.”). No member of the Compensation Committee may vote on a resolution with respect to his or her own compensation as a Director or a Corporate Executive Officer.
Directors, Senior Management and Employees
Neither the Companies Act nor Sony Group Corporation’s Articles of Incorporation make a special provision as to the borrowing powers exercisable by Directors (subject to requisite internal authorizations as required by the Companies Act), their retirement age, or a requirement to hold any shares of capital stock of Sony Group Corporation.
For more information on Directors, refer to “Board Practices” in “Item 6.”
Directors, Senior Management and Employees.
Capital stock
(General)
Unless indicated otherwise, set forth below is information relating to Sony Group Corporation’s capital stock, including brief summaries of the relevant provisions of Sony Group Corporation’s Articles of Incorporation and Share Handling Regulations, currently in effect, and of the Companies Act and related regulations.
The central book-entry transfer system for shares of Japanese listed companies under the Act Concerning Book-entry Transfer of Corporate Bonds, Shares, etc. (including regulations promulgated thereunder, “Book-entry Transfer Act”) is applied to the shares of Common Stock of Sony Group Corporation. Under this system, shares of all Japanese companies listed on any Japanese stock exchange are dematerialized, and shareholders must have accounts at account management institutions to hold their shares unless such shareholder has an account at Japan Securities Depository Center, Inc. (“JASDEC”). “Account management institutions” are
- 89 -
financial instruments traders (i.e., securities companies), banks, trust companies and certain other financial institutions that meet the requirements prescribed by the Book-entry Transfer Act. Transfer of the shares of Common Stock of Sony Group Corporation is effected exclusively through entry in the records maintained by JASDEC and the account management institutions, and title to the shares passes to the transferee at the time when the transfer of the shares is recorded at the transferee’s account at an account management institution. The holder of an account at an account management institution is presumed to be the legal holder of the shares recorded in such account.
Under the Companies Act and the Book-entry Transfer Act, in order to assert shareholders’ rights against Sony Group Corporation, a shareholder of shares must have its name and address registered in Sony Group Corporation’s register of shareholders. Under the central book-entry transfer system operated by JASDEC, shareholders shall notify the relevant account management institutions of certain information prescribed under the Book-entry Transfer Act or Sony Group Corporation’s Share Handling Regulations, including their names and addresses, and the registration on Sony Group Corporation’s register of shareholders is updated upon receipt by Sony Group Corporation of necessary information from JASDEC (as described in “”). On the other hand, in order to assert, against Sony Group Corporation, shareholders’ rights to which shareholders are entitled, regardless of whether such shareholder held shares on the requisite record date, such as minority shareholders’ rights, including the right to propose a matter to be considered at a General Meeting of Shareholders, except for shareholders’ rights to request that Sony Group Corporation purchase or sell shares constituting less than a full unit (as described in “”), JASDEC shall, upon the shareholder’s request, issue a notice of certain information, including the name and address of such shareholder, to Sony Group Corporation.
(Record date)
(Unit share system)
Thereafter, such shareholder is required to presentshall provide Sony Group Corporation a receipt of thewith written notice requestthat he or she exercises such shareholder’s right in accordance with the Sony Group Corporation’s Share Handling Regulations. Under the Book-entry Transfer Act, the shareholder shall exercise such shareholders’ right within four weeks after the notice above has been given to Sony Group Corporation.
Mitsubishi UFJ Trust and Banking Corporation is the transfer agent for Sony Group Corporation’s capital stock. As such, it keeps Sony Group Corporation’s register of shareholders in its office at
4-5,
Marunouchi1-chome,
Chiyoda-ku,
Tokyo.Non-resident
shareholders are required to appoint a standing proxy in Japan or file notice of a mailing address in Japan. Notices from Sony Group Corporation tonon-resident
shareholders are delivered to such standing proxies or mailing address. Japanese securities companies and commercial banks customarily act as standing proxies and provide related services for standard fees. The recorded holder of deposited shares underlying the ADSs is the depositary for the ADSs. Accordingly, holders of ADSs will not be able to directly assert shareholders’ rights against Sony Group Corporation.(Authorized capital)
Under the Articles of Incorporation of Sony Group Corporation, Sony Group Corporation may only issue shares of Common Stock. Sony Group Corporation’s Articles of Incorporation provide that the total number of shares authorized to be issued by Sony Group Corporation is 3.6 billion shares.
All shares of capital stock of Sony Group Corporation have no par value. All issued shares are fully-paid and
non-assessable.
(Distribution of Surplus)
Distribution of Surplus — General
Under the Companies Act, distributions of cash or other assets by joint stock corporations to their shareholders, so called “dividends,” are referred to as “distributions of Surplus” (“Surplus” is defined in “— Restriction on distribution of Surplus”). Sony Group Corporation may make distributions of Surplus to shareholders any number of times per business year, subject to certain limitations described in “— Restriction on distribution of Surplus.” Distributions of Surplus are required in principle to be authorized by a resolution of a General Meeting of Shareholders, but Sony Group Corporation may authorize distributions of Surplus by a resolution of the Board of Directors as long as its
non-consolidated
annual financial statements and certain documents for the last business year present fairly its assets and profit or loss, as required by ordinances of the Ministry of Justice.- 90 -
Distributions of Surplus may be made in cash or in kind in proportion to the number of shares of Common Stock held by each shareholder. A resolution of the Board of Directors or a General Meeting of Shareholders authorizing a distribution of Surplus must specify the kind and aggregate book value of the assets to be distributed, the manner of allocation of such assets to shareholders, and the effective date of the distribution. If a distribution of Surplus is to be made in kind, Sony Group Corporation may, pursuant to a resolution of the Board of Directors or (as the case may be) a General Meeting of Shareholders, grant a right to the shareholders to require Sony Group Corporation to make such distribution in cash instead of in kind. If no such right is granted to shareholders, the relevant distribution of Surplus must be approved by a special resolution of a General Meeting of Shareholders (refer to “” with respect to a “special resolution”).
(Voting rights)
Under the Articles of Incorporation of Sony Group Corporation,
year-end
dividends and interim dividends may be distributed in cash to shareholders appearing in Sony Group Corporation’s register of shareholders as of March 31 and September 30 each year, respectively, in proportion to the number of shares of Common Stock held by each shareholder following approval by the Board of Directors or (as the case may be) the General Meeting of Shareholders. Sony Group Corporation is not obliged to pay any dividends in cash unclaimed for a period of five years after the date on which they first became payable.In Japan, the
ex-dividend
date and the record date for dividends precede the date of determination of the amount of the dividends to be paid. The price of the shares of Common Stock generally goesex-dividend
on the business day immediately prior to the record date (or if the record date is not a business day, the second business day prior thereto).Distribution of Surplus — Restriction on distribution of Surplus
In making a distribution of Surplus, Sony Group Corporation must, until the sum of its additional
paid-in
capital and legal reserve reaches one quarter of its stated capital, set aside in its additionalpaid-in
capital and/or legal reserve an amount equal toone-tenth
of the amount of Surplus so distributed.The amount of Surplus at any given time must be calculated in accordance with the following formula:
A + B + C + D – (E + F + G)
In the above formula:
| “A” = | the total amount of other capital surplus and other retained earnings, each such amount being that appearing on the non-consolidated balance sheet as of the end of the last business year | |||
| “B” = | (if Sony Group Corporation has disposed of its treasury stock after the end of the last business year) the amount of the consideration for such treasury stock received by Sony Group Corporation less the book value thereof | |||
| “C” = | (if Sony Group Corporation has reduced its stated capital after the end of the last business year) the amount of such reduction less the portion thereof that has been transferred to additional paid-in capital or legal reserve (if any) | |||
| “D” = | (if Sony Group Corporation has reduced its additional paid-in capital or legal reserve after the end of the last business year) the amount of such reduction less the portion thereof that has been transferred to stated capital (if any) | |||
| “E” = | (if Sony Group Corporation has cancelled its treasury stock after the end of the last business year) the book value of such treasury stock | |||
“F” = | (if Sony Group Corporation has distributed Surplus to its shareholders after the end of the last business year) the total book value of the Surplus so distributed | |||
“G” = | certain other amounts set forth in ordinances of the Ministry of Justice, including (if Sony Group Corporation has reduced Surplus and increased its stated capital, additional paid-in capital or legal reserve after the end of the last business year) the amount of such reduction and (if Sony Group Corporation has distributed Surplus to the shareholders after the end of the last business year) the amount set aside in additionalpaid-in capital or legal reserve (if any) as required by ordinances of the Ministry of Justice. | |||
The aggregate book value of Surplus distributed by Sony Group Corporation may not exceed a prescribed distributable amount (the “Distributable Amount”), as calculated on the effective date of such distribution. The
- 91 -
Distributable Amount at any given time shall be equal to the amount of Surplus less the aggregate of the following:
| (a) | the book value of its treasury stock; |
| (b) | the amount of consideration for any of treasury stock disposed of by Sony Group Corporation after the end of the last business year; and |
| (c) | certain other amounts set forth in ordinances of the Ministry of Justice, including (if the sum of one-half of goodwill and the deferred assets exceeds the total of stated capital, additionalpaid-in capital and legal reserve, each such amount being that appearing on thenon-consolidated balance |
sheet as of the end of the last business year) all or certain part of such exceeding amount as calculated in accordance with ordinances of the Ministry of Justice. |
As Sony Group Corporation has become a company with respect to which consolidated balance sheets should also be considered in the calculation of the Distributable Amount (), Sony Group Corporation must further deduct from the amount of Surplus the excess amount, if any, of (x) the total amount of stockholders’ equity appearing on the
renketsu haito kisei tekiyo kaisha
non-consolidated
balance sheet as of the end of the last business year and certain other amounts set forth by an ordinance of the Ministry of Justice over (y) the total amount of stockholders’ equity and certain other amounts set forth by an ordinance of the Ministry of Justice appearing on the consolidated balance sheet as of the end of the last business year.If Sony Group Corporation has prepared interim financial statements as described below, and if such interim financial statements have been approved by the Board of Directors or (if so required by the Companies Act) by a General Meeting of Shareholders, then the Distributable Amount must be adjusted to take into account the amount of profit or loss, and the amount of consideration for any of the treasury stock disposed of by Sony Group Corporation, during the period in respect of which such interim financial statements have been prepared. Sony Group Corporation may prepare
non-consolidated
interim financial statements consisting of a balance sheet as of any date subsequent to the end of the last business year and an income statement for the period from the first day of the current business year to the date of such balance sheet. Interim financial statements so prepared by Sony Group Corporation must be audited by the Audit Committee and the independent auditor, as required by the Companies Act and in accordance with the details prescribed by ordinances of the Ministry of Justice.(Capital and reserves)
Sony Group Corporation may generally reduce its additional”) and, if so decided by the same resolution, may account for the whole or any part of the amount of such reduction as additional
paid-in
capital or legal reserve by resolution of a General Meeting of Shareholders and, if so decided by the same resolution, may account for the whole or any part of the amount of such reduction as stated capital. On the other hand, Sony Group Corporation may generally reduce its stated capital by a special shareholders’ resolution (as defined in “(Voting rights)
paid-in
capital. In addition, Sony Group Corporation may reduce its Surplus and increase either (i) stated capital or (ii) additionalpaid-in
capital and/or legal reserve by the same amount, in either case by resolution of a General Meeting of Shareholders.(Stock splits)
Sony Group Corporation may at any time split shares in issue into a greater number of shares at the determination of the CEO, and may amend its Articles of Incorporation to increase the number of the authorized shares to be issued to allow such stock split pursuant to a resolution of the Board of Directors or a determination by a Corporate Executive Officer to whom the authority to make such determination has been delegated by a resolution of the Board of Directors, rather than relying on a special shareholders’ resolution, which is otherwise required for amending the Articles of Incorporation.
When a stock split is to be made, Sony Group Corporation must give public notice of the stock split, specifying the record date thereof, at least two weeks prior to such record date. Under the central book-entry transfer system operated by JASDEC, Sony Group Corporation must also give notice to JASDEC regarding a stock split at least two weeks prior to the relevant effective date of the stock split. On the effective date of the stock split, the numbers of shares recorded in all accounts held by Sony Group Corporation’s shareholders at account managing institutions or JASDEC will be increased in accordance with the applicable ratio.
(Consolidation of shares)
Sony Group Corporation may at any time consolidate issued shares into a smaller number of shares by a special shareholders’ resolution. When a consolidation of shares is to be made, Sony Group Corporation must
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give public notice or notice to each shareholder at least two weeks prior to the effective date of the consolidation of shares. Under the central book-entry transfer system operated by JASDEC, Sony Group Corporation must also give notice to JASDEC regarding a consolidation of shares at least two weeks prior to the effective date of the consolidation of shares. On the effective date of the consolidation of shares, the numbers of shares recorded in all accounts held by Sony Group Corporation’s shareholders at account managing institutions or JASDEC will be decreased in accordance with the applicable ratio. Sony Group Corporation must disclose the reason for the consolidation of shares at a General Meeting of Shareholders.
(General Meeting of Shareholders)
The Ordinary General Meeting of Shareholders of Sony Group Corporation for each business year is normally held in June of each year in Tokyo, Japan. In addition, Sony Group Corporation may hold an Extraordinary General Meeting of Shareholders whenever necessary by giving notice thereof at least two weeks prior to the date set for the meeting.
Notice of a shareholders’ meeting setting forth the place, time and purpose thereof must be mailed to each shareholder having voting rights (or, in the case of a
non-resident
shareholder, to such shareholder’s resident proxy or mailing address in Japan) at least two weeks prior to the date set for the meeting. Under the Companies Act, such notice may be given to shareholders by electronic means, subject to obtaining the consent of the relevant shareholders. The record date for voting rights at an Ordinary General Meeting of Shareholders is March 31 of each year.Any shareholder or group of shareholders holding at least 3% of the total number of voting rights for a period of six months or more may require the convocation of a General Meeting of Shareholders for a particular purpose. Unless such a shareholders’ meeting is convened promptly or a convocation notice of a meeting that is to be held no later than eight weeks from the day of such request is dispatched, the shareholder requesting the holding of the meeting may, upon obtaining a court’s approval, convene such a shareholders’ meeting.
Any shareholder or group of shareholders holding at least 300 voting rights or 1% of the total number of voting rights for a period of six months or more may propose a matter to be considered at a General Meeting of Shareholders by submitting a written request to Sony Group Corporation at least eight weeks prior to the date set for such meeting, provided that Sony Group Corporation may limit the number of such matters requested by each shareholder to 10.
If the Articles of Incorporation so provide, any of the minimum voting rights or percentages, time periods and number of voting rights necessary for exercising the minority shareholder rights described above may be decreased or shortened. Sony Group Corporation’s Articles of Incorporation currently do not include any such provisions.
(Voting rights)
So long as Sony Group Corporation maintains the unit share system, a holder of shares constituting one or more units is entitled to one vote for each such unit of stock (refer to “” below; currently 100 shares constitute one unit), except that no voting rights with respect to shares of capital stock of Sony Group Corporation are afforded to Sony Group Corporation or any corporate or certain other entities more than
(Unit share system)
one-quarter
of the total voting rights of which are directly or indirectly held by Sony Group Corporation. If Sony Group Corporation eliminates from its Articles of Incorporation the provisions relating to units of stock, holders of capital stock will have one vote for each share they hold. Except as otherwise provided by law or by the- 93 -
Articles of Incorporation of Sony Group Corporation, a resolution can be adopted at a General Meeting of Shareholders by a majority of the number of voting rights of all the shareholders represented at the meeting. The Companies Act and Sony Group Corporation’s Articles of Incorporation provide, however, that the quorum for the election of Directors shall be
one-third
of the total number of voting rights of all the shareholders. SonyGroup Corporation’s shareholders are not entitled to cumulative voting in the election of Directors. Shareholders may cast their votes in writing and may also exercise their voting rights through proxies, provided that the proxies are also shareholders holding voting rights. Shareholders may also exercise their voting rights by electronic means pursuant to the method designated by Sony Group Corporation.
The Companies Act and the Articles of Incorporation of Sony Group Corporation provide that in order to amend the Articles of Incorporation and in certain other instances, including:
| (1) | acquisition of its own shares from a specific party other than its subsidiaries; |
| (2) | consolidation of shares; |
| (3) | any offering of new shares or existing shares held by Sony Group Corporation as treasury stock at a “specially favorable” price (or any offering of stock acquisition rights to acquire shares of capital stock, or bonds with stock acquisition rights on “specially favorable” conditions) to any persons other than shareholders; |
| (4) | the exemption of liability of a Director, Corporate Executive Officer or independent auditor with certain exceptions; |
| (5) | a reduction of stated capital with certain exceptions; |
| (6) | a distribution of in-kind dividends which meets certain requirements; |
| (7) | dissolution, merger, consolidation, or corporate split with certain exceptions; |
| (8) | the transfer of the whole or a material part of the business; |
| (9) | the transfer of the whole or a part of the shares or equity interests in a subsidiary which meets certain requirements; |
| (10) | the taking over of the whole of the business of any other corporation with certain exceptions; |
| (11) | share exchange or share transfer for the purpose of establishing 100% parent-subsidiary relationships with certain exceptions; or |
| (12) | partial share exchange for the purpose of establishing parent-subsidiary relationships with certain exceptions, |
the quorum shall be
one-third
of the total number of voting rights of all the shareholders, and the approval by at leasttwo-thirds
of the number of voting rights of all the shareholders represented at the meeting is required (the “special shareholders’ resolutions”).(Issue of additional shares and
pre-emptive
rights)Holders of Sony Group Corporation’s shares of capital stock have no” above.
pre-emptive
rights under its Articles of Incorporation. Authorized but unissued shares may be issued, or existing shares held by Sony Group Corporation as treasury stock may be transferred, at such times and upon such terms as the Board of Directors or the CEO determines, subject to the limitations as to the offering of new shares or transfer of existing shares held by Sony Group Corporation as treasury stock at a “specially favorable” price mentioned under “(Voting rights)
In the case of an issuance of shares (including a transfer of existing shares held by Sony Group Corporation as treasury stock) or stock acquisition rights whereby any subscriber will hold more than 50% of the voting rights of all shareholders, generally Sony Group Corporation shall give public notice at least two weeks prior to the payment date for such issuance, and if shareholders who hold
one-tenth
or more of the voting rights of all shareholders dissent from the issuance of shares or stock acquisition rights, the approval by a resolution of a General Meeting of Shareholders is generally required before the payment date pursuant to the Companies Act. In addition, in the case of an issuance of shares (including a transfer of existing shares held by Sony Group Corporation as treasury stock) or stock acquisition rights by way of an allotment to a third party which would dilute the outstanding voting shares by 25% or more or change the controlling shareholder, in addition to a resolution of the Board of Directors or a determination by the CEO, the approval of the shareholders or an- 94 -
affirmative vote from a person independent of the management is generally required pursuant to the rules of the TSE. The Board of Directors or the CEO may, however, determine that shareholders shall be given subscription rights regarding a particular issue of new shares, in which case such rights must be given on uniform terms to all
shareholders as of a record date of which not less than two weeks’ prior public notice is given. Each of the shareholders to whom such rights are given must also be given notice of the expiry thereof at least two weeks prior to the date on which such rights expire.
Subject to certain conditions, Sony Group Corporation may issue stock acquisition rights by a resolution of the Board of Directors or a determination by the CEO. Holders of stock acquisition rights may exercise their rights to acquire a certain number of shares within the exercise period as prescribed in the terms of their stock acquisition rights. Upon exercise of stock acquisition rights, Sony Group Corporation will be obliged to issue the relevant number of new shares or alternatively to transfer the necessary number of treasury stock held by it.
In cases where a particular issue of new shares or stock acquisition rights (i) violates laws and regulations or Sony Group Corporation’s Articles of Incorporation, or (ii) will be performed in a materially unfair manner, and shareholders may suffer disadvantages therefrom, such shareholders may file an injunction to enjoin such issue with a court.
(Liquidation rights)
In the event of a liquidation of Sony Group Corporation, the assets remaining after payment of all debts, liquidation expenses and taxes will be distributed among the holders of shares of Common Stock in proportion to the respective numbers of shares of Common Stock held.
(Record date)
March 31 is the record date for Sony Group Corporation’s
year-end
dividends, if declared. So long as Sony Group Corporation maintains the unit share system, shareholders who are registered as the holders of one or more unit of stock in Sony Group Corporation’s register of shareholders at the end of each March 31 are also entitled to exercise shareholders’ rights at the Ordinary General Meeting of Shareholders with respect to the business year ending on such March 31. September 30 is the record date for interim dividends, if declared. In addition, Sony Group Corporation may set a record date for determining the shareholders entitled to other rights and for other purposes by giving at least two weeks’ prior public notice.JASDEC is required to promptly give Sony Group Corporation notice of the names and addresses of Sony Group Corporation’s shareholders, the numbers of shares of Common Stock held by them and other relevant information as of such respective record dates.
The price of shares generally goes
ex-dividends
orex-rights
on Japanese stock exchanges on the business day immediately prior to a record date (or if the record date is not a business day, the second business day prior thereto), for the purpose of dividends or rights offerings.(Acquisition by Sony Group Corporation of its capital stock)
Under the Companies Act and the Articles of Incorporation of Sony Group Corporation, Sony Group Corporation may acquire shares of Common Stock (i) from a specific shareholder other than any of its subsidiaries (pursuant to the special shareholders’ resolution), (ii) from any of its subsidiaries (pursuant to a determination by the CEO as delegated byresolution of the Board of Directors), or (iii) by way of purchase on any Japanese stock exchange on which Sony Group Corporation’s shares of Common Stock are listed or by way of tender offer (pursuant to a resolution of the Board of Directors, as long as its
non-consolidated
annual financial statements and certain documents for the last business year present fairly its assets and profit or loss, as required by ordinances of the Ministry of Justice).In the case of (i) above, any other shareholder may make a request to Sony Group Corporation that such other shareholder be included as a seller in the proposed purchase, provided that no such right will be available if the purchase price or any other consideration to be received by the relevant specific shareholder will not exceed the last trading price of the shares on the relevant stock exchange on the day immediately preceding the date on which the resolution mentioned in (i) above was adopted (or, if there is no trading in the shares on the stock exchange or if the stock exchange is not open on such day, the price at which the shares are first traded on such stock exchange thereafter).
The total amount of the purchase price of shares of Common Stock may not exceed the Distributable Amount, as described in “() — Distributions of Surplus — Restriction on distribution of Surplus.”
Distribution of Surplus
- 8995 -
Shares acquired by Sony Group Corporation may be held for any period or may be retired at the determination of the CEO. Sony Group Corporation may also transfer (by public or private sale or otherwise) to any person the treasury stock held by it, subject to a determination byat such times and upon such terms as the Board of Directors or the CEO determines, and subject also to other requirements similar to those applicable to the issuance of new shares, as described in “” above. Sony Group Corporation may also utilize its treasury stock for the purpose of transfer to any person upon exercise of stock acquisition rights or for the purpose of acquiring another company by way of merger, share exchange, partial share exchange or corporate split through exchange of treasury stock for shares or assets of the acquired company.
(Issue of additional shares and
pre-emptive
rights)(Unit share system)
The Articles of Incorporation of Sony Group Corporation provide that 100 shares constitute one “unit” of shares of stock. The Board of Directors or the Corporate Executive Officer to whom the authority to make such a determination has been delegated by a resolution of the Board of Directors is permitted to amend the Articles of Incorporation to reduce the number of shares that constitute a unit or to abolish the unit share system entirely. Under the Companies Act, the number of shares constituting one unit cannot exceed 1,000 shares nor 0.5% of the total number of issued shares.
Under the unit share system, shareholders have one voting right for each unit of stock that they hold. Any number of shares less than one full unit have neither voting rights nor rights related to voting rights. Holders of shares constituting less than one unit will have no other shareholder rights if Sony Group Corporation’s Articles of Incorporation so provide, except that such holders may not be deprived of certain rights specified in the Companies Act or an ordinance of the Ministry of Justice, including the right to receive distribution of Surplus.
A holder of shares constituting less than one full unit may require Sony Group Corporation to purchase such shares at their market value in accordance with the provisions of the Share Handling Regulations of Sony Group Corporation. In addition, the Articles of Incorporation of Sony Group Corporation provide that a holder of shares constituting less than one full unit may request Sony Group Corporation to sell to such holder such amount of shares which will, when added together with the shares constituting less than one full unit, constitute one full unit of stock. Such request by a holder and the sale by Sony Group Corporation must be made in accordance with the provisions of the Share Handling Regulations of Sony Group Corporation. As prescribed in the Share Handling Regulations, such requests shall be made through an account management institution and JASDEC pursuant to the rules set by JASDEC, without going through the notification procedure required for the exercise of the shareholders’ rights to which shareholders are entitled, regardless of whether such shareholder held shares on the requisite record date, as described in “.” Shares constituting less than a full unit are transferable, under the central book-entry transfer system described in “.” Under the rules of the Japanese stock exchanges, however, shares constituting less than a full unit do not comprise a trading unit, except in limited circumstances, and accordingly may not be sold on the Japanese stock exchanges.
(General)
(General)
(Sale by Sony Group Corporation of shares held by shareholders whose location is unknown)
Sony Group Corporation is not required to send a notice to a shareholder if a notice to such shareholder fails to arrive at the registered address of the shareholder in Sony Group Corporation’s register of shareholders or at the address otherwise notified to Sony Group Corporation continuously for five years or more.
In addition, Sony Group Corporation may sell or otherwise dispose of shares of capital stock for which the location of the shareholder is unknown. Generally, if (i) notices to a shareholder fail to arrive continuously for five years or more at the shareholder’s registered address in Sony Group Corporation’s register of shareholders or at the address otherwise notified to Sony Group Corporation, and (ii) the shareholder fails to receive distributions of Surplus on the shares continuously for five years or more at the address registered in Sony Group Corporation’s register of shareholders or at the address otherwise notified to Sony Group Corporation, Sony Group Corporation may sell or otherwise dispose of such shareholder’s shares at the then market price of the shares by a determination of a Corporate Executive Officer and after giving at least three months’ prior public and individual notice, and hold or deposit the proceeds of such sale or disposal of shares for such shareholder.
Reporting of substantial shareholdings
The Financial Instruments and Exchange Act of Japan and its related regulations require any person, regardless of residence, who has become, beneficially and solely or jointly, a holder of more than 5% of the total issued shares of capital stock of a company listed on any Japanese stock exchange or whose shares are traded on themarket in Japan to file with the Director General of the competent Local Finance Bureau of
over-the-counter
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the Ministry of Finance within five business days a report concerning such shareholdings. A similar report must also be filed in respect of any subsequent change of 1% or more in any such holding, or any change in material matters set out in reports previously filed, with certain exceptions. For this purpose, shares issuable to such persons upon conversion of convertible securities or exercise of share subscription warrants or stock acquisition rights are taken into account in determining both the number of shares held by such holders and the issuer’s total issued share capital. Any such report shall be filed with the Director General of the relevant Local Finance Bureau of the Ministry of Finance through the Electronic Disclosure for Investors’ Network (EDINET) system.
Ownership restrictions
Except for the general limitation under Japanese anti-trust and anti-monopoly regulations against holding of shares of capital stock of a Japanese corporation which leads or may lead to a restraint of trade or monopoly, except for the limitations under the Foreign Exchange Regulations as described in “D. Exchange Controls” below, and except for general limitations under the Companies Act or Sony Group Corporation’s Articles of Incorporation on the rights of shareholders applicable regardless of residence or nationality, there is no limitation under Japanese laws and regulations applicable to Sony Group Corporation or under its Articles of Incorporation on the rights of
non-residents
or foreign shareholders to hold or exercise voting rights on the shares of capital stock of Sony Group Corporation.There is no provision in Sony Group Corporation’s Articles of Incorporation or internal regulations that would have an effect of delaying, deferring or preventing a change in control of Sony Group Corporation and that would operate only with respect to a merger, acquisition or corporate restructuring involving Sony Group Corporation.
C. | Material Contracts |
None
D. | Exchange Controls |
Japanese Foreign Exchange Controls Regulations
The following is a general summary of major Japanese foreign exchange controls regulations applicable to holders of shares of capital stock or voting rights of Sony Group Corporation or holders of ADSs who are “exchange
non-residents”
or “foreign investors,” as described below. The statements regarding Japanese foreign exchange control regulations set forth below are based on the laws and regulations in force and as interpreted by the Japanese authorities as of the date of this annual report and are subject to subsequent changes in the applicable Japanese laws or interpretations thereof. This summary is not exhaustive of all possible foreign exchange controls considerations that may apply to a particular investor, and potential investors are advised to satisfy themselves as to the overall foreign exchange controls consequences of the acquisition, ownership and disposition of shares of capital stock or voting rights of Sony Group Corporation or ADSs by consulting their own advisors.The Foreign Exchange and Foreign Trade Act of Japan (the FEFTA) and its related cabinet orders and ministerial ordinances (collectively, the “Foreign Exchange Regulations”) govern certain aspects relating to the acquisition and holding of shares of capital stock and voting rights of Sony Group Corporation by “exchange
non-residents”
and by “foreign investors” (as these terms are defined below). The Foreign Exchange Regulations also apply to the acquisition and holding of ADSs and the exercise of voting rights by holders of ADSs who are “foreign investors” that constitute an “inward direct investment” (as defined below).Capital Transaction
Except as described below with respect to an “inward direct investment” by a “foreign investor”, the Foreign Exchange Regulations currently in effect do not affect transactions between exchange
non-residents
to purchase or sell shares of a Japanese listed corporation outside Japan using currencies other than Japanese yen.In general, the acquisition of shares of a Japanese corporation (such as the shares of capital stock of Sony Group Corporation) by an exchange
non-resident
from an exchange resident requires post facto reporting by the exchange resident to the Minister of Finance. No such reporting requirement is imposed, however, if:| (i) | the aggregate purchase price of the relevant shares is 100 million yen or less; |
- 9197 -
| (ii) | the acquisition is effected through any bank, financial instruments business operator or other entity prescribed by the Foreign Exchange Regulations acting as an agent or intermediary; or |
| (iii) | the acquisition constitutes an “inward direct investment” described below (in which case a prior notification requirement may apply). |
Exchange residents are defined in the Foreign Exchange Regulations as:
| (i) | individuals who reside within Japan; or |
| (ii) | corporations whose principal offices are located within Japan. |
Exchange
non-residents
are defined in the Foreign Exchange Regulations as:| (i) | individuals who do not reside in Japan; or |
| (ii) | corporations whose principal offices are located outside Japan. |
Generally, branches and other offices of
non-resident
corporations that are located within Japan are regarded as exchange residents. Conversely, branches and other offices of Japanese corporations located outside Japan are regarded as exchangenon-residents.
Inward Direct Investment in Shares of Listed Corporations
Definition of Foreign Investor
Foreign investors are defined in the Foreign Exchange Regulations as:
| (i) | individuals who are exchange non-residents; |
| (ii) | corporations or other entities that are organized under the laws of foreign countries or whose principal offices are located outside Japan; |
| (iii) | corporations of which 50% or more of the total voting rights are held, directly or indirectly, by individuals and/or corporations falling within (i) and/or (ii) above; |
| (iv) | partnerships under the Civil Code of Japan established to invest in corporations, limited partnerships for investment under the Limited Partnership Act for Investment of Japan or any other similar partnerships under foreign law of which (a) 50% or more of the total contributions are made by individuals and/or corporations falling within (i), (ii), (iii) above and/or (v) below or any other persons prescribed under the Foreign Exchange Regulations or (b) a majority of the general partners are individuals and/or corporations falling within (i), (ii), (iii) above and/or (v) below or any other persons prescribed under the Foreign Exchange Regulations; or |
| (v) | corporations or other entities, a majority of whose directors or other officers (or directors or other officers having the power of representation) are individuals who are exchange non-residents. |
Definition of Inward Direct Investment
If a foreign investor acquires shares or voting rights of a Japanese corporation that is listed on a Japanese stock exchange (such as the shares of capital stock of Sony Group Corporation) or that is traded on anmarket in Japan and, as a result of the acquisition, the foreign investor, in combination with any existing holdings, directly or indirectly holds 1% or more of the total number of issued shares or the total number of voting rights of the relevant corporation, such acquisition constitutes an “inward direct investment.” In addition, the acquisition of the authority to exercise, either directly or through instructions, voting rights held by other shareholders that results in the foreign investor, in combination with any existing shareholding, directly or indirectly holding 1% or more of the total number of voting rights of the relevant corporation constitutes an “inward direct investment.”
over-the-counter
In addition to the acquisitions of shares or voting rights described above, if a foreign investor (i) is granted the authority to exercise voting rights on behalf of other shareholders of a Japanese listed corporation regarding certain matters which may give such foreign investor the power to control, or may have a material influence on the management of such corporation, such as the election or removal of directors, or (ii) obtains consent from another foreign investor holding the voting rights of the relevant corporation to exercise the voting rights of such
- 98 -
corporation held by such other foreign investor jointly, and, in each case, as a result of these arrangements, the
number of the voting rights directly or indirectly held by the foreign investor, including the total number of the voting rights subject to such authorization to exercise, or the sum of the number of the voting rights directly or indirectly held by the foreign investor and such other foreign investor subject to such joint voting agreement, as the case may be, is 10% or more of the total number of voting rights of the relevant corporation, each such arrangement regarding voting rights (hereinafter referred to as a “voting arrangement”) also constitutes an “inward direct investment”.
Additionally, if a foreign investor directly or indirectly holds 1% or more of the total voting rights of a Japanese listed corporation and, at a general meeting of shareholders, consents to certain proposals having a material influence on the management of such corporation such as the (i) election of such foreign investor or any of its related persons (as defined in the Foreign Exchange Regulations) as a director or corporate auditor of the relevant corporation or (ii) transfer or discontinuation of its business, such consent also constitutes an “inward direct investment.”
Prior Notification Requirements regarding Inward Direct Investment
If a foreign investor intends to consummate an acquisition of shares or voting rights of a Japanese listed corporation or the authority to exercise, either directly or through instructions, voting rights held by other shareholders that constitutes an “inward direct investment” as described above, unless certain exemptions apply (such as where the foreign investor is in a country that is listed on an exemption schedule in the Foreign Exchange Regulations and where that Japanese corporation is not engaged in certain businesses (the “Designated Businesses”) designated by the Foreign Exchange Regulations), a prior notification of the relevant inward direct investment is required to be filed with the Minister of Finance and any other competent Ministers.
However, if a foreign investor is seeking to acquire shares or voting rights of a Japanese listed corporation or the authority to exercise, either directly or through instructions, voting rights held by other shareholders and such acquisition would constitute an “inward direct investment”, such foreign investor may be eligible for the exemptions if certain conditions are met. In the case of an acquisition of shares or voting rights or the authority to exercise, either directly or through instructions, voting rights of a Japanese listed corporation that is engaged in a Designated Business other than certain Designated Business designated by the Foreign Exchange Regulations as a core sector business (the “Core Sector Designated Businesses”), the foreign investor may be exempted from the prior notification requirement if such foreign investor complies with the following conditions (the “Exemption Conditions”):
| (i) | the foreign investor or its related persons will not become directors or corporate auditors of the relevant corporation; |
| (ii) | the foreign investor will not make certain proposals (as prescribed in the Foreign Exchange Regulations) at the general meeting of shareholders, including transfer or discontinuation of the Designated Businesses of the relevant corporation; and |
| (iii) | the foreign investor will not access non-public technical information in relation to the Designated Businesses of the relevant corporation, or take certain other actions that may lead to the leak of suchnon-public technical information (as prescribed in the Foreign Exchange Regulations). |
In addition, in the case of an acquisition of shares or voting rights or the authority to exercise, directly or through instructions, voting rights of a Japanese listed corporation that is engaged in the Core Sector Designated Businesses, the foreign investor may be exempted from the prior notification requirement, if, as a result of such acquisition, the foreign investor, in combination with any existing holdings, directly or indirectly holds less than 10% of the total number of issued shares or voting rights of the relevant corporation and such foreign investor complies with the Exemption Conditions and the following additional conditions:
| (i) | the foreign investor will not attend, or not cause any persons designated by it to attend, meetings of the relevant corporation’s board of directors, or meetings of committees having authority to make important decisions, in respect of the Core Sector Designated Businesses of the relevant corporation; and |
| (ii) | the foreign investor will not make, or not cause any persons designated by it to make, proposals to such board or committees or their members in writing or electronic form requesting any response or actions by certain deadlines in respect of the Core Sector Designated Businesses of the relevant corporation. |
Notwithstanding the above, if a foreign investor falls under a category of disqualified investors designated by the Foreign Exchange Regulations (including (a) investors who have been sanctioned during the previous five
- 9399 -
years due to violations of the FEFTA and (b) certain investors that are state-owned enterprises or other related entities that are not otherwise accredited by the Minister of Finance), in no event may such foreign investor be eligible for the exemptions described above. On the other hand, if a foreign investor, excluding the disqualified investors described in the foregoing sentence, falls under a category of certain foreign financial institutions (as prescribed in the Foreign Exchange Regulations) and complies with the Exemption Conditions, such foreign investor may be eligible for the exemptions described above, even if the acquisition results in such foreign investor’s directly or indirectly holding 10% or more of the total number of issued shares or voting rights of the corporation engaged in the Core Sector Designated Businesses.
For reference purposes only, the Minister of Finance publishes, and may update from time to time, a list that classifies Japanese listed corporations into the following categories: (i) corporations engaged only in businesses other than the Designated Businesses, (ii) corporations engaged in Designated Businesses other than Core Sector Designated Businesses and (iii) corporations engaged in the Core Sector Designated Businesses. According to the list published by the Minister of Finance, as of November 2, 2021,May 19, 2023, Sony Group Corporation is classified as category (iii) above.
In addition, if a foreign investor intends to make a voting arrangement with respect to a Japanese listed corporation engaged in the Designated Businesses or consents to a proposal at the general meeting of shareholders of such corporation, in each case, that constitutes an “inward direct investment” as described in “Definition of Inward Direct Investment” above, in certain circumstances, prior notification of the relevant inward direct investment must be filed with the Minister of Finance and any other competent Ministers. In such cases, the exemptions from the prior notification requirements may not be available, except for cases where the relevant voting arrangement is a joint voting agreement with other foreign investors to exercise voting rights regarding matters other than certain matters which may give such foreign investor the power to control, or may have a material influence on the management of the relevant corporation, such as the election or removal of directors.
Acquisitions of shares by foreign investors by way of stock split are not subject to the foregoing notification requirements.
Procedures for Prior Notification regarding Inward Direct Investment
If such prior notification is filed, the proposed inward direct investment may not be consummated until 30 days after the date of filing during which time the Ministers will review the proposed inward direct investment, although this screening period may be shortened by such Ministers if they no longer deem it necessary to review the proposed inward direct investment, or may be shortened to five business days, if the proposed inward direct investment is determined not to raise concerns from the perspective of national security or certain other factors. The Ministers may extend the screening period up to five months if they deem it necessary to continue to review the proposed inward direct investment, and may recommend any modification or abandonment of the proposed inward direct investment and, if the foreign investor does not accept such recommendation, the Ministers may order the modification or abandonment of such inward direct investment. In addition, if the Ministers consider the proposed inward direct investment to be an inward direct investment that is likely to cause damage to the national security of Japan, to interfere with the maintenance of public order or to pose an obstacle to the preservation of public safety, and, if a foreign investor (i) consummates such inward direct investment without filing the prior notification described above; (ii) consummates such inward direct investment before the expiration of the screening period described above; (iii) in connection with such inward direct investment, makes false statements in the prior notification described above; or (iv) does not follow the recommendation or order issued by the Ministers to modify or abandon such inward direct investment, the Ministers may order such foreign investor to divest all or part of the shares acquired or take other measures.
Post Facto Reporting Requirements regarding Inward Direct Investment
A foreign investor who consummates an inward direct investment as described above through an acquisition of shares or voting rights or the authority to exercise, directly or through instructions, voting rights of a Japanese listed corporation that is engaged in the Designated Businesses, but is not subject to the prior notification requirements described above due to the exemptions from such prior notification requirements, in general, must file a post facto report of the relevant inward direct investment with the Minister of Finance and any other competent Ministers having jurisdiction over such Japanese corporation within 45 days of the date when, as a result of such acquisition, the foreign investor, in combination with any existing holdings, directly or indirectly holds (i) 1% or more but less than 3% of the total number of issued shares or voting rights, for the first time, (ii) 3% or more but less than 10% of the total number of issued shares or voting rights, for the first time, or (iii) 10%
- 94100 -
or more of the total number of issued shares or voting rights (excluding, in the cases of (i) and (ii) above, a foreign investor who falls under a category of certain foreign financial institutions (as prescribed in the Foreign Exchange Regulations)). In addition, if a foreign investor consummates the inward direct investment described above through the acquisition of shares or voting rights or the authority to exercise, directly or through instructions, voting rights of a Japanese listed corporation that is not engaged in the Designated Businesses (which is, in general, not subject to the prior notification requirements described above) and, as a result of such inward direct investment, such foreign investor, in combination with any existing holdings, directly or indirectly holds 10% or more of shares or voting rights of the total number of issued shares or voting rights of the relevant corporation, such foreign investor, in general, must file a post facto report of the relevant inward direct investment with the Minister of Finance and any other competent Ministers having jurisdiction over such Japanese corporation within 45 days of such inward direct investment.
In addition, if a foreign investor consummates the inward direct investment described above through a voting arrangement with respect to a Japanese listed corporation that is not engaged in the Designated Businesses (which is, in general, not subject to the prior notification requirements described above), such foreign investor, in general, must file a post facto report of the relevant inward direct investment with the Minister of Finance and any other competent Ministers having jurisdiction over such Japanese corporation within 45 days of such inward direct investment.
Acquisitions of shares by foreign investors by way of stock split are not subject to the foregoing reporting requirements.
Dividends and Proceeds of Sale
Under the Foreign Exchange Regulations, dividends paid on and the proceeds from sales in Japan of shares of capital stock of Sony Group Corporation held by exchange
non-residents
may generally be converted into any foreign currency and repatriated abroad.E. | Taxation |
The following is a summary of the major Japanese national tax and U.S. federal income tax consequences of the ownership, acquisition and disposition of shares of Common Stock of Sony Group Corporation and of ADRs evidencing ADSs representing shares of Common Stock of Sony Group Corporation by a
non-resident
of Japan or anon-Japanese
corporation without a permanent establishment in Japan. The summary does not purport to be a comprehensive description of all of the tax considerations that may be relevant to any particular investor, and does not take into account any specific individual circumstances of any particular investor. Accordingly, holders of shares of Common Stock or ADSs of Sony Group Corporation are encouraged to consult their tax advisors regarding the application of the considerations discussed below to their particular circumstances.This summary is based upon the representations of the depositary and the assumption that each obligation in the deposit agreement in relation to the ADSs dated as of October 15, 2014, and in any related agreement, will be performed in accordance with its terms.
For purposes of the income tax convention between Japan and the United States (the “Treaty”) and the U.S. Internal Revenue Code of 1986, as amended (the “Code”), U.S. holders of ADSs generally will be treated as owning shares of Common Stock of Sony Group Corporation underlying the ADSs evidenced by the ADRs. For the purposes of the following discussion, a “U.S. holder” is a holder that:
| (i) | is a resident of the U.S. for purposes of the Treaty; |
| (ii) | does not maintain a permanent establishment in Japan (a) with which shares of Common Stock or ADSs of Sony Group Corporation are effectively connected and through which the U.S. holder carries on or has carried on business or (b) of which shares of Common Stock or ADSs of Sony Group Corporation form part of the business property; and |
| (iii) | is eligible for benefits under the Treaty with respect to income and gain derived in connection with shares of Common Stock or ADSs of Sony Group Corporation. |
The following is a summary of the principal Japanese tax consequences (limited to national taxes) to
non-residents
of Japan ornon-Japanese
corporations without a permanent establishment in Japan(“non-resident
Holders”) who are holders of shares of Common Stock of Sony Group Corporation or of ADRs evidencing ADSs representing shares of Common Stock of Sony Group Corporation. The information given below regarding Japanese taxation is based on the tax laws and tax treaties in force and their interpretations by the Japanese tax- 95101 -
authorities as of June 28, 2022.20, 2023. Tax laws and tax treaties as well as their interpretations may change at any time, possibly with retroactive effect. Sony Group Corporation will not update this summary for any changes in the tax laws or tax treaties or their interpretation that occurs after such date.
Generally,
non-resident
Holders are subject to Japanese withholding tax on dividends paid by Japanese corporations. Such taxes are withheld prior to payment of dividends as required by Japanese law. Stock splits are, in general, not a taxable event.In the absence of an applicable tax treaty, convention or agreement reducing the maximum rate of Japanese withholding tax or allowing exemption from Japanese withholding tax, the rate of Japanese withholding tax applicable to dividends paid by Japanese corporations to
non-resident
Holders is generally 20.42%, provided, with respect to dividends paid on listed shares issued by a Japanese corporation (such as the shares of Common Stock or ADSs of Sony Group Corporation) tonon-resident
Holders other than anynon-resident
Holder who is an individual holding 3% or more of the total shares issued by the relevant Japanese corporation, the aforementioned 20.42% withholding tax rate is reduced to 15.315% for dividends due and payable on or before December 31, 2037. Due to the imposition of a special additional withholding tax (2.1% of the original withholding tax amount) to secure funds for reconstruction from the Great East Japan Earthquake, the original withholding tax rates of 15% and 20% as applicable, have been effectively increased to 15.315% and 20.42%, respectively, until December 31, 2037.As of the date of this document, Japan has income tax treaties, conventions or agreements in force, whereby the above-mentioned withholding tax rate is reduced, in most cases to 15%, 10% or 5% for portfolio investors (15% under the income tax treaties with, among other countries, Canada, Denmark, Finland, Germany, Iceland, Ireland, Italy, Luxembourg, New Zealand, Norway and Singapore, 10% under the income tax treaties with, among other countries, Australia, Austria, Belgium, France, Hong Kong, the Netherlands, Portugal, Sweden, Switzerland, the U.K. and the United States, and 5% under the income tax treaties with, among other countries, Spain). Under the Treaty, the maximum rate of Japanese withholding tax that may be imposed on dividends paid by a Japanese corporation to a U.S. holder that does not own directly or indirectly at least 10% of the voting stock of the Japanese corporation is generally reduced to 10% of the gross amount actually distributed, and dividends paid by a Japanese corporation to a U.S. holder that is a pension fund are exempt from Japanese income taxation by way of withholding or otherwise unless such dividends are derived from the carrying on of a business, directly or indirectly, by such pension fund.
If the maximum tax rate provided for in the income tax treaty applicable to dividends paid by Sony Group Corporation to any particular
non-resident
Holder is lower than the withholding tax rate otherwise applicable under Japanese tax law, or if any particularnon-resident
Holder is exempt from Japanese income tax with respect to such dividends under the income tax treaty applicable to such particularnon-resident
Holder, suchnon-resident
Holder who is entitled to a reduced rate of or exemption from Japanese withholding tax on payment of dividends on shares of Common Stock by Sony Group Corporation is, in principle, required to submit an Application Form for Income Tax Convention Regarding Relief from Japanese Income Tax and Special Income Tax for Reconstruction on Dividends (together with any other required forms and documents) in advance through the withholding agent to the relevant tax authority before the payment of dividends. A standing proxy fornon-resident
Holders of a Japanese corporation may provide this application service. In this regard, a certain simplified special filing procedure is available fornon-resident
Holders to claim treaty benefits of exemption from or reduction of Japanese withholding tax, by submitting a Special Application Form for Income Tax Convention Regarding Relief from Japanese Tax and Special Income Tax for Reconstruction on Dividends of Listed Stock (together with any other required forms and documents). With respect to ADSs, this reduced rate or exemption is applicable if the depositary or its agent submits two Application Forms (one before payment of dividends and the other within eight months after the record date concerning such payment of dividends). To claim this reduced rate or exemption, anon-resident
Holder of ADSs will be required to file a proof of taxpayer status, residence and beneficial ownership (as applicable) and to provide other information or documents as may be required by the depositary. Anon-resident
Holder who is entitled, under an applicable income tax treaty, to a reduced rate which is lower than the withholding tax rate otherwise applicable under Japanese tax law or an exemption from the withholding tax, but failed to submit the required application in advance will be entitled to claim the refund of taxes withheld in excess of the rate under an applicable tax treaty (if suchnon-resident
Holder is entitled to a reduced treaty rate under the applicable income tax treaty) or the full amount of tax withheld (if suchnon-resident
Holder is entitled to an exemption under the applicable income tax treaty) from the relevant Japanese tax authority, by complying with a certain subsequent filing procedure. Sony Group Corporation does not assume any responsibility to ensure withholding at the reduced treaty rate or to ensure the absence of withholding for shareholders who would be so eligible under any applicable income tax treaty but where the required procedures as stated above are not followed.- 96102 -
Gains derived from the sale of shares of Common Stock or ADSs of Sony Group Corporation outside Japan by a
non-resident
Holder holding such shares or ADSs as portfolio investors are, in general, not subject to Japanese income tax or corporation tax under Japanese tax law. U.S. holders are not subject to Japanese income or corporation tax with respect to such gains under the Treaty.Japanese inheritance tax and gift tax at progressive rates may be payable by an individual who has acquired from another individual shares of Common Stock or ADSs of Sony Group Corporation as a legatee, heir or donee even though neither the acquiring individual nor the deceased nor donor is a Japanese resident.
Holders of shares of Common Stock or ADSs of Sony Group Corporation should consult their tax advisors regarding the effect of these taxes and, in the case of U.S. holders, the possible application of the Estate and Gift Tax Treaty between the U.S. and Japan.
United States Taxation with respect to shares of Common Stock and ADSs
The U.S. dollar amount of dividends received (prior to deduction of Japanese taxes) by a U.S. holder of ADSs or Common Stock of Sony Group Corporation will be included in income as ordinary income for U.S. federal income tax purposes to the extent paid out of current or accumulated earnings and profits of Sony Group Corporation as determined for U.S. federal income tax purposes. Subject to certain exceptions for short-term and hedged positions, theThe U.S. dollar amount of dividends received by aDividendsSubject to certain exceptions for short-term and hedged positions, dividends paid on the ADSs or Common Stock will be treated as qualified dividends if Sony Group Corporation was not, in the year prior to the year in which the dividend was paid, and is not, in the year in which the dividend is paid a passive foreign investment company (“PFIC”). Based on Sony Group Corporation’s audited financial statements and relevant market and shareholder data, Sony Group Corporation believes that it was not treated as a PFIC for U.S. federal income tax purposes with respect to its taxable year ended March 31, 2022.2023. In addition, based on Sony Group Corporation’s audited financial statements and Sony Group Corporation’s current expectations regarding the value and nature of its assets, the sources and nature of its income, and relevant market and shareholder data, Sony Group Corporation does not anticipate becoming a PFIC for the taxable year ending March 31, 2023.2024. Holders of ADSs and Common Stock of Sony Group Corporation should consult their own tax advisors regarding the availability of the reduced dividend tax rate in light of the considerations discussed above and their own particular circumstances. Dividends paid by Sony Group Corporation to U.S. corporate holders of ADSs or Common Stock of Sony Group Corporation will not be eligible for the dividends-received deduction.
non-corporate
U.S. holder with respect to the ADSs or Common Stock will be subject to taxation at a reduced rate if the dividends are “qualified dividends.” Subject to applicable limitations and special considerations discussed below, a U.S. holder of ADSs or Common Stock of Sony Group Corporation may be entitled to a credit for Japanese tax withheld in accordance with the Treaty from dividends paid by Sony Group Corporation. The applicable limitations include new requirements recently adopted by the U.S. Internal Revenue Service that any Japanese tax will need to satisfy in order to be eligible to be a creditable tax for a U.S. holder. In the case of a U.S. holder that properly elects the benefits of the Treaty, the Japanese tax on dividends will be treated as meeting the new requirements and therefore as a creditable tax. In the case of all other U.S. holders, the application of these requirements to the Japanese tax on dividends is uncertain and Sony Group Corporation has not determined whether these requirements have been met. Foreign tax credits will not be allowed for withholding taxes imposed in respect of certain short-term or hedged positions and may not be allowed in respect of arrangements in which economic profit, after
non-U.S.
taxes, is insubstantial. If the Japanese dividend tax is not a creditable tax for a U.S. holder or the U.S. holder does not elect to claim a foreign tax credit for any foreign income taxes paid or accrued in the same taxable year, the U.S. holder may be able to deduct the Japanese tax in computing such U.S. holder’s taxable income for U.S. federal income tax purposes. Holders of ADSs and Common Stock of Sony Group Corporation should consult their own tax advisors regarding the implications of these rules in light of their particular circumstances.For purposes of the foreign tax credit limitation, dividends will be foreign source income, and will generally constitute “passive” income.
In general, a U.S. holder will recognize capital gain or loss upon the sale or other disposition of ADSs or Common Stock of Sony Group Corporation equal to the difference between the amount realized on the sale or disposition and the U.S. holder’s tax basis in the ADSs or Common Stock. Such capital gain or loss will be long-term capital gain or loss if the ADSs or Common Stock have been held for more than one year on the date of the sale or disposition. The net amount of long-term capital gain recognized by an individual holder is subject to lower rates of federal income taxation than ordinary income or short-term capital gain rates.
- 97103 -
Under the Code, a U.S. holder of ADSs or Common Stock of Sony Group Corporation may be subject, under certain circumstances, to information reporting and possibly backup withholding with respect to dividends and proceeds from the sale or other disposition of ADSs or Common Stock, unless the U.S. holder provides proof of an applicable exemption or correct taxpayer identification number and otherwise complies with applicable requirements of the backup withholding rules. Any amount withheld under the backup withholding rules is not an additional tax and may be refunded or credited against the U.S. holder’s federal income tax liability, so long as the required information is furnished to the U.S. Internal Revenue Service.
F. | Dividends and Paying Agents |
Not Applicable
G. | Statement by Experts |
Not Applicable
H. | Documents on Display |
It is possible to read and copy documents referred to in this annual report on Formfor further information on the public reference rooms and their copy charges. You can also access the documents at the SEC’s home page (https://www.sec.gov).
20-F
that have been filed with the SEC at the SEC’s public reference room located at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at1-800-SEC-0330
I. | Subsidiary Information |
Not Applicable
J. | Annual Report to Security Holders |
Not Applicable
Item 11. | Quantitative and Qualitative Disclosures about Market Risk |
Sony’s business is continuously exposed to market fluctuation, such as fluctuations in currency exchange rates, interest rates or stock prices. For risk management policies and exposures for each risk, refer to Note 6 of the consolidated financial statements. For risk inherent in the insurance business, which is included in the Financial Services segment, refer to Note 13 of the consolidated financial statements. For derivative instruments and hedging activities utilized by Sony to reduce such risk, refer to Note 15 of the consolidated financial statements. For credit risk exposure for financial assets of debt instruments designated to be measured at fair value through profit or loss, refer to Note 6 of the consolidated financial statements.
Item 12. | Description of Securities Other Than Equity Securities |
A. | Debt Securities |
Not Applicable
B. | Warrants and Rights |
Not Applicable
C. | Other Securities |
Not Applicable
D. | American Depositary Shares |
Citibank N.A. (the “Depositary”) serves as the depositary for Sony Group Corporation’s ADSs pursuant to a deposit agreement between Sony Group Corporation, the Depositary, and the holders and beneficial owners of ADSs issued thereunder from time to time (the “Deposit Agreement”) (attached as Exhibit 2.1 to this report). ADS holders (“Holders”) may be required to pay various fees to the Depositary and the Depositary may refuse to provide any service for which a fee is assessed until the applicable fee has been paid. The following fees may at any time and from time to time be changed by agreement between Sony Group Corporation and the Depositary.
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Under the terms of the Deposit Agreement, Holders may have to pay the following service fees to the Depositary.
Service | Rate | By Whom Paid | ||
Issuance of ADSs upon deposit of Sony Group Corporation’s Common Stock | Up to 5.00 U.S. dollar per 100 ADSs (or fraction thereof) issued | Person depositing Sony Group Corporation’s Common Stock or person receiving ADSs | ||
Delivery of deposited securities against surrender of ADSs | Up to 5.00 U.S. dollar per 100 ADSs (or fraction thereof) surrendered | Person surrendering ADSs for the purpose of withdrawal of deposited securities or person to whom deposited securities are delivered | ||
Distribution of cash dividends or other cash distributions (i.e., sale of rights and other entitlements) | Up to 5.00 U.S. dollar per 100 ADSs (or fraction thereof) held | Person to whom distribution is made | ||
Distribution of ADSs pursuant to (i) stock dividends or other free stock distributions, (ii) exercise of rights to purchase additional ADSs | Up to 5.00 U.S. dollar per 100 ADSs (or fraction thereof) held | Person to whom distribution is made | ||
Distribution of securities other than ADSs or rights purchase Additional ADSs (i.e., spin-off shares) | Up to 5.00 U.S. dollar per 100 ADSs (or fraction thereof) held | Person to whom distribution is made | ||
ADS Services | Up to 5.00 U.S. dollar per 100 ADSs (or fraction thereof) held on the applicable record date (s) established by the Depositary | Person holding ADSs on the applicable record date (s) established by the Depositary | ||
Holders will also be responsible for paying certain charges such as: (i) taxes (including applicable interest and penalties) and other governmental charges; (ii) such registration fees as may from time to time be in effect for the registration of Sony Group Corporation’s Common Stock or other deposited securities on the share register and applicable to transfer of Sony Group Corporation’s Common Stock or other deposited securities to or from the name of the custodian, the Depositary or any nominees upon the making of deposits and withdrawals, respectively; (iii) such cable, telex and facsimile transmission and delivery expenses as are expressly provided in the Deposit Agreement to be at the expense of the person depositing Sony Group Corporation’s Common Stock or withdrawing deposited securities or of the Holders and beneficial owners of ADSs; (iv) the expenses and charges incurred by the Depositary in the conversion of foreign currency; (v) such fees and expenses as are incurred by the Depositary in connection with compliance with exchange control regulations and other regulatory requirements applicable to Sony Group Corporation’s Common Stock, deposited securities, ADSs and ADRs; and (vi) the fees and expenses incurred by the Depositary, the custodian, or any nominee in connection with the servicing or delivery of deposited property.
ADS fees and charges payable upon (i) deposit of shares against issuance of ADSs and (ii) surrender of ADSs for cancellation and withdrawal of deposited securities will be payable by the person to whom the ADSs so issued are delivered by the Depositary (in the case of ADS issuances) or by the person who delivers the ADSs for cancellation to the Depositary (in the case of ADS cancellations). In the case of ADSs issued by the Depositary into the Depository Trust Company (DTC) or presented to the Depositary via DTC,the Depository Trust Company, the ADS issuance and cancellation fees and charges will be payable by the DTC participant (s)Depository Trust Company participant(s) receiving the ADSs from the Depositary or the DTC participant (s)Depository Trust Company participant(s) surrendering the ADSs to the Depositary for cancellation, as the case may be, on behalf of the beneficial owner (s)owner(s) and will be charged by the DTC participant (s)Depository Trust Company participant(s) to the account (s)account(s) of the applicable beneficial owner (s)owner(s) in accordance with the procedures and practices of the DTC participant (s)Depository Trust Company participant(s) as in effect at the time. ADS fees and charges in respect of distributions and the ADS service fee are payable by Holders as of the applicable ADS record date established by the Depositary. In the case of distributions of cash, the amount of the applicable ADS fees and charges is deducted from the funds being distributed. In the case of (i) distributions other than cash and (ii) the ADS service fee, the applicable Holders as of the ADS record date established by the Depositary will be invoiced for the amount of the ADS fees and charges. For ADSs held through DTC,the Depository Trust Company, the ADS fees and charges for distributions other than cash and the ADS service fee are charged to the DTCDepository Trust Company participants in accordance with
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the procedures and practices prescribed by DTCthe Depository Trust Company from time to time and the DTCDepository Trust Company participants in turn charge the amount of such ADS fees and charges to the beneficial owners for whom they hold ADSs.
In the event of refusal by a Holder to pay the Depositary fees, the Depositary may, under the terms of the Deposit Agreement, refuse the requested service until payment is received or may set off the amount of the Depositary fees from any distribution to be made to the Holder. Note that the fees and charges Holders may be required to pay may vary over time and may be changed by Sony Group Corporation and by the Depositary. Holders will receive prior notice of such changes. The Depositary may reimburse Sony Group Corporation for certain expenses incurred by Sony Group Corporation in respect of the ADR program, by making available a portion of the ADS fees charged in respect of the ADR program or otherwise, upon such terms and conditions as Sony Group Corporation and the Depositary agree from time to time.
Direct and Indirect Payments by the Depositary to Sony
The Depositary reimburses Sony for certain expenses Sony incurs in connection with its ADR program, subject to certain ceilings. These reimbursable expenses currently include, but are not limited to, legal and accounting fees, investor relations expenses and fees payable to service providers for the distribution of material to ADR holders. For the fiscal year ended March 31, 2022,2023, such reimbursements totaled 5,228,886.373,399,247.27 U.S. dollars.
In addition, as part of its service to Sony, the Depositary waives fees in connection with its ADR program, subject to a ceiling. These waived expenses currently include, but are not limited to, standard costs associated with the administration of the ADR program, associated operating expenses, investor relations advice and access to an internet-based tool used in Sony’s investor relations activities. For the fiscal year ended March 31, 2022,2023, the amount of such indirect payments was estimated to total 5,000 U.S. dollars.
Item 13. | Defaults, Dividend Arrearages and Delinquencies |
None
Item 14. | Material Modifications to the Rights of Security Holders and Use of Proceeds |
None
Item 15. | Controls and Procedures |
Item 15(a). Disclosure Controls and Procedures
Sony has carried out an evaluation under the supervision and with the participation of Sony’s management, including the CEO and CFO, of the effectiveness of the design and operation of Sony’s disclosure controls and procedures, as defined in Rules2022.2023. Disclosure controls and procedures require that information to be disclosed in the reports Sony Group Corporation files or submits under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported as and when required, within the time periods specified in the applicable rules and forms, and that such information is accumulated and communicated to Sony’s management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon Sony’s evaluation, the CEO and CFO have concluded that, as of March 31, 2022,2023, the disclosure controls and procedures were effective at the reasonable assurance level.
13a-15(e)
and15d-15(e)
under the Exchange Act, as of March 31, Item 15(b). Management’s Annual Report on Internal Control over Financial Reporting
Sony’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules
13a-15(f)
and15d-15(f)
under the Exchange Act. Sony’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. Sony’s internal control over financial reporting includes those policies and procedures that:| (i) | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Sony; |
- 100106 -
| (ii) | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of Sony are being made only in accordance with authorizations of management and directors; and |
| (iii) | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Sony’s assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Sony’s management excluded Bungie, which became a wholly-owned subsidiary of Sony on July 15, 2022, from its assessment of the effectiveness of Sony’s internal control over financial reporting as of March 31, 2023. Bungie’s total assets and total sales excluded from its assessment represented less than 1% of (i) Sony’s total consolidated assets as of March 31, 2023 and (ii) Sony’s total consolidated sales and financial services revenue for the fiscal year ended March 31, 2023. The Bungie acquisition is discussed in Note 30 to the consolidated financial statements.
Sony’s management evaluated the effectiveness of Sony’s internal control over financial reporting as of March 31, 20222023 based on the criteria established in “Internal Control — Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the evaluation, management has concluded that Sony maintained effective internal control over financial reporting as of March 31, 2022.2023.
Sony’s independent registered public accounting firm, PricewaterhouseCoopers Aarata LLC, has issued an audit report on the effectiveness of Sony’s internal control over financial reporting as of March 31, 2022,2023, presented on page
(F-2).
Item 15(c). Attestation Report of the Registered Public Accounting Firm
Refer to the Report of Independent Registered Public Accounting Firm on page
(F-2).
Item 15(d). Changes in Internal Control over Financial Reporting
There has been no change in Sony’s internal control over financial reporting during the fiscal year ended March 31, 20222023 that has materially affected, or is reasonably likely to materially affect, Sony’s internal control over financial reporting.
Item 16. | [Reserved] |
Item 16A. | Audit Committee Financial Expert |
Sony Group Corporation’s Board of Directors has determined that Toshiko Oka and Keiko Kishigami each qualifies as an “audit committee financial expert” as defined in Item 16A of Form
20-F
under the Exchange Act, as amended. In addition, both are determined to be independent as defined under the NYSE Corporate Governance Standards.Item 16B. | Code of Ethics |
Sony has adopted a code of ethics, as defined in Item 16B of Form
20-F
under the Exchange Act, as amended. The code of ethics applies to all directors, officers and employees of Sony. The code of ethics is available at:https://www.sony.com/en/SonyInfo/csr_report/compliance/code_of_conduct_En.pdf
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Item 16C. | Principal Accountant Fees and Services |
Audit and
Non-Audit
FeesThe following table presents fees for audit and other services rendered by PricewaterhouseCoopers for the fiscal years ended March 31, 20212022 and 2022.2023.
Fiscal year ended March 31 | Fiscal year ended March 31 | |||||||||||||||
| 2021 | 2022 | 2022 | 2023 | |||||||||||||
Yen in millions | Yen in millions | |||||||||||||||
Audit Fees (1) | 4,207 | 4,514 | 4,514 | 4,901 | ||||||||||||
Audit-Related Fees (2) | 128 | 175 | 175 | 334 | ||||||||||||
Tax Fees | 0 | 0 | 0 | 28 | ||||||||||||
All Other Fees | 67 | 16 | 16 | 9 | ||||||||||||
| 4,402 | 4,705 | 4,705 | 5,272 | |||||||||||||
| (1) | Audit Fees consist of fees for the annual audit services engagement and other audit services, which are those services that only the external auditor can provide. |
| (2) | Audit-Related Fees consist of fees billed for assurance and related services, and audit services relating to benefit plans, business acquisitions and dispositions. |
| (3) | Tax fees primarily consist of fees for tax advice. |
| (4) | All Other Fees consist of fees primarily for services rendered with respect to advisory services. |
Audit Committee’s
Pre-Approval
Policies and ProceduresConsistent with the SEC rules regarding auditor independence, Sony Group Corporation’s Audit Committee is responsible for appointing, reviewing and setting compensation, retaining, and overseeing the work of Sony’s independent auditor, so that the auditor’s independence will not be impaired. The Audit Committee established a formal policy requiring
pre-approval
of all audit and permissiblenon-audit
services provided by the independent auditor to Sony Group Corporation or any of its subsidiaries. The Audit Committee periodically reviews this policy with due regard for compliance with laws and regulations of host countries where Sony Group Corporation is listed.Prior to the engagement of the independent auditor for the following fiscal year’s audit, management in charge of accounting or other relevant areas (“Accounting Management”) submits an application form to the Audit Committee for comprehensive
pre-approval
of all recurring services expected to be rendered during that year, other than services that are classified as “Tax” related services (“Tax Services”). In order to obtain comprehensivepre-approval,
Accounting Management must designate in which of two categories (Audit andNon-Audit)
the services will be classified as well as fees expected, both for each category in the aggregate and for each individual service, and detailedback-up
information regarding each service to the extent possible to ensure that the Audit Committee knows precisely what particular service and the expected fees it is being asked topre-approve
and that the scope of any service or the expected fees approved is unambiguous. Any additional services not within the scope of comprehensivepre-approval
and Tax Services require the Audit Committee’s separatepre-approval
on an individual basis. The Audit Committee approves, if necessary, any changes in terms, conditions and fees resulting from changes in the scope of services to be provided or from other circumstances, with respect to both services that are subject to comprehensive and individualpre-approval.
The Audit Committee or its designee establishes procedures to assure that the independent auditor is aware in a timely manner of the services that have beenpre-approved.
Item 16D. | Exemptions from the Listing Standards for Audit Committees |
Not Applicable
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Item 16E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
The following table sets out information concerning purchases made by Sony Group Corporation during the fiscal year ended March 31, 2022.2023.
Period | (a) Total number of shares purchased | (b) Average price paid per share (yen) | (c) Total number of shares purchased as part of publicly announced plans or programs *1,2 | (d) Maximum number of shares that may yet be purchased under the plans or programs *1,2 | ||||||||||
April 1 — 30, 2021 | 2,210 | 11,978.55 | N/A | N/A | ||||||||||
May 1 — 31, 2021 | 632,531 | 10,324.46 | 631,100 | 24,368,900 | ||||||||||
June 1 — 30, 2021 | 94,602 | 10,475.99 | 91,700 | 24,277,200 | ||||||||||
July 1 — 31, 2021 | 2,233 | 11,105.50 | 0 | 24,277,200 | ||||||||||
August 1 — 31, 2021 | 1,072,692 | 11,007.70 | 1,070,200 | 23,207,000 | ||||||||||
September 1 — 30, 2021 | 186,449 | 11,345.35 | 184,100 | 23,022,900 | ||||||||||
October 1 — 31, 2021 | 905,525 | 12,468.77 | 903,400 | 22,119,500 | ||||||||||
November 1 — 30, 2021 | 403,606 | 14,198.24 | 400,900 | 21,718,600 | ||||||||||
December 1 — 31, 2021 | 863,746 | 13,870.72 | 860,300 | 20,858,300 | ||||||||||
January 1 — 31, 2022 | 414,993 | 11,880.78 | 412,300 | 20,446,000 | ||||||||||
February 1 — 28, 2022 | 1,085,475 | 12,028.09 | 1,084,000 | 19,362,000 | ||||||||||
March 1 — 31, 2022 | 1,764,231 | 11,415.45 | 1,762,600 | 17,599,400 | ||||||||||
Total | 7,428,293 | 11,930.63 | 7,400,600 | N/A | ||||||||||
Period | (a) Total number of shares purchased | (b) Average price paid per share (yen) | (c) Total number of shares purchased as part of publicly announced plans or programs *1,2,3,4 | (d) Maximum number of shares that may yet be purchased under the plans or programs *1,2,3,4 | ||||||||||
April 1 — 30, 2022 | 620,533 | 11,365.92 | 619,300 | N/A | ||||||||||
May 1 — 31, 2022 | 495,331 | 10,882.17 | 494,200 | 24,692,800 | ||||||||||
June 1 — 30, 2022 | 33,008 | 10,973.15 | 31,300 | 24,661,500 | ||||||||||
July 1 — 31, 2022 | 1,867 | 11,395.93 | 0 | 24,661,500 | ||||||||||
August 1 — 31, 2022 | 2,070,093 | 11,279.85 | 2,068,600 | 22,592,900 | ||||||||||
September 1 — 30, 2022 | 1,519,072 | 10,468.75 | 1,517,500 | 21,075,400 | ||||||||||
October 1 — 31, 2022 | 2,810,154 | 9,655.97 | 2,808,900 | 18,266,500 | ||||||||||
November 1 — 30, 2022 | 1,331 | 11,139.33 | 0 | 18,266,500 | ||||||||||
December 1 — 31, 2022 | 1,143,106 | 10,565.40 | 1,084,400 | 17,182,100 | ||||||||||
January 1 — 31, 2023 | 738,822 | 10,553.67 | 727,700 | 16,454,400 | ||||||||||
February 1 — 28, 2023 | 6,297 | 11,693.43 | 0 | 16,454,400 | ||||||||||
March 1 — 31, 2023 | 6,056 | 11,560.96 | 0 | 16,454,400 | ||||||||||
Total | 9,445,670 | 10,507.22 | 9,351,900 | N/A | ||||||||||
Column (a) represents the combined total number of shares purchased during the fiscal year ended March 31, 2022,2023, including both fractional shares purchased from fractional shareholders in accordance with the Companies Act, and shares purchased in accordance with publicly announced plans, as shown in column (c).
Under the Companies Act, a holder of shares constituting less than one full unit may require Sony Group Corporation to purchase such shares at their market value (Refer to “B. Memorandum and Articles of Association ——” in “Item 10.”). During the fiscal year ended March 31, 2022,2023, Sony Group Corporation purchased 27,69393,770 shares of common stock for a total purchase price of 342,929,9351,028,945,637 yen upon such requests from holders of shares constituting less than one full unit.
Capital stock
(Unit share system)
Additional Information
*1 Sony approved on April 28, 2021 by resolution of the Board of Directors the setting of the following parameters for repurchase of its own common stock pursuant to the Companies Act and Sony Group Corporation’s Articles of Incorporation
Total number of shares for repurchase: 25 million shares (maximum) (2.02% of total number of shares issued and outstanding (excluding treasury stock))
Total purchase price for repurchase of shares: 200 billion yen (maximum)
Period of repurchase: From April 30, 2021 to April 28, 2022
*2 The repurchase of shares of common stock based on the above approval at the Board of Directors set forth in Note 1 above was completed. The details are as follows.
Total number of shares repurchased: 8,206,900 shares
Total purchase price for repurchased shares: 97,381,577,700 yen
Period of repurchase: April 30, 2021 to April 28, 2022
*3 Sony approved on May 10, 2022 by resolution of the Board of Directors the setting of the following parameters for repurchase of its own common stock pursuant to the Companies Act and Sony Group Corporation’s Articles of Incorporation
Total number of shares for repurchase: 25 million shares (maximum) (2.02% of total number of shares issued and outstanding (excluding treasury stock))
Total purchase price for repurchase of shares: 200 billion yen (maximum)
Period of repurchase: From May 11, 2022 to May 10, 2023
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*4 The repurchase of shares of common stock based on the approval at the Board of Directors set forth in Note 3 above was completed. The details are as follows.
Total number of shares repurchased: 9,343,600 shares
Total purchase price for repurchased shares: 99,118,323,800 yen
Period of repurchase: May 11, 2022 to May 10, 2023
Item 16F. | Change in Registrant’s Certifying Accountant |
Not Applicable
- 103110 -
Item 16G. | Corporate Governance |
The table below discloses the significant ways in which Sony’s corporate governance practices differ from those required for U.S. companies under the listing standards of the NYSE. As a foreign private issuer listed on the NYSE, Sony Group Corporation is exempt from most of the exchange’s corporate governance standards requirements. For further information on Sony’s corporate governance practices and history, please refer to “Board Practices” in “Item 6..”
Directors, Senior Management and Employees
NYSE Standards | Sony’s Corporate Governance Practices | |
Board Independence. | Sony Group Corporation has adopted the “Company with Three Committees” corporate governance system under the Companies Act. Sony Group Corporation’s Board Charter requires its board to consist of between 8 to 14 directors. The Companies Act does not require Sony Group Corporation to have a majority of “independent” (in the meaning given by the NYSE Corporate Governance Standards) directors on its board; rather, it requires Sony Group Corporation to have a majority of “outside” directors (the definition of the term “outside” director is summarized below) on each of three statutory committees (the Nominating Committee, the Audit Committee and the Compensation Committee). | |
Director Independence. (i) a person who the board determines has a material direct or indirect relationship with the company, its parent or a consolidated subsidiary; (ii) a person who, within the last three years, has been an employee of the company or has an immediate family member of an executive officer of the company, its parent or a consolidated subsidiary; (iii) a person who had received, or whose immediate family member had received, during any 12-month period within the last three years, more than 120,000 U.S. dollars per year in direct compensation from the company, its parent or a consolidated subsidiary, other than director and committee fees or deferred compensation for prior services (provided such compensation is not contingent in any way on continued service);(iv) (A) a person who is, or whose immediate family member is, a current partner or employee of a firm that is the company’s internal or external auditor; (B) a person whose immediate family member is a partner of such a firm; (C) a person who has an immediate family member who is a current employee of such a firm and who personally participates in the firm’s audit, assurance or tax compliance (but not tax planning) practice; or (D) a person who was, or has an immediate family member who was, within the last three years, a partner or employee of such a firm and personally worked on the listed company’s audit within that time; (v) a person who is, or whose immediate family member is, or has been within the last three years, employed as an executive officer of another company where any of | “Outside” director is defined in the Companies Act as a person who satisfies all of the requirements (i) through (v) below: (i) a person who is not a Director of Sony Group Corporation or any of its subsidiaries engaged in the business operations of Sony Group Corporation or such subsidiaries, as the case may be, or a Corporate Executive Officer or general manager or other employee (“Group Executive Director, etc.”) of Sony Group Corporation or any of its subsidiaries and who has not been a Group Executive Director, etc. of Sony Group Corporation or any of its subsidiaries for ten years prior to assuming his/her office; (ii) if a person who has been a director, accounting counselor (if the accounting counselor is a juridical person, a member who is in charge of the affairs), or corporate auditor of Sony Group Corporation or any of its subsidiaries (excluding a person who has been a Group Executive Director, etc.) at the time within ten years prior to assuming his/her office, a person who has not been a Group Executive Director, etc. of Sony Group Corporation or any of its subsidiaries for ten years prior to assuming his/her office as a director, an accounting counselor, or a corporate auditor; (iii) a person who is not a director or a Corporate Executive Officer or general manager or other employee of a parent company or any entity which controls the management of Sony Group Corporation; (iv) a person who is not a Group Executive Director, etc. of a direct/indirect subsidiary of Sony Group Corporation or any entity the management of which is directly or indirectly controlled by Sony Group Corporation; and (v) a person who is not a spouse or relative within the second degree of kinship of a Director or a Corporate Executive Officer or general manager or other | |
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NYSE Standards | Sony’s Corporate Governance Practices | |
the listed company’s present executive officers at the same time serves or served on that company’s compensation committee; or (vi) an executive officer or employee of a company, or has an immediate family member of an executive officer of a company, that makes payments to, or receives payments from, the listed company, its parent or a consolidated subsidiary for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of 1 million U.S. dollars or 2% of such other company’s consolidated gross revenues | employee of Sony Group Corporation. Under the Companies Act, a director’s status as an “outside” director is unaffected by the director’s compensation, his or her affiliation with business partners, or the board’s affirmative determination of independence. On the other hand, under the Companies Act, a director who has had a career as a management director, corporate executive officer, or other employee of the company, its subsidiaries or other group companies is by definition not an “outside” director. | |
Sony Group Corporation’s Board Charter includes a provision requiring that each “outside” director: (i) Shall not have received directly from Sony Group, during any consecutive 12-month period within the last three years, more than an amount equivalent to 120,000 U.S. dollars, other than Director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service); and(ii) Shall not be an executive director, a corporate executive officer, a general manager or other employee of any company whose aggregate amount of transactions with Sony Group, in any of the last three fiscal years, exceeds the greater of an amount equivalent to 1,000,000 U.S. dollars, or 2% of the annual consolidated sales of such company; | ||
In addition, the Securities Listing Regulations of the TSE require Sony Group Corporation to make efforts to have at least one “Independent Director” on the Board of Directors. “Independent Director” is defined in the Securities Listing Regulations of the TSE as an “outside” director who is unlikely to have conflicts of interest with shareholders. According to the guidelines of the TSE, if a person falls in any of the categories listed below, such person, in principle, will be considered to have a conflict of interest with shareholders of the listed company. (1) A person for which the listed company is a major client or a person who executes business of a person for which the listed company is a major client; (2) A major client of the listed company or a person who executes business of a major client of the listed company; (3) A consultant, accounting professional, or legal professional (or, if such consultant, accounting professional, or legal professional is a juridical person, a member of such juridical person) of the listed company who receives a large amount of money or other consideration other than remuneration for directorship/auditorship from such listed company; | ||
- 105112 -
NYSE Standards | Sony’s Corporate Governance Practices | |
(4) A person who has fallen in any of categories (1) through (3) listed above until recently; (5) A person who has fallen in any of categories (a) or (b) listed below for ten years prior to assuming his/her office: (a) A person who executes business of a parent company of the listed company or a director who does not execute business of a parent company of the listed company; or (b) A person who executes business of a fellow subsidiary of the listed company. | ||
(6) A close relative of a person who falls in any of categories (a) through (f) listed below (only if such person is significant): (a) A person who falls in any of (1) through (5) listed above; (b) A person who executes business of a subsidiary of the listed company; (c) A director who does not execute business of a subsidiary of the listed company; (d) A person who executes business of a parent company of the listed company or a director who does not execute business of a parent company of the listed company; (e) A person who executes business of a fellow subsidiary of the listed company; or (f) A person who has fallen in any of categories (b) or (c) listed above or a person who has executed business of the listed company until recently. | ||
As of June | ||
Executive Sessions. Non-management directors must meet in regularly scheduled executive sessions without management. Independent directors should meet alone in an executive session at least once a year. | An “outside” director, as defined under the Companies Act, is equivalent to a “non-management director” under the NYSE rules because an “outside” director does not engage in the execution of business operations of the company.The outside/non-management Directors generally meet several times a year without management, though neither the Companies Act nor Sony Group Corporation’s Board Charter requiresnon-management Directors to meet regularly without management and there is no requirement for the outside Directors to meet alone in an executive session at least once a year. | |
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NYSE Standards | Sony’s Corporate Governance Practices | |
Nominating/Corporate Governance Committee. | Sony Group Corporation’s Nominating Committee shall consist of at least three Directors. Under the Companies Act, the Committee is responsible for determining the contents of proposals regarding the appointment and dismissal of Directors to be submitted for approval to the shareholders’ meeting. Unlike listed U.S. companies under NYSE rules, it is not responsible for developing governance guidelines or overseeing the evaluation of the board and management. Under the Companies Act, a majority of its members shall be “outside” directors, as defined under the Companies Act. | |
Compensation Committee. | Sony Group Corporation’s Compensation Committee shall consist of at least three Directors. Under the Companies Act, a majority of its members shall be “outside” directors, as defined under the Companies Act. Sony Group Corporation’s Board Charter prohibits the CEO, the COO and/or the CFO (or a person at any equivalent position) from serving on the Compensation Committee. Under the Companies Act, the Committee is responsible for, among others, determining the compensation of each director and Corporate Executive Officer. | |
Audit Committee. | Sony Group Corporation’s Audit Committee shall consist of at least three Directors. Under the Companies Act, a majority of its members shall be “outside” Directors, as defined under the Companies Act. In addition, pursuant to the Companies Act, no member of the Committee shall be a Director of the company or any of its subsidiaries who is engaged in the business operations of the company or such subsidiary, as the case may be, or a corporate executive officer of the company or any of its subsidiaries, or an accounting counselor, general manager or other employee of any of such subsidiaries. Sony Group Corporation’s Board Charter also requires each member of the Audit Committee to meet the independence requirements of the applicable U.S. securities laws and regulations, and requires at least one member to meet the audit committee financial expert requirements. Currently, all the members of Sony Group Corporation’s Audit Committee are also “independent” as defined in the NYSE Corporate Governance Standards, and two members of the Committee are qualified as audit committee financial experts. | |
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NYSE Standards | Sony’s Corporate Governance Practices | |
Equity Compensation Plans. | Under the Companies Act, if Sony Group Corporation wishes to adopt an equity compensation plan under which stock acquisition rights or shares of common stock are granted on specially favorable conditions, except where all of its shareholders are granted rights to subscribe for such stock acquisition rights/shares of common stock or such stock acquisition rights/shares of common stock are gratuitously allocated to all of its shareholders, each on a pro rata basis, then Sony Group Corporation must obtain shareholder approval by a “special resolution” at a General Meeting of Shareholders, where the quorum is one-third of the total number of voting rights of all of its shareholders and the approval by at leasttwo-thirds of the number of voting rights of all the shareholders represented at the meeting is required under Sony Group Corporation’s Articles of Incorporation.On the other hand, under the Companies Act, if Sony Group Corporation wishes to adopt an equity compensation plan under which stock acquisition rights or shares of common stock are granted against fair value thereof, such plan can be adopted by the resolution of Sony Group Corporation’s Compensation Committee, and grants of stock acquisition rights or shares pursuant to such plan may be decided by a resolution of the Board of Directors or a determination by a Corporate Executive Officer to whom the authority to make such determination has been delegated, and no shareholder approval is required. | |
Corporate Governance Guidelines. | Sony Group Corporation is required to disclose the status of its corporate governance under the Companies Act, Financial Instruments and Exchange Act and its related regulations, and the Securities Listing Regulations of the TSE; however, Sony Group Corporation does not have corporate governance guidelines that cover all the requirements described in the NYSE Corporate Governance Standards, as many of the provisions do not apply to Sony Group Corporation. | |
Code of Ethics. | Although this provision of the NYSE Corporate Governance Standards does not apply to Sony Group Corporation, Sony Group Corporation has adopted a code of conduct to be observed by all its directors, officers and other employees. The code of conduct is available at: https://www.sony.com/en/SonyInfo/ reports/ The code’s content covers principal items described in the NYSE Corporate Governance Standards. | |
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Item 16H. | Mine Safety Disclosure |
Not Applicable
Item 16I. | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections |
Not Applicable
Item 17. Financial |
Not Applicable
Item 18. Financial |
Refer to the consolidated financial statements.
- 109116 -
Item 19. | Exhibits |
Documents filed as exhibits to this annual report:
| 1.1 | ||
| 1.2 | ||
| 1.3 | ||
| 2.1 | ||
| 2.2 | ||
| 2.3 | ||
| 8.1 | ||
| 12.1 | ||
| 12.2 | ||
| 13.1 | ||
| 15.1 | ||
| 101.INS | Inline XBRL Instance Document — the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | The cover page for the Company’s Annual Report on Form 20-F for the fiscal year ended March 31, | |
- 110117 -
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant hereby certifies that it meets all of the requirements for filing on Form
20-F
and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.SONY GROUP CORPORATION | ||
(Registrant) | ||
By: | /s/ HIROKI TOTOKI | |
(Signature) | ||
Hiroki Totoki | ||
Chief Financial Officer | ||
Date: June 28, 202220, 2023
- 111118 -
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES
Page | ||
F-2 | ||
F-4 | ||
F-6 | ||
F-7 | ||
F-10 | ||
F-12 | ||
F-13 |
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or the notes thereto.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Sony Group Corporation (Sony Group Kabushiki Kaisha)
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated statements of financial position of Sony Group Corporation and its subsidiaries (the “Company”) as of March 31, 20222023 and 2021 and April 1, 2020,2022, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for each of the twothree years in the period ended March 31, 2022,2023, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of March 31, 2022,2023, based on criteria established in(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Internal Control — Integrated Framework
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of March 31, 20222023 and 2021 and April 1, 2020,2022, and the results of its operations and its cash flows for each of the twothree years in the period ended March 31, 20222023 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2022,2023, based on criteria established in(2013) issued by the COSO.
Internal Control — Integrated Framework
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 15(b). Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As described in Management’s Annual Report on Internal Control over Financial Reporting, management has excluded Bungie, Inc. from its assessment of internal control over financial reporting as of March 31, 2023 because it was acquired by the Company in a purchase business combination during the year ended March 31, 2023. We have also excluded Bungie, Inc. from our audit of internal control over financial reporting. Bungie, Inc. is a wholly-owned subsidiary whose total assets and total sales excluded from management’s assessment and our audit of internal control over financial reporting represent less than 1% of the related total consolidated assets and total consolidated sales and financial services revenue as of and for the year ended March 31, 2023.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable
F-2
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Valuation of liabilities for future insurance policy benefits and deferred acquisition costs
As described in Notes 3 and 13 to the consolidated financial statements, liabilities for future insurance policy benefits include liabilities for minimum guarantee benefits related to certain variable life insurance contracts. For these contract features, the liabilities for minimum guarantee benefits are calculated using current best-estimate assumptions and are based on the ratio of the present value of expected total excess payments divided by the present value of expected total assessments over the life of the contract. The significant assumptions in the valuation include mortality rates, lapse rates, discount rates and investment yields. As of March 31, 2022,2023, the liabilities for minimum guarantee benefits for the variable life contracts were 63,39276,012 million yen.
Also, the Company defers acquisition costs that vary with and are directly related directly to the acquisition or renewal of insurance policies to the extent such costsas long as they are determined to be recoverable from future profits.recoverable. Among them, the deferred insurance acquisition costs forAtAs of March 31, 2022,2023, deferred insurance acquisition costs for261,475324,862 million yen.
non-traditional
life insurance contracts such as interest sensitive whole life contracts, variable life insurance contracts, individual variable annuity contracts and other contracts without life contingencies are amortized over the expected life at a constant rate based on the present value of the estimated gross profit. The present value of the estimated gross profit is affected by a number of significant assumptions, including investment yields, mortality rates, lapse rates and discount rates. non-traditional
life insurance contracts were The principal considerations for our determination that performing procedures relating to the valuation of liabilities for future insurance policy benefits and deferred acquisition costs is a critical audit matter are (i) themanagement’s significant judgment involved by management in developing the aforementioned assumptions, (ii) this in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to management’s significant assumptions, and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the valuation of: (i) liabilities for minimum guarantee benefits for certain variable life insurance contracts and (ii) deferred insurance acquisition costs forcontracts, and (iii) deferred insurance acquisition costs and future insurance policy benefits related to traditional life insurance
non-traditional
life insurance non-traditional
life insurance contracts/s/ PricewaterhouseCoopers Aarata LLC
Tokyo, Japan
June 28, 202220, 2023
We have served as the Company’s auditor since 2006.
F-3
Yen in millions | ||||||||||||||
Note | April 1, 2020 | March 31, 2021 | March 31, 2022 | |||||||||||
ASSETS | ||||||||||||||
Current assets: | ||||||||||||||
Cash and cash equivalents | 27 | 1,512,523 | 1,786,982 | 2,049,636 | ||||||||||
Investments and advances in the Financial Services segment (including assets pledged that secured parties are permitted to sell or repledge of 54,745 million yen, 98,119 million yen and 94,147 million yen as of April 1, 2020, March 31, 2021 and 2022, respectively) | 5, 14 | 327,092 | 411,982 | 360,673 | ||||||||||
Trade and other receivables, and contract assets | 5, 22 | 1,194,334 | 1,365,493 | 1,628,521 | ||||||||||
Inventories | 7 | 559,779 | 636,668 | 874,007 | ||||||||||
Other financial assets | 5 | 135,482 | 117,682 | 149,301 | ||||||||||
Other current assets | 19 | 441,974 | 396,210 | 473,070 | ||||||||||
Total current assets | 4,171,184 | 4,715,017 | 5,535,208 | |||||||||||
Non-current assets: | ||||||||||||||
Investments accounted for using the equity method | 8 | 204,291 | 225,086 | 268,513 | ||||||||||
Investments and advances in the Financial Services segment (including assets pledged that secured parties are permitted to sell or repledge of 1,059,901 million yen, 1,853,736 million yen and 2,700,603 million yen as of April 1, 2020, March 31, 2021 and 2022, respectively) | 5, 14 | 16,352,285 | 17,296,546 | 18,445,088 | ||||||||||
Property, plant and equipment | 9 | 917,198 | 990,541 | 1,113,213 | ||||||||||
Right-of-use | 10 | 373,282 | 358,034 | 413,430 | ||||||||||
Goodwill | 11 | 690,929 | 726,109 | 952,895 | ||||||||||
Content assets | 11 | 992,644 | 1,062,547 | 1,342,046 | ||||||||||
Other intangible assets | 11 | 377,500 | 391,055 | 450,103 | ||||||||||
Deferred insurance acquisition costs | 13 | 187,904 | 623,986 | 676,526 | ||||||||||
Deferred tax assets | 25 | 210,333 | 215,669 | 298,589 | ||||||||||
Other financial assets | 5 | 321,721 | 695,764 | 696,306 | ||||||||||
Other non-current assets | 19 | 167,795 | 207,489 | 289,050 | ||||||||||
Total non-current assets | 20,795,882 | 22,792,826 | 24,945,759 | |||||||||||
Total assets | 24,967,066 | 27,507,843 | 30,480,967 | |||||||||||
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Financial Position (Continued)
Yen in millions | ||||||||||||||
Note | April 1, 2020 | March 31, 2021 | March 31, 2022 | |||||||||||
LIABILITIES | ||||||||||||||
Current liabilities: | ||||||||||||||
Short-term borrowings | 5, 14 | 824,045 | 1,201,747 | 1,976,553 | ||||||||||
Current portion of long-term debt | 5, 14 | 98,923 | 205,406 | 171,409 | ||||||||||
Trade and other payables | 5 | 1,310,536 | 1,596,563 | 1,843,242 | ||||||||||
Deposits from customers in the banking business | 5 | 2,347,387 | 2,682,156 | 2,886,361 | ||||||||||
Income taxes payables | 85,346 | 84,431 | 106,092 | |||||||||||
Participation and residual liabilities in the Pictures segment | 18 | 163,007 | 161,433 | 190,162 | ||||||||||
Other financial liabilities | 5 | 56,152 | 54,341 | 97,843 | ||||||||||
Other current liabilities | 19 | 1,263,944 | 1,367,527 | 1,488,488 | ||||||||||
Total current liabilities | 6,149,340 | 7,353,604 | 8,760,150 | |||||||||||
Non-current liabilities: | ||||||||||||||
Long-term debt | 5, 14 | 939,030 | 1,053,636 | 1,203,646 | ||||||||||
Defined benefit liabilities | 17 | 329,621 | 267,222 | 254,548 | ||||||||||
Deferred tax liabilities | 25 | 1,041,156 | 816,587 | 696,492 | ||||||||||
Future insurance policy benefits and other | 13 | 6,519,577 | 6,614,585 | 7,039,034 | ||||||||||
Policyholders’ account in the life insurance business | 13 | 3,640,010 | 4,328,894 | 4,791,295 | ||||||||||
Participation and residual liabilities in the Pictures segment | 18 | 119,702 | 116,537 | 220,113 | ||||||||||
Other financial liabilities | 5 | 146,834 | 139,417 | 211,959 | ||||||||||
Other non-current liabilities | 19 | 87,320 | 93,022 | 106,481 | ||||||||||
Total non-current liabilities | 12,823,250 | 13,429,900 | 14,523,568 | |||||||||||
Total liabilities | 18,972,590 | 20,783,504 | 23,283,718 | |||||||||||
EQUITY | ||||||||||||||
Sony Group Corporation’s stockholders’ equity: | 20 | |||||||||||||
Common stock | 880,214 | 880,214 | 880,365 | |||||||||||
Additional paid-in capital | 1,297,554 | 1,489,597 | 1,461,053 | |||||||||||
Retained earnings | 1,949,697 | 2,914,503 | 3,760,763 | |||||||||||
Accumulated other comprehensive income | 979,476 | 1,520,257 | 1,222,332 | |||||||||||
Treasury stock, at cost | (232,503 | ) | (124,228 | ) | (180,042 | ) | ||||||||
Equity attributable to Sony Group Corporation’s stockholders | 4,874,438 | 6,680,343 | 7,144,471 | |||||||||||
Noncontrolling interests | 1,120,038 | 43,996 | 52,778 | |||||||||||
Total equity | 5,994,476 | 6,724,339 | 7,197,249 | |||||||||||
Total liabilities and equity | 24,967,066 | 27,507,843 | 30,480,967 | |||||||||||
Yen in millions | ||||||||||
Note | March 31, 2022 | March 31, 2023 | ||||||||
ASSETS | ||||||||||
Current assets: | ||||||||||
Cash and cash equivalents | 27 | 2,049,636 | 1,480,900 | |||||||
Investments and advances in the Financial Services segment (including assets pledged that secured parties are permitted to sell or repledge of 94,147 million yen, and85,494 million yen as of March 31, 2022 and 2023, respectively) | 5, 14 | 360,673 | 328,357 | |||||||
Trade and other receivables, and contract assets | 5, 22 | 1,628,521 | 1,777,939 | |||||||
Inventories | 7 | 874,007 | 1,468,042 | |||||||
Other financial assets | 5 | 149,301 | 110,950 | |||||||
Other current assets | 19 | 473,070 | 610,330 | |||||||
Total current assets | 5,535,208 | 5,776,518 | ||||||||
Non-current assets: | ||||||||||
Investments accounted for using the equity method | 8 | 268,513 | 325,220 | |||||||
Investments and advances in the Financial Services segment (including assets pledged that secured parties are permitted to sell or repledge of 2,700,603 million yen and2,427,446 million yen as of March 31, 2022 and 2023, respectively) | 5, 14 | 18,445,088 | 18,445,728 | |||||||
Property, plant and equipment | 9 | 1,113,213 | 1,344,864 | |||||||
Right-of-use | 10 | 413,430 | 478,063 | |||||||
Goodwill | 11 | 952,895 | 1,275,112 | |||||||
Content assets | 11 | 1,342,046 | 1,561,882 | |||||||
Other intangible assets | 11 | 450,103 | 563,842 | |||||||
Deferred insurance acquisition costs | 13 | 676,526 | 730,864 | |||||||
Deferred tax assets | 25 | 298,589 | 384,839 | |||||||
Other financial assets | 5 | 696,306 | 832,344 | |||||||
Other non-current assets | 19 | 289,050 | 321,946 | |||||||
Total non-current assets | 24,945,759 | 26,264,704 | ||||||||
Total assets | 30,480,967 | 32,041,222 | ||||||||
F-4
(Continued on the following page.)
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Financial
Position
(Continued)Yen in millions | ||||||||||
Note | March 31, 2022 | March 31, 2023 | ||||||||
LIABILITIES | ||||||||||
Current liabilities: | ||||||||||
Short-term borrowings | 5, 14 | 1,976,553 | 1,914,934 | |||||||
Current portion of long-term debt | 5, 14 | 171,409 | 187,942 | |||||||
Trade and other payables | 5 | 1,843,242 | 1,865,993 | |||||||
Deposits from customers in the banking business | 5 | 2,886,361 | 3,163,237 | |||||||
Income taxes payables | 106,092 | 152,700 | ||||||||
Participation and residual liabilities in the Pictures segment | 18 | 190,162 | 230,223 | |||||||
Other financial liabilities | 5 | 97,843 | 73,572 | |||||||
Other current liabilities | 19 | 1,488,488 | 1,720,335 | |||||||
Total current liabilities | 8,760,150 | 9,308,936 | ||||||||
Non-current liabilities: | ||||||||||
Long-term debt | 5, 14 | 1,203,646 | 1,767,696 | |||||||
Defined benefit liabilities | 17 | 254,548 | 236,121 | |||||||
Deferred tax liabilities | 25 | 696,492 | 356,324 | |||||||
Future insurance policy benefits and other | 13 | 7,039,034 | 7,264,421 | |||||||
Policyholders’ account in the life insurance business | 13 | 4,791,295 | 5,148,579 | |||||||
Participation and residual liabilities in the Pictures segment | 18 | 220,113 | 192,952 | |||||||
Other financial liabilities | 5 | 211,959 | 350,278 | |||||||
Other non-current liabilities | 19 | 106,481 | 127,593 | |||||||
Total non-current liabilities | 14,523,568 | 15,443,964 | ||||||||
Total liabilities | 23,283,718 | 24,752,900 | ||||||||
EQUITY | ||||||||||
Sony Group Corporation’s stockholders’ equity: | 20 | |||||||||
Common stock | 880,365 | 880,365 | ||||||||
Additional paid-in capital | 1,461,053 | 1,463,807 | ||||||||
Retained earnings | 3,760,763 | 4,614,637 | ||||||||
Accumulated other comprehensive income | 1,222,332 | 494,407 | ||||||||
Treasury stock, at cost | (180,042 | ) | (223,507 | ) | ||||||
| Equity attributable to Sony Group Corporation’s stockholders | 7,144,471 | 7,229,709 | ||||||||
Noncontrolling interests | 52,778 | 58,613 | ||||||||
Total equity | 7,197,249 | 7,288,322 | ||||||||
Total liabilities and equity | 30,480,967 | 32,041,222 | ||||||||
The accompanying notes are an integral part of these statements.
F-5
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Income
Yen in millions | ||||||||||
Fiscal year ended March 31 | ||||||||||
Note | 2021 | 2022 | ||||||||
Sales and financial services revenue: | ||||||||||
Sales | 22 | 7,333,670 | 8,396,702 | |||||||
Financial services revenue | 5, | 1,664,991 | 1,524,811 | |||||||
Total sales and financial services revenue | 8,998,661 | 9,921,513 | ||||||||
Costs and expenses: | ||||||||||
Cost of sales | 7, 17, 23 | 5,065,879 | 5,845,804 | |||||||
Selling, general and administrative | 17, | 1,473,154 | 1,588,473 | |||||||
Financial services expenses | 5, | 1,501,674 | 1,374,037 | |||||||
Other operating (income) expense, net | 23, | 14,250 | (65,494 | ) | ||||||
Total costs and expenses | 8,054,957 | 8,742,820 | ||||||||
Share of profit (loss) of investments accounted for using the equity method | 8 | 11,551 | 23,646 | |||||||
Operating income | 955,255 | 1,202,339 | ||||||||
Financial income | 24 | 83,792 | 19,304 | |||||||
Financial expenses | 24 | 41,082 | 104,140 | |||||||
Income before income taxes | 997,965 | 1,117,503 | ||||||||
Income taxes | 25 | (45,931 | ) | 229,097 | ||||||
Net income | 1,043,896 | 888,406 | ||||||||
Net income attributable to | ||||||||||
Sony Group Corporation’s stockholders | 1,029,610 | 882,178 | ||||||||
Noncontrolling interests | 14,286 | 6,228 | ||||||||
Yen | ||||||||||
Fiscal year ended March 31 | ||||||||||
Note | 2021 | 2022 | ||||||||
Per share data: | 26 | |||||||||
Net income attributable to Sony Group Corporation’s stockholders | ||||||||||
— Basic | 836.75 | 711.84 | ||||||||
— Diluted | 823.77 | 705.16 | ||||||||
Yen in millions | ||||||||||||||
Fiscal year ended March 31 | ||||||||||||||
Note | 2021 | 2022 | 2023 | |||||||||||
Sales and financial services revenue: | ||||||||||||||
Sales | 22 | 7,333,670 | 8,396,702 | 10,095,841 | ||||||||||
Financial services revenue | 5, 13 | 1,664,991 | 1,524,811 | 1,443,996 | ||||||||||
Total sales and financial services revenue | 8,998,661 | 9,921,513 | 11,539,837 | |||||||||||
Costs and expenses: | ||||||||||||||
Cost of sales | 7, 17, 23 | 5,065,879 | 5,845,804 | 7,174,723 | ||||||||||
Selling, general and administrative | 17, 23 | 1,473,154 | 1,588,473 | 1,969,170 | ||||||||||
Financial services expenses | 5, 13, 17 | 1,501,674 | 1,374,037 | 1,224,208 | ||||||||||
Other operating (income) expense, net | 23, 31 | 14,250 | (65,494 | ) | (12,021 | ) | ||||||||
Total costs and expenses | 8,054,957 | 8,742,820 | 10,356,080 | |||||||||||
Share of profit (loss) of investments accounted for using the equity method | 8 | 11,551 | 23,646 | 24,449 | ||||||||||
Operating income | 955,255 | 1,202,339 | 1,208,206 | |||||||||||
Financial income | 24 | 83,792 | 19,304 | 31,058 | ||||||||||
Financial expenses | 24 | 41,082 | 104,140 | 58,951 | ||||||||||
Income before income taxes | 997,965 | 1,117,503 | 1,180,313 | |||||||||||
Income taxes | 25 | (45,931 | ) | 229,097 | 236,691 | |||||||||
Net income | 1,043,896 | 888,406 | 943,622 | |||||||||||
Net income attributable to | ||||||||||||||
Sony Group Corporation’s stockholders | 1,029,610 | 882,178 | 937,126 | |||||||||||
Noncontrolling interests | 14,286 | 6,228 | 6,496 | |||||||||||
Yen | ||||||||||||||
Fiscal year ended March 31 | ||||||||||||||
Note | 2021 | 2022 | 2023 | |||||||||||
Per share data: | 26 | |||||||||||||
Net income attributable to Sony Group Corporation’s stockholders | ||||||||||||||
— Basic | 836.75 | 711.84 | 758.38 | |||||||||||
— Diluted | 823.77 | 705.16 | 754.95 | |||||||||||
The accompanying notes are an integral part of these statements.
FF-8
-6
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Yen in millions | ||||||||||
Fiscal year ended March 31 | ||||||||||
Note | 2021 | 2022 | ||||||||
Net income | 1,043,896 | 888,406 | ||||||||
Other comprehensive income, net of tax — | 20 | |||||||||
Items that will not be reclassified to profit or loss | ||||||||||
Changes in equity instruments measured at fair value through other comprehensive income | 144,740 | (106,426 | ) | |||||||
Remeasurement of defined benefit pension plans | 11,555 | 33,641 | ||||||||
Share of other comprehensive income of investments accounted for using the equity method | 87 | 577 | ||||||||
Items that may be reclassified subsequently to profit or loss | ||||||||||
Changes in debt instruments measured at fair value through other comprehensive income | (205,549 | ) | (416,904 | ) | ||||||
Cash flow hedges | 51 | 4,735 | ||||||||
Insurance contract valuation adjustments | (3,120 | ) | 599 | |||||||
Exchange differences on translating foreign operations | 115,321 | 226,275 | ||||||||
Share of other comprehensive income of investments accounted for using the equity method | 798 | 1,501 | ||||||||
Total other comprehensive income, net of tax | 63,883 | (256,002 | ) | |||||||
Comprehensive income | 1,107,779 | 632,404 | ||||||||
Comprehensive income attributable to | ||||||||||
Sony Group Corporation’s stockholders | 1,118,628 | 623,678 | ||||||||
Noncontrolling interests | (10,849 | ) | 8,726 | |||||||
Yen in millions | ||||||||||||||
Fiscal year ended March 31 | ||||||||||||||
Note | 2021 | 2022 | 2023 | |||||||||||
Net income | 1,043,896 | 888,406 | 943,622 | |||||||||||
Other comprehensive income, net of tax — | 20 | |||||||||||||
Items that will not be reclassified to profit or loss | ||||||||||||||
Changes in equity instruments measured at fair value through other comprehensive income | 144,740 | (106,426 | ) | (36,862 | ) | |||||||||
Remeasurement of defined benefit pension plans | 11,555 | 33,641 | 18,891 | |||||||||||
Share of other comprehensive income of investments accounted for using the equity method | 87 | 577 | 145 | |||||||||||
Items that may be reclassified subsequently to profit or loss | ||||||||||||||
Changes in debt instruments measured at fair value through other comprehensive income | (205,549 | ) | (416,904 | ) | (884,678 | ) | ||||||||
Cash flow hedges | 51 | 4,735 | 12,379 | |||||||||||
Insurance contract valuation adjustments | (3,120 | ) | 599 | 1,714 | ||||||||||
Exchange differences on translating foreign operations | 115,321 | 226,275 | 178,275 | |||||||||||
Share of other comprehensive income of investments accounted for using the equity method | 798 | 1,501 | 3,554 | |||||||||||
Total other comprehensive income, net of tax | 63,883 | (256,002 | ) | (706,582 | ) | |||||||||
Comprehensive income | 1,107,779 | 632,404 | 237,040 | |||||||||||
Comprehensive income attributable to | ||||||||||||||
Sony Group Corporation’s stockholders | 1,118,628 | 623,678 | 227,794 | |||||||||||
Noncontrolling interests | (10,849 | ) | 8,726 | 9,246 | ||||||||||
The accompanying notes are an integral part of these statements.
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity
Yen in millions | ||||||||||||||||||||||||||||||||||||
Note | Common stock | Additional paid-in capital | Retained earnings | Accumulated other comprehensive income | Treasury stock, at cost | Sony Group Corporation’s stockholders’ equity | Noncontrolling interests | Total equity | ||||||||||||||||||||||||||||
Balance at April 1, 2020 | 880,214 | 1,297,554 | 1,949,697 | 979,476 | (232,503 | ) | 4,874,438 | 1,120,038 | 5,994,476 | |||||||||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||||||||
Net income | 1,029,610 | 1,029,610 | 14,286 | 1,043,896 | ||||||||||||||||||||||||||||||||
Other comprehensive income, net of tax | 20 | 89,018 | 89,018 | (25,135 | ) | 63,883 | ||||||||||||||||||||||||||||||
Total comprehensive income | 1,029,610 | 89,018 | 1,118,628 | (10,849 | ) | 1,107,779 | ||||||||||||||||||||||||||||||
Transfer to retained earnings | 5,472 | (5,472 | ) | — | — | |||||||||||||||||||||||||||||||
Transactions with stockholders and other: | ||||||||||||||||||||||||||||||||||||
Exercise of stock acquisition rights | (354 | ) | (735 | ) | 18,074 | 16,985 | 16,985 | |||||||||||||||||||||||||||||
Conversion of convertible bonds | (3,671 | ) | (8,198 | ) | 89,402 | 77,533 | 77,533 | |||||||||||||||||||||||||||||
Stock-based compensation | 1,577 | 1,577 | 1,577 | |||||||||||||||||||||||||||||||||
Dividends declared (50.00 yen per share) | (61,343 | ) | (61,343 | ) | (12,996 | ) | (74,339 | ) | ||||||||||||||||||||||||||||
Purchase of treasury stock | (366 | ) | (366 | ) | (366 | ) | ||||||||||||||||||||||||||||||
Reissuance of treasury stock | 354 | 1,165 | 1,519 | 1,519 | ||||||||||||||||||||||||||||||||
Transactions with noncontrolling interests shareholders and other | 20 | 194,137 | 457,235 | 651,372 | (1,052,197 | ) | (400,825 | ) | ||||||||||||||||||||||||||||
Balance at March 31, 2021 | 880,214 | 1,489,597 | 2,914,503 | 1,520,257 | (124,228 | ) | 6,680,343 | 43,996 | 6,724,339 | |||||||||||||||||||||||||||
Yen in millions | ||||||||||||||||||||||||||||||||||||
Note | Common stock | Additional paid-in capital | Retained earnings | Accumulated other comprehensive income | Treasury stock, at cost | Sony Group Corporation’s stockholders’ equity | Noncontrolling interests | Total equity | ||||||||||||||||||||||||||||
Balance at April 1, 2021 | 880,214 | 1,489,597 | 2,914,503 | 1,520,257 | (124,228 | ) | 6,680,343 | 43,996 | 6,724,339 | |||||||||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||||||||
Net income | 882,178 | 882,178 | 6,228 | 888,406 | ||||||||||||||||||||||||||||||||
Other comprehensive income, net of tax | 20 | (258,500 | ) | (258,500 | ) | 2,498 | (256,002 | ) | ||||||||||||||||||||||||||||
Total comprehensive income | 882,178 | (258,500 | ) | 623,678 | 8,726 | 632,404 | ||||||||||||||||||||||||||||||
Transfer to retained earnings | 39,425 | (39,425 | ) | — | — | |||||||||||||||||||||||||||||||
Transactions with stockholders and other: | ||||||||||||||||||||||||||||||||||||
Issuance of new shares | 151 | 151 | 302 | 302 | ||||||||||||||||||||||||||||||||
Exercise of stock acquisition rights | 547 | 12,785 | 13,332 | 13,332 | ||||||||||||||||||||||||||||||||
Conversion of convertible bonds | (2,805 | ) | (958 | ) | 18,278 | 14,515 | 14,515 | |||||||||||||||||||||||||||||
Stock-based compensation | 6,643 | 6,643 | 6,643 | |||||||||||||||||||||||||||||||||
Dividends declared (60.00 yen per share) | (74,385 | ) | (74,385 | ) | (4,955 | ) | (79,340 | ) | ||||||||||||||||||||||||||||
Purchase of treasury stock | 20 | (88,624 | ) | (88,624 | ) | (88,624 | ) | |||||||||||||||||||||||||||||
Reissuance of treasury stock | 1,544 | 1,747 | 3,291 | 3,291 | ||||||||||||||||||||||||||||||||
Transactions with noncontrolling interests shareholders and other | (34,624 | ) | (34,624 | ) | 5,011 | (29,613 | ) | |||||||||||||||||||||||||||||
Balance at March 31, 2022 | 880,365 | 1,461,053 | 3,760,763 | 1,222,332 | (180,042 | ) | 7,144,471 | 52,778 | 7,197,249 | |||||||||||||||||||||||||||
F-8
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity (Continued)
Yen in millions | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Note | Common stock | Additional paid-in capital | Retained earnings | Accumulated other comprehensive income | Treasury stock, at cost | Sony Group Corporation’s stockholders’ equity | Noncontrolling interests | Total equity | Yen in millions | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at April 1, 2020 | 880,214 | 1,297,554 | 1,949,697 | 979,476 | (232,503 | ) | 4,874,438 | 1,120,038 | 5,994,476 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Note | Common stock | Additional paid-in capital | Retained earnings | Accumulated other comprehensive income | Treasury stock, at cost | Sony Group Corporation’s stockholders’ equity | Noncontrolling interests | Total equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at April 1, 2022 | 880,365 | 1,461,053 | 3,760,763 | 1,222,332 | (180,042 | ) | 7,144,471 | 52,778 | 7,197,249 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | 1,029,610 | 1,029,610 | 14,286 | 1,043,896 | 937,126 | 937,126 | 6,496 | 943,622 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income, net of tax | 20 | 89,018 | 89,018 | (25,135 | ) | 63,883 | 20 | (709,332 | ) | (709,332 | ) | 2,750 | (706,582 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income | 1,029,610 | 89,018 | 1,118,628 | (10,849 | ) | 1,107,779 | 937,126 | (709,332 | ) | 227,794 | 9,246 | 237,040 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Transfer to retained earnings | 5,472 | (5,472 | ) | — | — | 18,593 | (18,593 | ) | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Transactions with stockholders and other: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of stock acquisition rights | (354 | ) | (735 | ) | 18,074 | 16,985 | 16,985 | (14 | ) | (1,352 | ) | 10,364 | 8,998 | 8,998 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Conversion of convertible bonds | (3,671 | ) | (8,198 | ) | 89,402 | 77,533 | 77,533 | (2,588 | ) | (13,858 | ) | 42,993 | 26,547 | 26,547 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | 1,577 | 1,577 | 1,577 | 11,064 | 11,064 | 11,064 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared (50.00 yen per share) | (61,343 | ) | (61,343 | ) | (12,996 | ) | (74,339 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared (70.00 yen per share) | (86,635 | ) | (86,635 | ) | (5,980 | ) | (92,615 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Purchase of treasury stock | (366 | ) | (366 | ) | (366 | ) | 20 | (99,248 | ) | (99,248 | ) | (99,248 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reissuance of treasury stock | 354 | 1,165 | 1,519 | 1,519 | 1,242 | 2,426 | 3,668 | 3,668 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Transactions with noncontrolling interests shareholders and other | 20 | 194,137 | 457,235 | 651,372 | (1,052,197 | ) | (400,825 | ) | (6,950 | ) | (6,950 | ) | 2,569 | (4,381 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2021 | 880,214 | 1,489,597 | 2,914,503 | 1,520,257 | (124,228 | ) | 6,680,343 | 43,996 | 6,724,339 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Yen in millions | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Note | Common stock | Additional paid-in capital | Retained earnings | Accumulated other comprehensive income | Treasury stock, at cost | Sony Group Corporation’s stockholders’ equity | Noncontrolling interests | Total equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at April 1, 2021 | 880,214 | 1,489,597 | 2,914,503 | 1,520,257 | (124,228 | ) | 6,680,343 | 43,996 | 6,724,339 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | 882,178 | 882,178 | 6,228 | 888,406 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income, net of tax | 20 | (258,500 | ) | (258,500 | ) | 2,498 | (256,002 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income | 882,178 | (258,500 | ) | 623,678 | 8,726 | 632,404 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Transfer to retained earnings | 39,425 | (39,425 | ) | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Transactions with stockholders and other: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of new shares | 151 | 151 | 302 | 302 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of stock acquisition rights | 547 | 12,785 | 13,332 | 13,332 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Conversion of convertible bonds | (2,805 | ) | (958 | ) | 18,278 | 14,515 | 14,515 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | 6,643 | 6,643 | 6,643 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared (60.00 yen per share) | (74,385 | ) | (74,385 | ) | (4,955 | ) | (79,340 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Purchase of treasury stock | 20 | (88,624 | ) | (88,624 | ) | (88,624 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reissuance of treasury stock | 1,544 | 1,747 | 3,291 | 3,291 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Transactions with noncontrolling interests shareholders and other | (34,624 | ) | (34,624 | ) | 5,011 | (29,613 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2022 | 880,365 | 1,461,053 | 3,760,763 | 1,222,332 | (180,042 | ) | 7,144,471 | 52,778 | 7,197,249 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2023 | 880,365 | 1,463,807 | 4,614,637 | 494,407 | (223,507 | ) | 7,229,709 | 58,613 | 7,288,322 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these statements.
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Cash Flows
Yen in millions | Yen in millions | |||||||||||||||||||||||||||
Fiscal year ended March 31 | Fiscal year ended March 31 | |||||||||||||||||||||||||||
Note | 2021 | 2022 | Note | 2021 | 2022 | 2023 | ||||||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||||||||||
Income before income taxes | 997,965 | 1,117,503 | 997,965 | 1,117,503 | 1,180,313 | |||||||||||||||||||||||
Adjustments to reconcile income before income taxes to net cash provided by operating activities: | ||||||||||||||||||||||||||||
Depreciation and amortization, including amortization of contract costs | 687,373 | 835,233 | 687,373 | 835,233 | 1,004,590 | |||||||||||||||||||||||
Amortization of deferred insurance acquisition costs | 44,738 | 69,237 | 44,738 | 69,237 | 84,523 | |||||||||||||||||||||||
Other operating (income) expense, net | 2 3 | 14,250 | (65,494 | ) | 23 | 14,250 | (65,494 | ) | (12,021 | ) | ||||||||||||||||||
(Gain) loss on securities, net (other than Financial Services segment) | 24 | (62,704 | ) | 60,402 | 24 | (62,704 | ) | 60,402 | 4,469 | |||||||||||||||||||
Share of profit of investments accounted for using the equity method, net of dividends | (5,012 | ) | (13,934 | ) | (5,012 | ) | (13,934 | ) | (17,696 | ) | ||||||||||||||||||
Change in future insurance policy benefits and other | 358,666 | 458,880 | 358,666 | 458,880 | 234,102 | |||||||||||||||||||||||
Change in policyholders’ account in the life insurance business, less cash impact | 558,539 | 238,309 | 558,539 | 238,309 | 15,523 | |||||||||||||||||||||||
Net cash impact of policyholders’ account in the life insurance business | 134,299 | 227,262 | 134,299 | 227,262 | 346,455 | |||||||||||||||||||||||
Changes in assets and liabilities: | ||||||||||||||||||||||||||||
Increase in trade receivables and contract assets | (137,939 | ) | (171,094 | ) | (137,939 | ) | (171,094 | ) | (70,448 | ) | ||||||||||||||||||
Increase in inventories | (56,509 | ) | (194,624 | ) | (56,509 | ) | (194,624 | ) | (560,382 | ) | ||||||||||||||||||
Increase in investments and advances in the Financial Services segment | (1,901,928 | ) | (1,529,665 | ) | (1,977,092 | ) | (1,724,164 | ) | (1,250,078 | ) | ||||||||||||||||||
Increase in content assets | (325,664 | ) | (489,617 | ) | (309,178 | ) | (502,253 | ) | (603,314 | ) | ||||||||||||||||||
Increase in deferred insurance acquisition costs | (98,122 | ) | (117,337 | ) | (98,122 | ) | (117,337 | ) | (118,096 | ) | ||||||||||||||||||
Increase in trade payables | 288,854 | 126,989 | ||||||||||||||||||||||||||
Increase (decrease) in trade payables | 288,854 | 126,989 | (109,336 | ) | ||||||||||||||||||||||||
Increase in deposits from customers in the banking business | 333,075 | 230,236 | 333,075 | 230,236 | 300,201 | |||||||||||||||||||||||
Increase in borrowings in the life insurance business and the banking business | 462,751 | 905,139 | 462,751 | 905,139 | 111,314 | |||||||||||||||||||||||
Increase in other financial assets and other current assets | (9,703 | ) | (17,681 | ) | ||||||||||||||||||||||||
Increase in taxes payable other than income taxes, net | 19,164 | 17,840 | 4,183 | |||||||||||||||||||||||||
(Increase) decrease in other financial assets and other current assets | (9,703 | ) | (17,681 | ) | 5,965 | |||||||||||||||||||||||
Increase in other financial liabilities and other current liabilities | 23,906 | 66,407 | 23,906 | 66,407 | 122,878 | |||||||||||||||||||||||
Income taxes paid | 25 | (102,732 | ) | (269,885 | ) | 25 | (102,732 | ) | (269,885 | ) | (297,881 | ) | ||||||||||||||||
Other | (63,886 | ) | (232,623 | ) | (24,372 | ) | (43,328 | ) | (60,573 | ) | ||||||||||||||||||
Net cash provided by operating activities | 1,140,217 | 1,233,643 | 1,140,217 | 1,233,643 | 314,691 | |||||||||||||||||||||||
(Continued on
the
following page.)
F-10
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
Yen in millions | ||||||||||||
Fiscal year ended March 31 | ||||||||||||
Note | 2021 | 2022 | ||||||||||
Cash flows from investing activities: | ||||||||||||
Payments for property, plant and equipment and other intangible assets | (477,931 | ) | (441,096 | ) | ||||||||
Proceeds from sales of property, plant and equipment and other intangible assets | 15,893 | 11,409 | ||||||||||
Payments for investments and advances (other than Financial Services segment) | (103,351 | ) | (91,082 | ) | ||||||||
Proceeds from sales or return of investments and collections of advances (other than Financial Services segment) | 20,352 | 16,081 | ||||||||||
Payments for purchases of businesses | (15,260 | ) | (277,618 | ) | ||||||||
Proceeds from sales of businesses | 3,151 | 64,609 | ||||||||||
Other | (6,764 | ) | (11,083 | ) | ||||||||
Net cash used in investing activities | (563,910 | ) | (728,780 | ) | ||||||||
Cash flows from financing activities: | ||||||||||||
Increase (decrease) in short-term borrowings, net | 14, 27 | (18,334 | ) | 408 | ||||||||
Proceeds from issuance of long-term debt | 14, 27 | 236,935 | 31,458 | |||||||||
Payments of long-term debt | 14, 27 | (89,918 | ) | (194,562 | ) | |||||||
Proceeds from issuance of short-term borrowings in connection with payment for purchase of noncontrolling interest in Sony Financial Group Inc. | 396,500 | — | ||||||||||
Payments of short-term borrowings in connection with payment for purchase of noncontrolling interest in Sony Financial Group Inc. | (396,500 | ) | — | |||||||||
Dividends paid | (61,288 | ) | (74,342 | ) | ||||||||
Payments for purchase s of treasury stock | 20 | (366 | ) | (88,624 | ) | |||||||
Payment for purchase of noncontrolling interest in Sony Financial Group Inc. | 20 | (396,698 | ) | — | ||||||||
Other | (8,864 | ) | (10,916 | ) | ||||||||
Net cash used in financing activities | (338,533 | ) | (336,578 | ) | ||||||||
Effect of exchange rate changes on cash and cash equivalents | 36,685 | 94,369 | ||||||||||
Net increase in cash and cash equivalents | 274,459 | 262,654 | ||||||||||
Cash and cash equivalents at beginning of the fiscal year | 27 | 1,512,523 | 1,786,982 | |||||||||
Cash and cash equivalents at end of the fiscal year | 1,786,982 | 2,049,636 | ||||||||||
Yen in millions | ||||||||||||||||
Fiscal year ended March 31 | ||||||||||||||||
Note | 2021 | 2022 | 2023 | |||||||||||||
Cash flows from investing activities: | ||||||||||||||||
Payments for property, plant and equipment and other intangible assets | (477,931 | ) | (441,096 | ) | (613,635 | ) | ||||||||||
Proceeds from sales of property, plant and equipment and other intangible assets | 15,893 | 11,409 | 11,595 | |||||||||||||
Payments for investments and advances (other than Financial Services segment) | (103,351 | ) | (91,082 | ) | (191,129 | ) | ||||||||||
Proceeds from sales or return of investments and collections of advances (other than Financial Services segment) | 20,352 | 16,081 | 13,548 | |||||||||||||
Payments for purchases of businesses | (15,260 | ) | (277,618 | ) | (283,402 | ) | ||||||||||
Proceeds from sales of businesses | 3,151 | 64,609 | 1,221 | |||||||||||||
Other | (6,764 | ) | (11,083 | ) | 9,138 | |||||||||||
Net cash used in investing activities | (563,910 | ) | (728,780 | ) | (1,052,664 | ) | ||||||||||
Cash flows from financing activities: | ||||||||||||||||
Increase (decrease) in short-term borrowings, net | 14, 27 | (18,334 | ) | 408 | 32,391 | |||||||||||
Proceeds from issuance of long-term debt | 14, 27 | 236,935 | 31,458 | 361,776 | ||||||||||||
Payments of long-term debt | 14, 27 | (89,918 | ) | (194,562 | ) | (132,198 | ) | |||||||||
Proceeds from issuance of short-term borrowings in connection with payment for purchase of noncontrolling interest in Sony Financial Group Inc. | 396,500 | — | — | |||||||||||||
Payments of short-term borrowings in connection with payment for purchase of noncontrolling interest in Sony Financial Group Inc. | (396,500 | ) | — | — | ||||||||||||
Dividends paid | (61,288 | ) | (74,342 | ) | (86,568 | ) | ||||||||||
Payments for purchases of treasury stock | 20 | (366 | ) | (88,624 | ) | (99,248 | ) | |||||||||
Payment for purchase of noncontrolling interest in Sony Financial Group Inc. | 20 | (396,698 | ) | — | — | |||||||||||
Other | (8,864 | ) | (10,916 | ) | 8,147 | |||||||||||
Net cash provided by (used in) financing activities | (338,533 | ) | (336,578 | ) | 84,300 | |||||||||||
Effect of exchange rate changes on cash and cash equivalents | 36,685 | 94,369 | 84,937 | |||||||||||||
Net increase (decrease) in cash and cash equivalents | 274,459 | 262,654 | (568,736 | ) | ||||||||||||
Cash and cash equivalents at beginning of the fiscal year | 27 | 1,512,523 | 1,786,982 | 2,049,636 | ||||||||||||
Cash and cash equivalents at end of the fiscal year | 27 | 1,786,982 | 2,049,636 | 1,480,900 | ||||||||||||
The accompanying notes are an integral part of these statements.
F-11
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES
Index to Notes to Consolidated Financial Statements
Sony Group Corporation and Consolidated Subsidiaries
Page | ||||||||
Notes to Consolidated Financial Statements
F-12
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
Sony Group Corporation and Consolidated Subsidiaries
1. | Reporting entity |
Sony Group Corporation is a public company domiciled in Japan. Sony Group Corporation and its consolidated subsidiaries (hereinafter collectively referred to as “Sony” or “Sony Group”) are engaged in the development, design, production, manufacture, offer and sale of various kinds of electronic equipment, instruments, and devices for consumer, professional and industrial markets such as network services, home gaming consoles and software, televisions, audio and video recorders and players, still and video cameras, smartphones, and image sensors. Sony’s primary manufacturing facilities are located in Asia including Japan. Sony also utilizes third-party contract manufacturers for certain products. Sony’s products and services are marketed throughout the world by sales subsidiaries and unaffiliated distributors as well as direct sales and offers via the internet. Sony is engaged in the development, production, manufacture, and distribution of recorded music and the management and licensing of the words and music of songs as well as production and distribution of animation titles and game applications. Sony is also engaged in the production, acquisition and distribution of motion pictures and television programming and the operation of television networks and direct-to-consumer (“DTC”) streaming services. Further, Sony is also engaged in various financial services businesses, including life and non-life insurance businesses through its Japanese insurance subsidiaries and banking business through a Japanese internet-based banking subsidiary.
2. | Basis of preparation |
Compliance with International Financial Reporting Standards
The consolidated financial statements of Sony have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”). The term “IFRS” also includes International Accounting Standards (IASs) and the related interpretations of the interpretations committees (Standard Interpretations Committee (SIC) and International Financial Reporting Interpretations Committee (IFRIC)).
Approval of consolidated financial statements
The consolidated financial statements were approved by Kenichiro Yoshida, Chairman and Chief Executive Officer and Representative Corporate Executive Officer, and Hiroki Totoki, President, Chief Operating Officer and Chief Financial Officer and Representative Corporate Executive Officer, on June 20, 2023.
Basis of measurement
The consolidated financial statements have been prepared on a historical cost basis except for items such as financial instruments measured at fair value as separately described in Note 3.
Functional currency and presentation currency
The consolidated financial statements have been presented in Japanese yen, which is the functional currency of Sony Group Corporation. All financial information presented in Japanese yen has been rounded to the nearest million Japanese yen.
Use of estimates and judgments
The preparation of the consolidated financial statements in accordance with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies, the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. Actual results could differ from these estimates and assumptions. These estimates and assumptions are reviewed on a continuous basis. Changes in these accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
Information about judgments that have been made in the process of applying accounting policies that have significant effects on the amounts reported in the consolidated financial statements is as follows:
Classification of financial instruments (Note 3 I (5))
F-13
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES
Information about accounting estimates and assumptions that have significant effects on the amounts reported in the consolidated financial statements is as follows:
Fair value of financial instruments (Note 3 I (5) and (15) and Note 5)
Impairment of
non-financial
assets (Note 3 I (10) and Note 12)Measurement of deferred insurance acquisition costs, future insurance policy benefits, and policyholders’ account in the life insurance business (Note 3 I (11) and Note 13)
Measurement of film costs and participation and residual liabilities in the Pictures segment (Note 3 I (9) and (12), Note 11, and Note 18)
Recoverability of deferred tax assets (Note 3 I (23) and Note 25)
Measurement of fair value of assets acquired and liabilities assumed in business combinations (Note 3 I (2) and Note 30)
Change in presentation
Consolidated Statements of Cash Flows
Adjustments for foreign exchange fluctuations related to investments in the Financial Services segment and adjustments for foreign exchange fluctuations related to content assets, which were included in “Other” in cash flows from operating activities in the previous fiscal year, have been reclassified to “Increase in investments and advances in the Financial Services segment” and “Increase in content assets,” respectively, of cash flows from operating activities from the current fiscal year considering the materiality and the nature of the adjustments. Also, adjustments for changes in taxes payable other than income taxes, net, which were included in “Other” in cash flows from operating activities in the previous fiscal year, have been presented separately as “Increase in taxes payable other than income taxes, net” in cash flows from operating activities from the current fiscal year considering, among other things, the increase in materiality of the adjustments during the fiscal year ended March 31, 2023. As a result of these changes in presentation, reclassifications within cash flows from operating activities in the consolidated statements of cash flows for the fiscal years ended March 31, 2021 and 2022 have been made to conform to the presentation for the fiscal year ended March 31, 2023.
As a result, in the consolidated statements of cash flows for the fiscal year ended March 31, 2021 (39,514) million yen, which was previously included in “Other” in cash flows from operating activities, has been reclassified to (75,164) million yen of “Increase in investments and advances in the Financial Services segment” and 16,486 million yen of “Increase in content assets,” and also has been presented separately in 19,164 million yen of “Increase in taxes payable other than income taxes, net” of cash flows from operating activities. In the consolidated statements of cash flows for the fiscal year ended March 31, 2022
(189,295)
million yen, which was previously included in “Other” in cash flows from operating activities, has been reclassified to(194,499)
million yen of “Increase in investments and advances in the Financial Services segment” and(12,636)
million yen of “Increase in content assets,” and also has been presented separately in 17,840 million yen of “Increase in taxes payable other than income taxes, net” of cash flows from operating activities.3. |
I.
Basis of
A subsidiary is an entity controlled by Sony Group Corporation. Control is obtained when Sony Group Corporation is exposed, or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements of Sony from the date on which control is obtained until the date on which control is lost. All intercompany transactions and balances are eliminated in the preparation of the consolidated financial statements. F-14 SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES If
Any changes in ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. The difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration is directly recognized in equity and attributed to the owners of Sony. When control over a subsidiary is lost, the investment retained in the former subsidiary is remeasured at fair value as of the date when control is lost, and any gain or loss resulting from the loss of control is recognized in profit or loss.
An associate is an entity over which Sony has significant influence, but does not have control or joint control, in terms of financial and operating policies. A joint venture is an investee whereby two or more parties including Sony have the rights to the net assets of the investee in accordance with the terms of the joint arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. Investments in associates and joint ventures are accounted for using the equity method from the date on which significant influence or joint control is obtained until the date on which significant influence or joint control is lost. Under the equity method, investments in associates and joint ventures are recognized at cost, adjusted for Sony’s share of the profit or loss and other comprehensive income of the associates and joint ventures from the date on which Sony obtains significant influence or joint control to the date on which Sony loses such significant influence or joint control. Sony recognizes its share of profit or loss of the investees, net of income taxes after the elimination of unrealized intercompany profits, in the consolidated operating income (loss) to the extent of Sony’s interest in these entities. For investments accounted for using the equity method, the carrying amount of each investment is tested for impairment as a single asset, when there is objective evidence that the investments may be impaired. If any accounting policies applied by an associate or a joint venture differ from those applied by Sony, adjustments are made to the financial statements of the associate or the joint venture as necessary. When an investment ceases to be an associate or a joint venture and the use of the equity method is discontinued, any gain or loss arising from discontinuation of the equity method is recognized in profit or loss.
A joint operation is a joint arrangement whereby two or more parties including Sony have the rights to the assets, and obligations for the liabilities, relating to the investee in accordance with the terms of the joint arrangement. Sony recognizes its share of the assets, liabilities, revenue and expenses related to joint operations.
A structured entity is an entity designed so that voting or similar rights are not the dominant factor in deciding who controls the entity. Sony has control and, therefore, consolidates a structured entity when Sony has exposure or rights to variable returns and has the ability to use its power over the structured entity to affect returns.
Sony recognizes identifiable assets acquired and the liabilities assumed of an acquiree at their fair valu es at the acquisition date withlimited exceptions. F-15 SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES Sony recognizes goodwill when the amount of anynon-controlling interests in the acquiree and the fair value of Sony’s previously held equity interest in the acquiree exceeds the net amount of the identifiable assets and liabilities of the acquiree at the acquisition date. If the aggregate above is less than the net amount of identifiable assets and liabilities, the difference is recognized as a gain. The consideration transferred is calculated as the sum of the fair values of the assets transferred, liabilities assumed and equity interest issued.Non-controlling interests are measured either at fair value or based on thenon-controlling interests’ proportionate share of the acquiree’s net identifiable assets for each business combination transaction.Acquisition-related costs are recognized as expenses in the period they are incurred.
Foreign currency transactions are translated at the exchange rates prevailing at the transaction date or rates that approximate such rates. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency using the exchange rate at the end of the period. Foreign exchange gains and losses resulting from translation and settlement are generally recognized in profit or loss. They are deferred in other comprehensive income if they relate to qualifying cash flow hedges.
Assets and liabilities of foreign operations such as overseas subsidiaries and associates are translated using the exchange rates at the end of the period, and revenue and expense items are translated using the average exchange rates for the period unless the exchange rates fluctuate significantly. Exchange differences arising from the translation are recognized in other comprehensive income. On the disposal of a foreign operation, the cumulative amount of exchange differences relating to that foreign operation is reclassified to profit or loss.
Cash and cash equivalents include all highly liquid investments, with original maturities of three months or less, that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
Sony recognizes a financial instrument as a financial asset or a financial liability when Sony becomes party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Except for financial assets and financial liabilities measured at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issuance of the financial asset or financial liability are added to the fair value of financial assets or subtracted from the fair value of financial liabilities at initial recognition.
Non-derivative financial assets held by Sony are classified as either financial assets measured at amortized cost, debt instruments measured at fair value through other comprehensive income, equity instruments measured at fair value through other comprehensive income or financial assets measured at fair value through profit or loss.Financial assets measured at amortized cost Sony classifies a financial asset as measured at amortized cost if the financial asset is held within a business model whose objective is to collect contractual cash flows and the cont ractual terms ofthe F-16 SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. The financial asset is measured at amortized cost by using the effective interest method after initial recognition. On derecognition of a financial asset measured at amortized cost, the difference between the carrying amount and the consideration received or receivable is recognized in profit or loss. Debt instruments measured at fair value through other comprehensive income A debt instrument is classified as a financial asset measured at fair value through other comprehensive income if the debt instrument is held within a business model whose objective is achieved by both collecting contractual cash flows and selling the financial asset and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Changes in the fair value of the financial asset after initial recognition, except for impairment gains or losses and foreign exchange gains or losses, are recognized in other comprehensive income. Interest income from these financial assets is recognized in profit or loss using the effective interest method. On derecognition of a debt instrument measured at fair value through other comprehensive income, the cumulative amount previously recognized in other comprehensive income is reclassified to profit or loss. In the life insurance business, the financial assets are held mainly from the perspective of asset-liability management (“ALM”). The objective of holding financial assets in the life insurance business is to match the interest rate sensitivity (duration) of financial assets and insurance contract liabilities (which mainly consist of future insurance policy benefits and the policyholders’ account in the life insurance business) as much as possible, in order to ensure sufficient cash flows are available to settle insurance claims when they come due. Sony manages these assets as one portfolio, based on the overall objective of managing duration and liquidity needs in a capital efficient manner. While some assets within the portfolio may be held for a longer period of time, Sony considers, because of its overall objective for these assets, that all the financial assets are held within one business model whose objective is achieved by both collecting cash flows and selling financial assets. Equity instruments measured at fair value through other comprehensive income For investments in equity instruments which are not held for trading, Sony may make an irrevocable election at initial recognition to present subsequent changes in fair value of the investments in other comprehensive income. These financial assets are measured at fair value and subsequent changes in the fair value are recognized in other comprehensive income. Dividends from financial assets are recognized in profit or loss, and the cumulative amount recognized in other comprehensive income is transferred to retained earnings upon derecognition. Financial assets measured at fair value through profit or loss Financial assets other than those measured at amortized cost or fair value through other comprehensive income are classified as financial assets measured at fair value through profit or loss. Financial assets measured at fair value through profit or loss include financial assets held for trading. In the life insurance business, investments held for variable life insurance and individual variable annuity contracts mainly consist of equity securities, debt securities and investment funds, which are measured at fair value through profit or loss. For certain financial assets that would not normally be measured at fair value through profit or loss, Sony may, at initial recognition, choose the irrevocable option to measure such financial assets at fair value through profit or loss in order to eliminate or significantly reduce an accounting mismatch. In the banking business, Sony has made the irrevocable election as mentioned above for some fixed-rate debt securities. In relation to such debt securities, Sony utilizes derivatives to hedge the risk arising from the changes in the fair value of the debt securities due to unfavorable fluctuations of interest rates. Thus, this election is made to mitigate accounting mismatches derived from the changes in the fair value of the debt securities and derivatives used as hed ging instruments by recognizing gains and losses from the changes in the fair value of the debt securities in profit or loss.
Sony derecognizes a financial asset when the co ntrac tual rights to the cash flows from the financial asset expire, or when Sony transfers the contractual rights to receive the cash flows of the financial asset and transfers substantially all of the risks and rewards of the financial asset.
Sony estimates expected credit losses and recognizes loss allowances for financial assets measured at amortized cost and debt instruments measured at fair value through other comprehensive income. At each reporting date, Sony measures the loss allowance for a financial instrument at an amount equal to the lifetime expected credit losses if the credit risk on that financial instrument has increased significantly since initial recognition. If, at the reporting date, the credit risk on a financial instrument has not increased significantly since initial recognition, Sony measures the loss allowance for that financial instrument at an amount equal to 12-month expected credit losses. In assessing whether the credit risk has increased significantly or not, Sony uses the change in the risk of a default occurring over the expected life of the financial instrument and estimates expected credit losses by using the method which reflects the past loss rate and other reasonable and supportable forward-looking information on macroeconomic factors affecting the ability of the customers to settle the receivables.Sony measures the expected credit losses of a financial asset in a way tha t r eflects an unbiased and probability-weighted amount incorporating the time value of money and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions.However, for trade and other receivables, and contract assets including non-current other receivables in the Pictures segment, the loss allowance is measured at an amount equal to lifetime expected credit losses irrespective of the change of credit risk on a collective basis or an individual basis incorporating factors such as thepast-due status and the attributes of the counterparties.Sony determines a financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred. The criteria that Sony uses to determine that a financial asset is credit-impaired include a default or delinquency of more than 90 days past due in interest or principal payments. Sony writes off the gross carrying amount of a financial asset when it cannot reasonably expect to recover all or part of the asset. Debt securities and housing loans in the Financial Services segment The expected credit losses for debt securities and housing loans in the Financial Services segment are the product of the probability of default (“PD”), loss given default (“LGD”) and exposure at default (“EAD”), by leveraging the Basel III regulatory framework or based on the external information published by major credit rating agencies. Forward-looking economic information is also included in determining the PD. Assessments on significant increases in credit risk are performed at the reporting date by comparing the risk of default occurring with that at initial recognition. Sony recognizes and measures the expected credit losses on a collective basis or an individual basis using reasonable and supportable information that is available without undue cost or effort, such as asset type, credit ratings, collateral collectability, past-due status and other relevant characteristics of financial instruments.In addition, Sony has applied the low credit risk exemption for certain debt securities rated “investment grade” by major credit rating agencies at the reporting date. For such instruments, Sony assumes that the credit risk has not increased significantly since initial recognition. If contractual terms of a loan have been modified , it is necessary to recalculate the gross carrying amount of that loan by using the original effective interest rate and recognize a modification gain or loss in profit orloss. F -18SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES
Sony classifies non-derivative financial liabilities as either financial liabilities subsequently measured at amortized cost by using the effective interest method or financial liabilities measured at fair value through profit or loss.Sony derecognizes a financial liability when it is extinguished, meaning when the obligation specified in the contract is discharged, cancelled or expired.
All derivatives are recognized as either assets or liabilities in the consolidated statements of financial position at fair value. Changes in the fair value of derivative financial instruments are either recognized periodically through profit or loss or other comprehensive income, depending on whether the derivative financial instrument qualifies as a hedge and the derivative is being used to hedge changes in cash flows. Derivative financial instruments held by Sony are accounted for as described below. Cash flow hedges Changes in the fair value of derivatives that are designated and determined to be effective as cash flow hedges for forecasted transactions or exposures associated with recognized assets or liabilities are initially recorded in other comprehensive income and reclassified to profit or loss when the hedged transaction affects profit or loss. Changes in the fair value of the ineffective portion are immediately recognized in profit or loss. Derivatives not designated as hedges Changes in the fair value of derivatives not designated as hedges are immediately recognized in profit or loss. Assessment of hedge effectiveness When applying hedge accounting, Sony formally documents all hedging relationships between the derivatives designated as hedges and the hedged items, as well as its risk management objectives and strategies for undertaking various hedging activities. Sony links all hedges that are designated as cash flow hedges to specific assets or liabilities in the consolidated statements of financial position or to the specific forecasted transactions. Sony also assesses, both at the inception of the hedge and on an on-going basis, whether the derivatives that are designated as hedges have an economic relationship with the hedged item in offsetting changes in fair value or cash flows of hedged items. The effect of credit risk does not dominate the value changes that result from the underlying economic relationship. In addition, the hedge ratio of the hedging relationship is designed to be the same as that resulting from the quantity of the hedged item that Sony actually hedges and the quantity of the hedging instrument that Sony actually uses to hedge that quantity of the hedged item. When it is determined that a derivative no longer has an economic relationship with the hedged item, Sony discontinues hedge accounting.
Sony offsets a financial asset and a financial liability and presents the net amount in the consolidated statements of financial position when Sony currently has a legally enforceable right to set off the recognized amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.
Inventories are measured at the lower of cost or net realizable value. The cost of inventories is determined on the “ ” F-19 SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES
Sony has adopted the cost model for the measurement of property, plant and equipment and presents an item of property, plant and equipment at its cost less any accumulated depreciation and any accumulated impairment losses. The cost of an item of property, plant and equipment includes any costs directly attributable to the acquisition of the asset as well as costs of its dismantlement, removal or restoration. Property, plant and equipment are depreciated on a straight-line basis over their useful lives (depreciation period ranging from 2 to 50 years for buildings and from 2 to 10 years for machinery and equipment). Sony reviews the residual values and the useful lives at each fiscal year-end, or sooner if circumstances require.
When entering into a contract, Sony determines whether an arrangement contains a lease at its inception. An arrangement contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Assets and liabilities recognized from leases are included in right-of-use ROU assets represent Sony’s right to use an underlying asset for the lease term and lease liabilities represent Sony’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. ROU assets also include any lease payments and initial direct costs incurred on or before the commencement date and exclude lease incentives. In determining the present value of lease payments, Sony generally uses its incremental borrowing rate, as the implicit rate is not available for most of its leases. Sony determines its incremental borrowing rate based on the estimated rate of interest for collateralized borrowings, taking into account the lease term and the economic conditions of each country or region at commencement date. The lease terms may include options to extend or terminate the lease when it is reasonably certain that Sony will exercise that option. If the lease transfers ownership of the underlying asset to the lessee by the end of the lease term or the purchase option is reasonably certain to be exercised, Sony depreciates the ROU assets from the commencement date to the end of the useful life of the underlying assets. Otherwise, Sony depreciates the ROU assets from the commencement date to the earlier of the end of the useful life of the ROU assets or the end of the lease term. Sony accounts for the lease and non-lease components as a single lease component. Sony has applied the short-term lease exception for leases with a term of one year or less, where ROU assets and lease liabilities are not recognized and the expense is recognized on a straight-line basis.
Intangible assets are measured using the cost model and stated at cost less accumulated amortization and impairment losses. Intangible assets acquired separately are initially recognized at cost. Intangible assets with finite useful lives mainly consist of patent rights, know-how, license agreements, customer relationships, trademarks, software, television carriage contracts (broadcasting agreements), film costs, broadcasting rights, music catalogs, artist contracts, music distribution rights and game content. Patent rights,know-how, license agreements, trademarks and software are generally amortized on a straight-line basis over 3 to 10 years. Customer relationships, television carriage contracts (broadcasting agreements), music catalogs, artist contracts, music distribution rights and game content are generally amortized on a straight-line basis, over 10 to 44 years. Film costs are amortized using an ultimate revenue method based on the ratio of current period actual revenues to the estimated remaining total revenues. Sony considers that amortization pursuant to the ultimate revenue method reflects the rate at which it plans to consume the future economic benefits related to the asset, and there is a high correlation between revenue and the consumption of the economic benefits embodied in the intangible assets. Broadcasting rights are generally amortized based on estimated usage or on a straight-line basis over the useful life.Amortization of intangible assets is included in cost of sales and selling, general and administrative expenses in the consolidated statements of income. Certain intangible assets are assessed to have indefinite lives because there is no foreseeable limit to the period over which such assets are expected to generate net cash flows for Sony. Film costs, broadcasting rights, music catalogs, artist contracts, music distribution rights and game content are collectively classified and presented as content assets in the consolidated statements of financial position. F-20 SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES Film costs include direct production costs, production overhead, and costs for acquisition and distribution rights for both motion picture and television productions. Broadcasting rights, consisting of acquired programming to be aired on Sony’s television networks and DTC streaming services, are recognized when the license period begins and the program is available for use. Music catalogs are exclusive rights to the recorded music master or music copyrights, which consist of melodies and lyrics of songs, that can be exploited and marketed in various markets. Artist contracts are contracts with recorded music artists or songwriters that provide Sony with exclusive rights to musical works. Music distribution rights are agreements to distribute music content owned by third parties. Game content includes internally developed content, content developed through a third-party arrangement where Sony owns the rights to the content, content acquired externally through contracts with third parties, and agreements to distribute game content owned by third parties
Sony reviews the recoverability of its non-financial assets, except for inventories, contract costs and deferred tax assets, whenever there is any indication that an asset or a cash-generating unit (“CGU”) may be impaired. In addition, an annual impairment test for goodwill, intangible assets with indefinite useful lives or intangible assets not yet available for use is performed during the fourth quarter of the fiscal year for each CGU or group of CGUs to which the carrying amount of these assets is allocated.A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or group of assets. Goodwill is allocated to each CGU or group of CGUs that is expected to benefit from the synergies of a business combination. A CGU or group of CGUs to which goodwill is allocated is not larger than an operating segment. The recoverable amount of an asset, a CGU or group of CGUs is the higher of its value in use and fair value less costs of disposal. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the assets. This approach uses significant estimates and assumptions, including estimated future cash flows, the timing of such cash flows, discount rates reflecting the risk inherent in future cash flows, perpetual growth rates, earnings or revenue multiples, the determination of appropriate comparable entities and the determination of whether a premium or discount should be applied to comparables. The assumptions used for estimated future cash flows and the timing of such cash flows for each CGU are generally based on the three-yearmid-range plan (“MRP”) and take into account such factors as historical experience, market and industry information, and current and forecasted economic conditions. Perpetual growth rates are generally utilized to determine a terminal value and are generally set after the three-year forecasted period for the MRP.If the recoverable amount is determined to be less than the carrying amount of a CGU or group of CGUs, an impairment loss would be recognized equal to the amount by which the carrying amount exceeds the recoverable amount. Such impairment losses are recognized by first reducing the carrying amount of any allocated goodwill and then are allocated to the other assets of the CGU on a pro rata basis of the carrying amount of each asset in the CGU. Impairment losses except for content assets are included in other operating (income) expense, net, and impairment losses for content assets are included in cost of sales in the consolidated statements of income. Assets other than goodwill are reviewed to assess whether there is any indication that an impairment loss recognized in prior periods may no longer exist or may have decreased. If any such indication exists, the recoverable amount of the asset is determined and a reversal of an impairment loss is recognized when the recoverable amount of the asset exceeds the carrying amount. Any increase in the carrying amount of an asset attributable to the reversal of an impairment loss does not exceed the carrying amount of the asset, net of depreciation and amortization, which would have been determined if an impairment loss had never been recognized for the asset in prior periods.
In accordance with IFRS 4 “Insurance Contracts” (“IFRS 4”), insurance contracts are recognized and measured according to the same accounting principles previously applied under generally accepted accounting principles in the United States.
Costs that vary with and are directly related to the acquisition or renewal of insurance policies are deferred as long as they are recoverable. The deferred insurance acquisition costs include such items as
Liabilities for future insurance policy benefits are primarily comprised of the present value of estimated future payments to policyholders. These liabilities are computed by the net level premium method based upon the assumptions as to future investment yield, morbidity rates, mortality rates, lapse rates and other factors. These assumptions are reviewed on a periodic basis. Liabilities for future insurance policy benefits include the liabilities for the minimum guarantee benefits of individual variable annuity and variable life insurance contracts.
|
Liabilities for policyholders’ account in the life insurance business represent the contract value that has accrued to the benefit of the policyholders as of the end of the reporting period. This liability is generally equal to the accumulated account deposits, plus interest credited, less policyholder withdrawals and other charges assessed against the account balances. Liabilities for policyholders’ account in the life insurance business include the liabilities related to the individual variable annuity and variable life insurance contracts with minimum guarantee benefits.
| iv) | Insurance-related accounts measured at fair value |
Sony measures at fair value certain future insurance policy benefits and policyholders’ account in the life insurance business. The fair value measurement mitigates accounting mismatches related to the changes in the fair value between liabilities for those future insurance policy benefits and policyholders’ account due to changes in the minimum guarantee risk of individual variable annuity contracts with minimum guarantee benefits, and the underlying investment managed for policyholders and derivatives entered into related to such investments. Changes in fair value resulting from changes in instrument-specific credit risk were estimated by incorporating the certain subsidiary’s current credit spreads, and are recognized in other comprehensive income, net of tax. The amount recognized in other comprehensive income is reclassified to profit or loss when the insurance contract liabilities are derecognized.
| v) | Shadow accounting in the life insurance business |
When holding financial assets that are measured at fair value through other comprehensive income and which correspond to insurance contract liabilities, shadow accounting is applied to evaluate insurance-related accounts as if the financial assets were sold as of the end of reporting period and realized valuation gains or losses for the purpose of reducing the accounting mismatches between the insurance contract liabilities and the financial assets.
Sony performs a shadow liability adequacy test on life insurance contracts quarterly. In a shadow liability adequacy test, mainly, future insurance policy benefits minus deferred insurance acquisition costs in the consolidated statements of financial position are compared to the present value of future cash flow on a best-estimate basis as of the end of reporting period to determine that the future insurance policy benefits are recorded at a sufficient level. If there is a shortage compared to the present value |
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SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES
Shadow accounting is an accounting treatment that affects the measurement of the insurance-related accounts in response to unrealized gains or losses recognized for the assets in a manner consistent with realized gains or losses. When the gains or losses from the assets are recognized in other comprehensive income, the fluctuations in the carrying amount of insurance-related accounts are also recognized in other comprehensive income.
(12) | Provisions - |
Provisions are recognized when Sony has present legal or constructive obligations as a result of past events, it is probable that outflows of resources embodying economic benefits will be required to settle the obligations, and reliable estimates can be made of the amount of obligations.
Provisions mainly consist of participation and residual liabilities in the Pictures segment and product warranties.
| i) | Participation and residual liabilities in the Pictures segment |
Parties involved in the production or exploitation of film and television content may be compensated in part by contingent payments based on the financial results of a film or television show pursuant to contractual formulas (participations) and by contingent amounts due under provisions of collective bargaining agreements (residuals). Such parties are collectively referred to as participants, and such costs are referred to collectively as participation and residual costs. Participation and residual costs may be given to creative talent, such as actors or writers, investors or to entities from whom distribution rights are licensed.
Participation and residual liabilities are accrued based on the ratio of current period actual revenues to the estimated remaining total revenues. The participation and residual liabilities are expected to be relieved when the contingent payments are fixed and paid. The majority of the
non-current
portion of participation and residual liabilities is expected to be paid within the next 10 years.Sony also enters into arrangements with other studios to jointly produce and distribute films, under which each partner is responsible for the distribution of the film in specific territories or distribution windows. The partners’ shares in the profits and losses of the films under these arrangements are included within participation and residual costs.
| ii) | Product warranties |
Sony issues contractual product warranties under which it generally guarantees the performance of products delivered and services rendered for a certain period or term. Product warranties are calculated based upon product sales, estimated probability of failure and estimated cost per claim. The estimates and forecasts used in the calculation of product warranties are reviewed on a periodic basis.
(13) | Employee benefits - |
| i) | Post-employment benefits |
Sony adopts defined benefit plans and defined contribution plans.
Defined benefit plans
Sony recognizes the net defined benefit liability or asset of defined benefit plans in the consolidated statements of financial position as the amount of the present value of defined benefit obligations less the fair value of plan assets.
The present value of defined benefit obligations is calculated by discounting the expected future benefit, and service costs are determined by using the projected unit credit method. If the fair value of plan
assets
is in excess of the present value of defined benefit obligations, the amount of any asset to be recognized is limited to the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan. The discount rate is determined byF-23
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES |
year-end
on high-quality corporate bonds which have approximately the same term as the defined benefit obligations and are payable in the same currency as the benefit payments. Net interest on the net defined benefit liability or asset is calculated by multiplying the net defined benefit liability or asset by the discount rate.Past service cost, which is the change in the present value of the defined benefit obligation resulting from a plan amendment or curtailment, is recognized in profit or loss.
Remeasurements of the net defined benefit liability or asset are recognized in other comprehensive income when they occur and transferred to retained earnings immediately.
Defined contribution plans
Sony recognizes contributions to defined contribution plans as expenses when employees have rendered related services.
| ii) | Short-term employee benefits |
Sony recognizes short-term employee benefits, such as salaries, bonuses and annual paid absences, as expenses at the amount expected to be paid in exchange for services when employees have rendered such services.
(14) | Stock-based compensation - |
| i) | Stock option plan |
Sony estimates the cost of stock options at their fair value on the grant date and recognizes the expense over the vesting period with a corresponding increase in equity. The fair value of options granted is calculated using the Black-Scholes option-pricing model with consideration for terms and conditions of the stock options.
| ii) | Restricted stock plan |
Sony estimates the cost of restricted stock compensation by the fair value of the stock granted on the grant date and recognizes the expense over the vesting period with a corresponding increase in equity.
| iii) | Restricted stock unit plan |
Sony estimates the cost of restricted stock units by the fair value of the units granted on the grant date and recognizes the expense over the vesting period with a corresponding increase in equity.
(15) | Fair value measurement - |
Sony measures fair value as an exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date.
Sony determines a hierarchy of inputs to valuation techniques based on the extent to which inputs used in measuring fair value are observable in the market. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect assumptions which Sony developed using the information that market participants would use in pricing the asset or liability. Observable market data is used if such data is available without undue cost and effort. Each fair value measurement is reported in one of three levels which is determined by the lowest level input that is significant to the fair value measurement in its entirety.
These levels are:
Level 1 | — | Inputs are unadjusted quoted prices for identical assets and liabilities in active markets. | ||
Level 2 | — | Inputs are based on observable inputs other than Level 1 prices, such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations, in which all significant inputs are observable in active markets. | ||
Level 3 | — | One or more significant inputs are unobservable. | ||
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SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES
When available, Sony uses unadjusted quoted market prices in active markets to measure fair value and classifies such items within Level 1. If quoted market prices are not available, fair value is based upon internally developed valuation techniques that use, where possible, current market-based or independently sourced market parameters, such as interest rates, currency rates and option volatilities. Items valued using internally generated models are classified according to the lowest level input that is significant to the valuation. For certain financial assets and liabilities, Sony determines fair value using third-party information such as indicative quotes from dealers and quantitative input from investment advisors following Sony’s established valuation procedures including validation against internally developed prices. Additionally, Sony considers both counterparty credit risk and Sony’s own creditworthiness in determining fair value. Sony attempts to mitigate credit risk to third parties by entering into netting agreements and actively monitoring the creditworthiness of counterparties and its exposure to credit risk through the use of credit limits and by selecting major international banks and financial institutions as counterparties.
Transfers between levels are deemed to have occurred at the beginning of the interim period in which the transfers occur.
(16) | Revenue recognition - |
Sony recognizes revenue in an amount that reflects the consideration Sony expects in exchange for satisfying performance obligations to transfer the goods or services promised in contracts with customers. This is in accordance with the following steps:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) Sony satisfies a performance obligation.
Sony owns a variety of intellectual property throughout its segments and recognizes revenue through the licensing of such intellectual property. Sony licenses rights to use its intellectual property and rights to access its intellectual property. When Sony grants a customer the right to use Sony’s intellectual property, Sony satisfies its performance obligation at the point in time when the customer obtains control and is entitled to benefit from the license. When Sony grants a customer the right to access Sony’s intellectual property, Sony satisfies its performance obligation over the license period.
Incremental costs of obtaining a contract and costs to fulfill a contract are recognized as assets when Sony expects to recover these costs. The incremental costs of obtaining a contract are those costs that would not have been incurred if the contract had not been obtained. Costs to fulfill a contract are those costs that are directly related to a contract or to an anticipated contract and that generate or enhance resources for Sony to satisfy its performance obligations. Sony applies a practical expedient and recognizes the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that would have been recognized is one year or less.
Performance obligations in contracts for the Entertainment, Technology & Services (“ET&S”) and Imaging & Sensing Solutions (“I&SS”) segments are primarily to deliver various kinds of electronic equipment, instruments and devices to customers. Revenues from these performance obligations are generally recognized when a promised good is delivered to a customer. However, if the sales contract contains a customer acceptance provision, then revenues are recognized when the customer accepts the promised good or when a deemed acceptance occurs by the lapse of time. Revenues are also recognized over time, primarily from the provision of internet broadband network services to subscribers over the subscription period. Revenues are recognized net of anticipated returns and sales incentives.
Within the Game & Network Services (“G&NS”) segment, revenues from hardware, peripherals and software discs are recognized when performance obligations are satisfied by transferring control to the retailer/distributor, net of anticipated returns, sales incentives and cooperative advertising obligations. Revenues from platform licensing to publishers are recognized when physical software discs are delivered. Revenues from digital game content, which is a right to use Sony’s intellectual property, are recognized when the digital content is made available for use by the licensee via an online platform, net of anticipated sales incentives and credit card chargebacks. Revenues from digital game content involving multiple performance obligations, such as obligations to make content available on future dates, are allocated to each performance obligation based on the
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SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES
Within the Music segment, Sony licenses intellectual property that transfer to a customer either a right to use Sony’s intellectual property, or a right to access Sony’s intellectual property. Revenues are recognized when the customer has the right to use or access the intellectual property and obtains control of the use or access of that license. Digital revenues include revenues from contracts with digital streaming services typically recognized as a single performance obligation, which is ongoing access to intellectual property in an evolving library of content over the contract term, predicated on: (1) the business practice and contractual ability to remove specific content without a requirement to replace the content and without impact to minimum royalty guarantees and (2) the contracts not containing a specific listing of content subject to the license. For these contracts, revenues are recognized based on sales and usage royalties, except where there is a minimum royalty guarantee that is not expected to be recouped, or a fixed fee, which is recognized on a straight-line basis over the term of the contract. Revenues from the sale of physical products such as CDs, net of anticipated returns and sales incentives, are recognized when delivery has occurred and the product is available for sale to the public.
Within the Pictures segment, revenues from the theatrical exhibition of motion pictures are recognized as the customer exhibits the film. Revenues from the licensing of motion picture and television programming for pay and free television exhibition and other markets are recognized when the product is available for use by the licensee. Revenues for motion picture and television program licensing arrangements involving multiple performance obligations, for example a fee for multiple titles, territories or availability dates, are allocated based on the relative standalone selling price of each performance obligation using Sony’s best estimate based on available information such as market conditions and internal pricing guidelines. Each individual motion picture or television programming product delivered generally represents a separate performance obligation. Licensing revenue associated with renewals or extensions of existing agreements for motion pictures and television programming is recognized when the licensee can use and benefit from the content under the renewal or extension. Licensing revenue associated with minimum guarantees for a right to access Sony’s intellectual property is recognized ratably over the license term. For home entertainment distribution, revenues from the sale of physical products such as DVDs andare recognized when the product is made available for viewing via digital distribution platforms. Revenues from the sale of broadcast advertising are recognized when the advertisement is aired, and the performance obligation in these arrangements is the delivery of advertising spots and may include a guaranteed amount of impressions. When a guarantee for a number of impressions is not achieved, revenues are not recognized until additional advertising spots are delivered to provide the guaranteed impressions. Revenues from subscription fees received by television networks and DTC streaming services are recognized when the service is provided. The performance obligation under network subscription arrangements is a right to use Sony’s intellectual property that is satisfied as programming is provided over the term of the arrangement.
Blu-ray
Disc™
, net of anticipated returns and sales incentives, are recognized when delivery has occurred and the product is available for sale to the public. Revenues from electronic sell-through andvideo-on-demand
Within the Financial Services segment, traditional life insurance policies that Sony underwrites in the life insurance business, most of which are categorized as long-duration contracts, mainly consist of whole life, term life, and disease and health insurance contracts. Premiums from these policies are reported as revenue when due from policyholders. Amounts received as payment for practice and contractual ability to remove specific content without a requirement to replace the content and without impact to minimum royalty guarantees and (2) the contracts not containing a specific listing of content subject to the license. For these contracts, revenues are recognized based on sales and usage royalties, except where there is a minimum royalty guarantee that is not expected to be recouped, or a fixed fee, which is recognized on a straight-line basis over the term of the contract. Revenues from the sale of physical products such as CDs, net of anticipated returns and sales incentives, are recognized when delivery has occurred and the product is available for sale to the public.
non-traditional
contracts such as interest sensitive whole life contracts, variable life insurance contracts, individual variable annuity contracts and other contracts without life contingencies are recognized in policyholders’ account in the life insurance business. Revenues from these contracts are comprised of fees earned for administrative and contract-holder services, which are recognized over the period of the contracts, and included in financial services revenue. Property and casualty insurance policies that Sony underwrites in thenon-life
insurance businessRevenue is recognized net of any taxes collected from customers and subsequently remitted to governmental authorities.
(17) | Cost of sales - |
Costs classified as cost of sales relate to the producing and manufacturing of products and include items such as material cost, subcontractor cost, depreciation of property, plant and equipment, amortization of intangible assets including content assets, employee benefits expenses and research and development costs.
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SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES
(18) | Research and development expenditures - |
Research and development expenditures include items such as employee benefits expenses and other direct and indirect expenses associated with research and product development. Development expenditures are capitalized only when technical feasibility is achieved, Sony has the intention, ability and sufficient resources to use or sell the outcome of the development, it is probable that the outcome will generate a future economic benefit, and the cost can be reliably measured. Capitalized development costs are measured as the sum of total expenditures for development upon achieving the foregoing conditions for capitalization until development is completed. Research expenditures and other development expenditures that do not meet the foregoing conditions are expensed as incurred and included in the cost of sales in the consolidated statements of income.
(19) | Selling, general and administrative - |
Costs classified as selling expenses relate to promoting and selling products and include items such as advertising, promotion, shipping and warranty expenses. General and administrative expenses include operating items such as employee benefits expenses, depreciation of property, plant and equipment, office rental for sales, marketing and administrative divisions, loss allowance for trade receivables and amortization of intangible assets.
(20) | Financial services expenses - |
Financial services expenses include a provision for policy reserves and amortization of deferred insurance acquisition costs, interest expenses in the banking business, and all other operating costs, such as employee benefits expenses, depreciation of property, plant and equipment, and office rental of subsidiaries, in the Financial Services segment.
(21) | Advertising costs - |
Advertising costs are expensed as incurred.
(22) | Shipping and handling costs - |
The majority of shipping and handling, warehousing and internal transfer costs for finished goods are included in selling, general and administrative expenses. However, in the Pictures segment, certain costs are charged to cost of sales as they are an integral part of producing and distributing motion pictures and television programming. All other costs related to Sony’s distribution network are included in cost of sales, including inbound freight charges, purchasing and receiving costs, inspection costs and warehousing costs for raw materials and
in-process
inventory. Shipping and handling activities that occur after control of the related good transfers are treated as separate performance obligations. Amounts paid by customers for shipping and handling costs are included in sales.(23) | Income taxes - |
Income taxes consist of current and deferred taxes. Current and deferred taxes are recognized in profit or loss, except to the extent that the tax arises from a business combination, or a transaction or event which is recognized, in the same or a different period, outside profit or loss, either in other comprehensive income or directly in equity.
Current taxes are computed based on taxable profit or loss for the year, using the tax rates enacted or substantively enacted at the end of the reporting period.
Deferred tax assets and liabilities are recognized for temporary differences between the tax bases of assets and liabilities and their carrying amounts at the end of the reporting period. Deferred tax liabilities include the liabilities being recognized for undistributed profits of subsidiaries and associates accounted for under the equity method that are expected to be remitted in the foreseeable future. Deferred income taxes are determined using tax rates and laws that have been enacted or substantively enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. Deferred tax assets and liabilities are not recognized in respect of temporary differences that arise from the initial recognition of an asset or liability in a transaction which is not a business combination and which, at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss).
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SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES
Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which the assets can be utilized. Accordingly, the valuation of the deferred tax assets is assessed periodically with available evidence related to the recoverability of the deferred tax assets. Management’s judgment related to this assessment considers the nature, frequency and severity of current and cumulative losses on an individual tax jurisdiction basis, forecasts of future profitability after consideration of uncertain tax positions, excess of appreciated asset value over the tax basis of net assets, the duration of statutory carryforward periods, the past utilization of net operating loss carryforwards prior to expiration, as well as prudent and feasible tax planning strategies which would be employed by Sony to prevent net operating loss and tax credit carryforwards from expiring unutilized.
Sony records assets and liabilities resulting from uncertain tax positions taken or expected to be taken in a tax return. The amount of income taxes Sony pays is subject to ongoing audits by various taxing authorities, which may result in proposed assessments. In addition, several significant items related to intercompany transfer pricing are currently the subject of negotiations between taxing authorities in different jurisdictions as a result of pending advance pricing agreement applications and competent authority requests. Sony’s estimate for the potential outcome for any uncertain tax issues is judgmental and requires significant estimates. Sony assesses its income tax positions and records tax benefits and expenses for all years subject to examinations based upon the evaluation of the facts, circumstances and information available at that reporting date.
(24) | Net income (loss) attributable to Sony Group Corporation’s stockholders per share (“EPS”) - |
Basic EPS is computed based on the weighted-average number of shares of common stock outstanding during each period. The computation of diluted EPS reflects the maximum possible dilution from conversion, exercise, or contingent issuance of securities. All potentially dilutive securities are excluded from the calculation in a situation where there is a net loss attributable to Sony Group Corporation’s stockholders.
II. | Recently adopted accounting standards |
Amendments to IAS 12 “Income taxes”
In May 2023, the IASB issued “International Tax Reform-Pillar Two Model Rules”. The amendments (i) introduce a temporary exception to the accounting for deferred taxes arising from the implementation of the Pillar Two model rules published by the Organization for Economic Co-operation and Development (OECD) and (ii) require additional disclosures. Sony retrospectively adopted the provision of the temporary exception to the accounting for deferred taxes from the fiscal year ended March 31, 2023. The additional disclosure requirements will be effective for Sony from the fiscal year ending March 31, 2024.
III. | New accounting standards and interpretations not yet adopted |
Major new or amended standards and interpretations that have been issued as of the date of approval of the consolidated financial statements which are not effective and have not yet been adopted by Sony as of March 31, 2023 are as follows:
IFRS 17 “Insurance Contracts”
The IASB issued IFRS 17 “Insurance Contracts” (“IFRS 17”) in May 2017 and Amendments to IFRS 17 in June 2020 and December 2021. IFRS 17 replaces IFRS 4 and sets out principles for the recognition, measurement, presentation and disclosure of insurance contracts within the scope of IFRS 17. IFRS 17 provides a general model, supplemented by a specific approach for contracts with direct participation features (the variable fee approach) and a simplified approach (the premium allocation approach) mainly for short-duration contracts.
IFRS 17 becomeeffective for Sony as of April 1, 2023. On transition, Sony is required to apply IFRS 17 retrospectively unless such application is impracticable. If it is impracticable to apply IFRS 17 retrospectively for a group of insurance contracts, either the modified retrospective approach, which uses reasonable and supportable information, or the fair value approach, which uses the fair value as of April 1, 2022, the transition date for IFRS 17, may be applied. If Sony cannot obtain reasonable and supportable information necessary to apply the modified retrospective approach, Sony will apply the fair value approach. Sony adopted IFRS 9 “Financial Instruments” (“IFRS 9”) before its initial application of IFRS 17 and will redesignate the measurement method of certain financial assets based on the facts and circumstances existing at the date of the initial application of IFRS 17 (April 1, 2023) in order to mitigate accounting mismatches arising from the assets and liabilities in the insurance business.
s
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SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES
Applying IFRS 17 affects the measurement and presentation of insurance-related accounts, which are primarily included in future insurance policy benefits and other, policyholders’ account in the life insurance business, and deferred insurance acquisition costs in the consolidated statements of financial position under the currently applied standard, IFRS 4. These insurance-related accounts, after applying IFRS 17, are primarily recorded as insurance contracts liability in the consolidated statements of financial position. The financial services revenue, after applying IFRS 17, consists of insurance revenue and other financial services revenue, which are separately presented in the consolidated statements of income. The insurance revenue differs from insurance premium revenue under IFRS 4 mainly because the insurance revenue excludes any investment components that are deposits, as described in “(1) Significant accounting policies of IFRS 17, which Sony will apply from the fiscal year ending March 31, 2024.”
The estimated
effect of adopting IFRS 17 on Sony’s total equity as of April 1, 2022, the transition date for IFRS 17, is expected to be a reduction of approximately 1.5 trillion yen mainly due to the effect of the changes in discount rate used in measuring insurance contract liabilities.
These assessments and expectations above are preliminary and the actual result may differ upon adoption, as not all of the transition work has been finalized.
(1) | Significant accounting policies of IFRS 17, which Sony will apply from the fiscal year ending March 31, 2024 |
Insurance contract liabilities -
| i) | Definition and classification of insurance contracts |
Sony defines insurance contracts as the contracts under which Sony accepts significant insurance risk by agreeing to compensate the policyholder if a specified uncertain future event adversely affects the policyholder. In making this assessment, all substantive rights and obligations, including those arising from laws and regulations, are considered on abasis. Sony uses judgment in assessing whether there is a scenario with commercial substance in which there is the possibility of a loss on a present value basis and whether the accepted insurance risk is significant. Contracts that have a legal form of an insurance contract but do not transfer significant insurance risk to Sony are classified as investment contracts and accounted for as financial liabilities.
contract-by-contract
Insurance contracts that Sony underwrites in the life insurance business, which is included in the Financial Services segment, mainly consist of whole life, term life, disease and health insurance, variable life insurance, and individual variable annuity contracts. Sony classifies certain variable life insurance and individual variable annuity contracts as insurance contracts with direct participation features, if they meet all of the following conditions on initial recognition:
the contractual terms specify that the policyholder participates in a share of a clearly identified pool of underlying items;
Sony expects to pay to the policyholder an amount equal to a substantial share of the fair value returns on the underlying items; and
Sony expects a substantial proportion of any change in the amounts to be paid to the policyholder to vary with the change in the fair value of the underlying items.
All other insurance contracts are classified as insurance contracts without direct participation features.
| ii) | Aggregation of insurance contracts |
In measuring insurance contracts, Sony aggregates the insurance contracts into groups. Each group of insurance contracts is determined by identifying portfolios of insurance contracts. Each portfolio is comprised of contracts that are subject to similar risks and are managed together, and Sony divides each portfolio by each quarterly accounting period (to which the issue date of the insurance contracts belongs). The portfolios are then classified into one of the following three groups based on the profitability of contracts:
any contracts that are onerous on initial recognition;
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any contracts that, on initial recognition, have no significant possibility of becoming onerous subsequently; and
any remaining contracts.
| iii) | Recognition and derecognition of insurance contracts |
A group of insurance contracts issued by Sony is recognized from the earliest of:
the beginning of the coverage period of the group of insurance contracts;
when the first payment from the policyholder in the group of insurance contracts becomes due; and
when facts and circumstances indicate that the group to which the insurance contract belongs is onerous.
If there is no contractual due date, the due date is considered as the day when the first payment is received from the policyholder.
In addition, only contracts that individually meet the recognition criteria by the end of the reporting period are included in the groups. When contracts individually meet the recognition criteria after the end of the reporting period, they are added to the groups in the reporting period in which they meet the recognition criteria. Composition of the groups is not reassessed in subsequent periods.
Insurance acquisition cash flows are allocated to groups of insurance contracts using a systematic and rational method and considering, in an unbiased way, all reasonable and supportable information that is available without undue cost or effort.
If insurance acquisition cash flows are directly attributable to a group of insurance contracts, they are allocated to that group. If insurance acquisition cash flows are directly attributable to a portfolio but not to a group of insurance contracts, then they are allocated to the groups in that portfolio using a systematic and rational method.
Sony derecognizes an insurance contract when it is extinguished, i.e., when the obligation specified in the insurance contract expires or is discharged or canceled. When an insurance contract is derecognized, Sony:
adjusts the fulfillment cash flows allocated to the group of insurance contracts to eliminate those relating to the derecognized rights and obligations;
adjusts the contractual service margin (“CSM”) of the group of insurance contracts for the change in the fulfillment cash flows; and
adjusts the number of coverage units expected for the remaining insurance contract services to reflect the number of coverage units derecognized from the group of insurance contracts.
| iv) | Contract boundaries |
In measuring groups of insurance contracts, Sony includes all of the future cash flows within the boundary of each contract in the group. Cash flows are within the contract boundary if they arise from substantive rights and obligations that exist during the reporting period in which the policyholder is obliged to pay premiums or Sony has a substantive obligation to provide services (including insurance coverage and any investment services).
A substantive obligation to provide services ends when Sony:
| (a) | has the practical ability to reassess the risks of the particular policyholder and can set a price or level of benefits that fully reflects those reassessed risks; or |
| (b) | has the practical ability to reassess the risks of the portfolio that contains the contract and can set a price or level of benefits that fully reflects the risks of that portfolio, and the pricing of the premiums up to the reassessment date does not take into account risks that relate to periods after the reassessment date. |
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SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES
For cash flows arising during the period after the renewal of the insurance contract, which has automatic renewal clauses, Sony assesses the contract boundaries and determines that they are within the existing contract boundaries when Sony does not have the above practical ability to reassess the risks.
| v) | Initial measurement of insurance contracts not measured under the premium allocation approach (“PAA”) |
On initial recognition, Sony measures a group of insurance contracts as the total of the following:
| (a) | Fulfillment cash flows |
The fulfillment cash flows of the groups of insurance contracts consist of estimates of the future cash flows and risk adjustments for
non-financial
risk. The estimates of the future cash flows are adjusted to reflect the time value of money and the associated financial risks, and do not reflect Sony’snon-performance
risk. The discount rates reflect the characteristics of the cash flows arising from the groups of insurance contracts, including timing, currency and liquidity of cash flows. The determination of the discount rate that reflects the characteristics of the cash flows and liquidity characteristics of the insurance contracts involves significant estimation. The risk adjustment fornon-financial
risk, determined separately from the other estimates, is designed to reflect the compensation required for bearing uncertainty about the amount and timing of the cash flows that arises fromnon-financial
risk.| (b) | CSM |
The CSM of a group of insurance contracts represents the unearned profit that Sony will recognize as it provides insurance contract services under those contracts.
| vi) | Subsequent measurement of insurance contracts not measured under the PAA |
The carrying amount of a group of insurance contracts at each reporting date is the sum of the liability for incurred claims and the liability for remaining coverage. The liability for incurred claims comprises the fulfillment cash flows for incurred claims and expenses that have not yet been paid, including claims that have been incurred but not yet reported. The liability for remaining coverage comprises the items described below.
| (a) | Fulfillment cash flows |
The fulfillment cash flows of groups of insurance contracts are measured at the reporting date using current estimates of future cash flows, current discount rates and current estimates of the risk adjustment for
non-financial
risk.| (b) | CSM |
The carrying amount of the CSM of contracts without direct participation features at each reporting date is the carrying amount at the beginning of the fiscal year, adjusted for the following items (among these, (2) and (3)1, (3)2 and (3)4 are measured using the discount rate determined at initial recognition
(locked-in
discount rate):| (1) | the effect of any new contracts that are added to the group during the current fiscal year; |
| (2) | interest accreted on the carrying amount of the CSM during the current fiscal year; |
| (3) | the changes in fulfillment cash flows relating to future service including the following items below: |
| 1. | experience adjustments arising from premiums received in the current fiscal year that relate to future services (including those for related cash flows such as insurance acquisition cash flows and premium-based taxes); |
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SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES
| 2. | changes in estimates of the present value of future cash flows in the liability for remaining coverage (excluding the effect of the time value of money, financial risk and changes therein); |
| 3. | differences between any investment component expected to become payable in the current fiscal year and the actual investment component that becomes payable in the current fiscal year; and |
| 4. | changes in the risk adjustment for non-financial risk that relate to future services; |
| (4) | the effect of any currency exchange differences; and |
| (5) | the amount recognized as insurance revenue for insurance contract services provided during the current fiscal year, which is determined after all the adjustments above. |
The carrying amount of the CSM of contracts with direct participation features at each reporting date is the carrying amount at the beginning of the fiscal year, adjusted for the following items:
| (1) | the effect of any new contracts that are added to the group during the current fiscal year; |
| (2) | changes in Sony’s share of the fair value of the underlying items; |
| (3) | changes in the fulfillment cash flows that do not vary based on the returns of underlying items including the following items below: |
| 1. | changes in the effect of the time value of money and financial risks including the effect of financial guarantees; |
| 2. | experience adjustments arising from premiums received in the current fiscal year that relate to future services (including those for related cash flows such as insurance acquisition cash flows and premium-based taxes); |
| 3. | changes in estimates of |
| 4. | differences between any investment component expected to become payable in the current fiscal year and the actual investment component that becomes payable in the current fiscal year; and |
| 5. | changes in the risk adjustment for non-financial risk that relate to future services; |
| (4) | the effect of any currency exchange differences; and |
| (5) | the amount recognized as insurance revenue for |
Sony selects an accounting policy to update accounting estimates related to insurance contracts made in the previous interim consolidated financial statements in the subsequent annual and interim consolidated financial statements and to measure the annual results using theapproach.
year-to-date
Changes in the fulfillment cash flows that relate to current or past services are recognized as profit or loss. Changes in the fulfillment cash flows that relate to future services are adjusted to the extent of the CSM carrying amount as follows:
when an increase in the fulfillment cash flows exceeds the carrying amount of the CSM, the CSM is reduced to zero and the excess is recognized as insurance service expenses and such excess is recorded as a loss component of the liability for the remaining coverage; when the CSM is zero, changes in the fulfillment cash flows adjust the loss component within the liability for remaining coverage with correspondence to insurance service expenses; and F-32 SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES the excess of any decrease in the fulfillment cash flows over the loss component reduces the loss component to zero and reinstates the CSM. When a loss component exists, Sony allocates the following items between the loss component and the remaining component of the liability for the remaining coverage for the respective group of insurance contracts, based on the ratio of the loss component to the fulfillment cash flows relating to the expected future cash outflows:
The amounts of loss component allocation in (1) and (2) above reduce the respective components of insurance revenue and are reflected in insurance service expenses.
For certain insurance contracts in a group with a coverage period of one year or less at initial recognition, Sony uses the PAA to simplify the measurement of the group of insurance contracts. Under the PAA, on initial recognition of each group of insurance contracts, the carrying amount of the liability for remaining coverage is measured at the premiums received on initial recognition, minus any insurance acquisition cash flows allocated to the group at the date of the receipt of the premiums. Sony amortizes insurance acquisition cash flows over the coverage period of the group of insurance contracts. Subsequently, the carrying amount of the liability for remaining coverage is increased by any premiums received and the amortization of insurance acquisition cash flows recognized as expenses, and decreased by the amount recognized as insurance revenue for services provided and any additional insurance acquisition cash flows allocated after initial recognition.
Portfolios of insurance contracts that are assets and those that are liabilities are presented separately in the consolidated statements of financial position. If no insured event has occurred and the surrender option has not been exercised as of the reporting date, the insurance contract liabilities are classified as non-current liabilities. However, if an insured event occurs or the surrender option is exercised, Sony loses its rights to postpone the payment of these liabilities. In this case, the insurance contract liabilities are classified as current liabilities, as they are due to be settled within 12 months after the end of the reporting period.Sony disaggregates amounts recognized in the consolidated statements of income and the consolidated statements of comprehensive income into an insurance service result, which is comprised of insurance revenue and insurance service expenses, and insurance finance income or expenses. Sony does not disaggregate changes in the risk adjustment for non-financial risk between the insurance service result and insurance finance income or expenses and includes them in the insurance service result.
Insurance revenue excludes any investment components and is recognized as follows:
Sony recognizes insurance revenue as it provides insurance contract services. For contracts not measured under the PAA, the insurance revenue relating to services provided for each period represents the total of the changes in the liability for remaining coverage that relate to services for which Sony expects to receive consideration, and primarily comprises the following items: a release of the CSM, measured based on coverage units provided during the fiscal year; F-33 SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES changes in the risk adjustment for non-financial risk relating to current services;claims and other insurance service expenses incurred during the year, measured at the amounts expected at the beginning of the fiscal year; and allocation of the amount of insurance acquisition cash flows in a systematic way based on the passage of time. The release amount of the CSM of a group of insurance contracts that is recognized as insurance revenue in each fiscal year is determined by identifying the coverage units in the group and recognizing in profit or loss the amount of the CSM allocated to the coverage units provided during the fiscal year. The number of coverage units is the quantity of services provided based on the insurance contracts in the group, determined by considering the quantity of benefits to be provided by each insurance contract in the group and the expected coverage period. Services provided based on insurance contracts include insurance coverage and, for all direct participating contracts, investment related services for managing underlying items on behalf of policyholders. Insurance contracts other than direct participating contracts include investment return services for generating an investment return for the policyholder.
For contracts measured under the PAA, the insurance revenue for each period is the amount of expected premium receipts for providing services during the period. Sony allocates the expected premium receipts to each period based mainly on the passage of time. |
Insurance service expenses arising from insurance contracts comprise the following items:
For contracts not measured under the PAA, amortization of insurance acquisition cash flows is reflected in insurance service expenses in the same amount as insurance acquisition cash flows recovery reflected within insurance revenue as described above.
Insurance finance income and expenses comprise changes in the carrying amounts of groups of insurance contracts arising from the effects of the time value of money, financial risk and changes therein. Sony has chosen to disaggregate insurance finance income or expenses between profit or loss and other comprehensive income for contracts without direct participation features, excluding certain variable life insurance and individual variable annuity contracts. The amount included in profit or loss is determined by a systematic allocation of the expected total insurance finance income or expenses over the duration of the group of insurance contracts. The amount of systematic allocation is determined using the discount rates determined on initial recognition of the group of insurance contracts. For insurance finance income or expenses arising from the CSM, the discount rates determined on initial recognition of the group of insurance contracts are used. As a result of this systematic allocation, the total amounts recognized in other comprehensive income is equal to zero over the duration of the group of insurance contracts. In addition, the cumulative amount recognized in other comprehensive income at any point in time is the difference between the carrying amount of the group of insurance contracts and the amount measured by this systematic allocation. F-34 SONY GRO U P CORPORATION AND CONSOLIDATED SUBSIDIARIESFor contracts with direct participation features, the insurance finance income or expenses include changes in the value of underlying items (excluding additional premium payments and withdrawals), all of which are recognized in profit or loss.
Sony estimates the mortality and morbidity rates based on the most recent actual outcomes and analyzes the historical experience and trends in data using statistical methods. When estimating the mortality and morbidity rates for each group of insurance contracts, Sony takes into account the characteristics of policyholders including gender, health conditions and smoking habits and the characteristics of the group of insurance contracts such as the selective effects over time. The estimates are revised in a timely manner to reflect changes in lifestyle, as well as changes in social conditions such as improvement of mortality and morbidity rates in the future. Sony estimates the lapse and surrender rates based on the most recent actual outcomes and determines the probability-weighted lapse and surrender rates for each group of insurance contracts by analyzing historical experience and trends in data using statistical methods. Lapse and surrender rates are estimated, taking into account both ordinary and dynamic lapses, and reflect the tendency to higher surrender rates when the yield on contracts increases or exceeds the guaranteed minimum for certain insurance contracts. In determining the lapse and surrender rates, historical actual data is considered. If no clear correlation is found in historical actual data, the actual results of similar products as well as domestic and overseas practical trends are used as reference. Sony projects estimates of future expenses based on the current expense levels. The expenses comprise expenses directly attributable to the group of insurance contracts, including the allocation of fixed and variable overhead expenses. In addition, Sony applies inflation adjustments to the estimated claims to be paid in future.
For certain participating insurance contracts other than direct participating contracts, the effect of discretionary changes on the fulfillment cash flows is adjusted in the contractual service margin. Although Sony has discretionary participation features related to the investment policy for these contracts, the investment policy is established based on the market conditions. Therefore, the effect of changes in assumptions that relate to financial risk on the investment policy is included in insurance finance income or expenses. In addition, since the dividend policy can be changed at Sony’s discretion, the effect of changes in the dividend policy on the fulfillment cash flows is adjusted in the contractual service margin.
Risk adjustments for non-financial risk are determined to reflect the compensation that each insurance subsidiary would require for bearingnon-financial risk, and are allocated to groups of insurance contracts based on an analysis of the risk profiles of the groups. Risk adjustments fornon-financial risk reflect the diversification benefits, in a way that is consistent with the compensation that the insurance company would require and that reflects its degree of risk aversion.The risk adjustments for non-financial risk are determined mainly using a cost of capital technique. In applying a cost of capital technique, Sony determines the risk adjustment fornon-financial risk by applying acost-of-capital cost-of-capital non-financial risk.F-35 SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES
All cash flows are discoun te d using risk-free yield curves adjusted to reflect the characteristics of the cash flows and the liquidity of the insurance contracts. Sony determines the risk-free yield curves using the yields on government bonds. The yield curve is determined by incorporating long-term real interest rate and inflation expectations. For extrapolation for the periods in which market data is not available, a method using an ultimate forward rate is used. To be specific, the method uses an ultimate forward rateof 3.5% and starts extrapolation in the 40th year (or the 30th year for U.S. dollar). The forward rates for the 41st year (or the 31st year for U.S. dollar) and onwards are extrapolated so that they will converge to the level of the ultimate forward rate in 30 years, using the Smith-Wilson method. To reflect the liquidity characteristics of the insurance contracts, the risk-free yield curves are adjusted by an illiquidity premium. Illiquidity premiums are determined by setting up a reference portfolio of Sony’s assets.
Sony identifies the investment component of an insurance contract by determining the amount that it would be required to repay to the policyholder in all circumstances, regardless of whether an insured event occurs or not. These include circumstances in which an insured event occurs or the contract matures or is terminated without an insured event occurring. Investment components are excluded from insurance revenue and insurance service expenses.
The amount of the CSM of a group of insurance contracts that is recognized as insurance revenue in each year is determined by identifying the coverage units in the group and recognizing in profit or loss the amount of the CSM allocated to the coverage units provided during the year. The number of coverage units is determined by considering for each contract the quantity of benefits provided and its expected coverage period. To be specific, Sony determines the quantity of benefits based on: the death benefit amount in the case of contracts for which the death benefit amount increases or decreases based on the period (e.g., whole life, term life and variable life insurance contracts); the premium amount proportionate to the insurance period in the case of contracts whose host contract and riders have different coverage types (e.g., disease and health insurance contracts); and the cash surrender value (or the premium reserve during the annuity payment period) in the case of annuity contracts with investment-related services (e.g., individual variable annuity contracts). Sony considers the characteristics of insurance contracts and aggregates quantities of benefits related to insurance coverage, investment-return services and investment-related services when determining the relative weighting of the benefits provided to the policyholder by these services.
Upon transition to IFRS 17 as of April 1, 2022, Sony determined that it was impracticable to apply the full retrospective approach to certain groups of insurance contracts, as the necessary information was unavailable due to restrictions of contract data and systems in the past or it was impossible to recreate past estimation without the use of hindsight. Sony will apply alternative transition methods (the modified retrospective approach or the fair value approach) to groups of insurance contracts for which the full retrospective approach is impracticable as of the date of the transition. F-36 SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES Sony will apply the following approaches on transition to IFRS 17:
Modified retrospective approach The objective of the modified retrospective approach is to achieve the closest outcome to retrospective application possible using reasonable and supportable information available without undue cost or effort. Sony will apply each of the following modifications only to the extent that it does not have reasonable and supportable information to apply IFRS 17 retrospectively. Sony will apply the following modifications to certain groups of insurance contracts: For groups of contracts issued, initiated or acquired from April 1, 1993 to March 31, 2015, the future cash flows on initial recognition are estimated by adjusting the amount as of April 1, 2015, which can be determined retrospectively, for the cash flows that are known to have occurred before that date;For groups of contracts issued, initiated or acquired from April 1, 1993 to March 31, 2013, the illiquidity premiums applied to the observable risk-free yield curves on initial recognition are estimated by determining an average spread between the observable risk-free yield curves and the discount rates, which can be determined retrospectively, for the period from April 1, 2013 to March 31, 2022. The amount of insurance finance income or expenses recognized in accumulated other comprehensive income as of April 1, 2022 is calculated by using this discount rate; and The risk adjustment for non-financial risk on initial recognition is determined by adjusting the amount as of April 1, 2022 for the expected release of risk before April 1, 2022.After applying such modifications to fulfillment cash flows, the CSM (or the loss component) on initial recognition is determined as follows: the amount of the CSM recognized as profit or loss before April 1, 2022 is determined by comparing the remaining coverage units as of the date of the transition and the coverage units provided based on groups of insurance contracts before the date of the transition; and the amount allocated to the loss component before April 1, 2022 is determined using the proportion of the loss component relative to the total estimate of the present value of the future cash outflows plus the risk adjustment for non-financial risk on initial recognition.Fair value approach Under the fair value approach, the CSM (or the loss component) as of April 1, 2022 is determined as the difference between the fair value of a group of insurance contracts at that date and the fulfillment cash flows at that date. For all insurance contracts measured under the fair value approach, Sony uses reasonable and supportable information available as of April 1, 2022 to determine the following matters: how to identify groups of contracts; whether a contract meets the definition of an insurance contract with direct participation features; and how to identify discretionary cash flows for contracts without direct participation features. For groups of contracts measured under the fair value approach, the discount rates on initial recognition are determined as of April 1, 2022 instead of at the date of initial recognition. F-37 SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES For all insurance contracts measured under the fair value approach, the amount of insurance finance income or expenses recognized in accumulated other comprehensive income as of April 1, 2022 is determined to be zero. Amendments to IAS 1 “Presentation of Financial Statements” In January 2020, the IASB issued “Classification of Liabilities as Current or Non-current” (“Amendments to IAS 1”). The amendments clarify the right to defer settlement, which is one of the existing requirements when classifying a liability to current ornon-current. The amendments will be effective for Sony as of April 1, 2024. The impact of the amendments on Sony’s results of operations and financial position is being evaluated.In October 2022, the IASB issued “A Non-current Liability with Covenants” (“Amendments to IAS 1”). The amendments were issued to improve the information a company provides about long-term debt with covenants by enabling investors to understand the risk that such debt could become repayable within twelve months. The amendments will be effective for Sony as of Apr il 1, 2024. The impact of the amendments on Sony’s results of operations and financial position is being evaluated.
The reportable segments presented below are the segments of Sony for which separate financial information is available and for which operating income or loss amounts are evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance. The CODM does not evaluate segments using discrete asset information. Sony’s CODM is its Chairman, President and Chief Executive Officer. The former Electronics Products & Solutions segment has been renamed the Entertainment, Technology & Services (ET&S) segment effective from April 2022. This change has not resulted in any reclassification of businesses across segments. The G&NS segment includes the network services businesses, the manufacture and sales of home gaming products and the production and sales of software. The Music segment includes the Recorded Music, Music Publishing and Visual Media and Platform businesses. The Pictures segment includes the Motion Pictures, Television Productions and Media Networks businesses. The ET&S segment includes the Televisions business, the Audio and Video business, the Still and Video Cameras business, the smartphone business and the internet-related service business. The I&SS segment includes the image sensors business. The Financial Services segment primarily represents individual life insurance and non-life insurance businesses in the Japanese market and the banking business in Japan. All Other consists of various operating activities, including the disc manufacturing and recording media businesses. Sony’s products and services are generally unique to a single operating segment.F-38 SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES Segment sales and financial services revenue:
G&NS intersegment amounts primarily consist of transactions with the ET&S segment. ET&S intersegment amounts primarily consist of transactions with the G&NS segment. I&SS intersegment amounts primarily consist of transactions with the G&NS segment and the ET&S segment. Corporate and elimination includes certain brand and patent royalty income. F-3 9 SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES Segment profit (loss):
Operating income (loss) is sales and financial services revenue less costs and expenses, and includes the share of profit (loss) of investments accounted for using the equity method. Other significant items:
F- 40 SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES Sales to customers by product category: The following table is a breakdown of sales and financial services revenue to external customers by product category for each segment. Sony management views each segment as a single operating segment.
In the G&NS segment, Digital Software and Add-on Content includes distribution of software titles andadd-on content through the network by Sony Interactive Entertainment; Network Services includes network services relating to game, video and music content; Hardware and Others includes home gaming consoles, packaged software, game software sold bundled with home gaming consoles, peripheral devices and first-party software for third-party platforms. In the Music segment, Recorded Music — Streaming includes the distribution of digital recorded music by streaming; Recorded Music — Others includes the distribution of recorded music by physical media and digital download as well as revenue derived from artists’ live performances; Music Publishing includes the management and licensing of the words and music of songs; Visual Media and Platform includes the production and distribution of animation titles and game applications, and various service offerings for music and visual products. In the Pictures segment, Motion Pictures includes the worldwide production, acquisition and distribution of live-action and animated motion pictures; Television Productions includes the production, acquisition and distribution of television programming; Media Networks includes the operation of television networks and DTC streaming services worldwide. In the ET&S segment, Televisions includes LCD and OLED televisions; Audio and Video includesBlu-ray disc players and recorders, home audio, headphonesF-41 SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES and memory-based portable audio devices; Still and Video Cameras includes interchangeable lens cameras, compact digital cameras, consumer video cameras and video cameras for broadcast; Mobile Communications includes smartphones and an internet-related service business; Other includes display products such as projectors and medical equipment. Geographic Information: Sales and financial services revenue attributed to countries and areas based on location of external customers for the fiscal years ended March 31, 2021, 2022 and 2023 and non-current assets (property, plant and equipment, ROU assets, goodwill, content assets and other intangible assets) as of March 31, 2022 and 2023 are as follows:
Major countries and areas in each geographic segment excluding Japan, United States and China are as follows:
There are no individually material countries with respect to sales and financial services revenue or non-current assets (property, plant and equipment, ROU assets, goodwill, content assets and other intangible assets) included in Europe, Asia-Pacific and Other Areas. As of March 31, 2023, Sony has suspended its business in Russia.Transfers between reportable business segments or geographic areas are made at individually negotiated prices that are intended to reflect a market-based transfer price. There were no sales or financial services revenue with any single major external customer for the fiscal years ended March 31, 2021, 2022 and 2023. F-4 2 SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES
The carrying amount of Sony’s assets and liabilities by measurement method as of March 31, 2022 and 2023 are as follows:
F-4 3 SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES Cash and cash equivalents are excluded from the table above. Refer to Note 27.
The following section describes the valuation techniques used by Sony to measure different financial instruments at fair value, including an indication of the level in the fair value hierarchy in which each instrument is generally classified. Debt instruments and equity instruments Where quoted prices of financial instruments are available in an active market, these instruments are classified in Level 1 of the fair value hierarchy. Level 1 financial instruments include exchange-traded equity instruments. If quoted market prices are not available for the specific financial instruments or the market is inactive, then fair values are estimated by using pricing models, quoted prices of financial instruments with similar characteristics or discounted cash flows and mainly classified in Level 2 of the fair value hierarchy. Level 2 financial instruments include debt instruments with quoted prices that are not traded as actively as exchange-traded instruments, such as the majority of government bonds and corporate bonds. In certain cases where there is limited activity or less transparency around inputs to the valuation, these instruments are classified within Level 3 of the fair value hierarchy. Level 3 financial instruments primarily include certain private equity investments, investment funds, securitized products which are not classified within Level 1 or Level 2 and domestic and foreign corporate bonds for which quoted prices are not available in a market and where there is less transparency around inputs. Sony estimates the fair value for private equity investments primarily by using comparable company analysis and discounted cash flow method. The price b o ok-value ratio and price earnings ratio of comparable companies, as well as cost of capital and EBITDA multiples for the terminal value used inF-4 4 SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES discounted cash flow method, are primarily used as significant unobservable inputs in the fair value measurement of equity securities classified as Level 3. The fair value increases (decreases) as the price book-value ratio and price earnings ratio of comparable companies rise (decline). In addition, the fair value increases (decreases), as the cost of capital declines (rises) and EBITDA multiples rise (decline), both of which are used in discounted cash flow. Sony estimates the fair value for certain investment funds by using the net asset value. Sony estimates the fair value for securitized products and domestic and foreign corporate bonds for which quoted prices are not available in a market and where there is less transparency around inputs by using third-party information such as indicative quotes from dealers without adjustment or discounted cash flows. For validating the fair values of Level 3 financial instruments, Sony primarily uses internal models which include management judgment or estimation of assumptions that market participants would use in pricing the asset. Derivatives Exchange-traded derivatives valued using quoted prices are classified within Level 1 of the fair value hierarchy. However, few classes of derivative contracts are listed on an exchange; thus, the majority of Sony’s derivative positions are valued using internally developed models that use as their basis readily observable market parameters, meaning parameters that are actively quoted and can be validated to external sources, including pricing services. Depending on the types and contractual terms of derivatives, fair value can be modeled using a series of techniques, such as the Black-Scholes option pricing model, which are consistently applied. For derivative products that have been established for some time, Sony uses models that are widely accepted in the financial services industry. These models reflect the contractual terms of the derivatives, including the period to maturity, and market-based parameters such as interest rates, volatility, and the credit rating of the counterparty. Further, many of these models do not contain a high level of subjectivity as the techniques used in the models do not require significant judgment, and inputs to the model are readily observable from actively quoted markets. Such instruments are generally classified within Level 2 of the fair value hierarchy. In determining the fair value of Sony’s interest rate swap derivatives, Sony uses the present value of expected cash flows based on market observable interest rate yield curves commensurate with the term of each instrument. For foreign currency derivatives, Sony’s approach is to use forward contract valuation models employing market observable inputs, such as spot currency rates and time value. These derivatives are classified within Level 2 since Sony primarily uses observable inputs in its valuation of its derivative assets and liabilities. F-4 5 SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES The fair value of Sony’s assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2022 and 2023 is as follows:
F-4 6 SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES
Cash and cash equivalents are excluded from the tables above. Refer to Note 27. Transfers of debt securities from Level 2 to Level 1 were 1,953 million yen and 2,704 million yen for the fiscal years ended March 31, 2022 and 2023, respectively, as quoted prices in acti ve markets for certain debt securities became available. Transfers of debt securities from Level 1 to Level 2 were 2,523 million yenand F-4 7 SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES 1,982 million yen for the fiscal years ended March 31, 2022 and 2023, respectively, as quoted prices in active markets for certain debt securities were not available. Transfers of equity securities from Level 2 to Level 1 were 12,276 million yen and 24,958 million yen for the fiscal year s ended March 31, 2022 and 2023, respectively, as quoted prices in active markets for certain equity securities became available.The valuation techniques used to measure the fair value of assets and liabilities classified as Level 3, significant unobservable inputs, and their range are as follows:
The decrease (increase) in fair value is the result of rise (decline) of credit spreads. For the above assets classified as Level 3, the fair value would not change significantly, even if one or more of the significant unobservable inputs are changed to reflect reasonably possible alternative assumptions. The changes in fair value of Level 3 assets and liabilities for the fiscal years ended March 31, 2022 and 2023 are as follows:
F-4 8 SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES
F-4 9 SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES The changes in unrealized gains (losses) recognized in net income for Level 3 assets and liabilities held as of March 31, 2022 and 2023 are as follows:
Gains (losses) recognized in net income are included in financial services revenue, other operating (income) expense, net, financial income and financial expenses in the consolidated statements of income. Sony generally elects to designate investments in equity instruments held to promote its businesses and to maintain and enhance the business relationship as financial assets measured at fair value through other comprehensive income based on the purposes of holding the investments. Equity instruments measured at fair value through other comprehensive income as of March 31, 2022 and 2023 comprise the following:
Significant marketable equity instruments measured at fair value through other comprehensive income as of March 31, 2022 and 2023 are as follows:
F- 50 SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES The balances of the non-marketable instruments measured at fair value through other comprehensive income by major sector categories as of March 31, 2022 and 2023 are as follows:
In order to enhance the efficiency of using assets held effectively, Sony derecognizes equity instruments measured at fair value through other comprehensive income upon the sale of the investment. Information relating to investments derecognized during the fiscal years ended March 31, 2022 and 2023 is as follows:
The fair values by fair value hierarchy level of certain financial instruments that are measured at amortized cost as of March 31, 2022 and 2023 are summarized as follows:
F-5 1 SONY GROUP CORPORATION AND CONSO LID ATED SUBSIDIARIES
The table above does not include financial instruments measured at amortized cost whose carrying amounts approximate their fair values mainly due to their short-term nature. The fair values of long-term debt, including the current portion classified as Level 2, were estimated mainly based on discounted future cash flows using Sony’s current rates for similar liabilities. Financial instruments classified as Level 3 mainly include housing loans in the banking business, securitized products and certain bonds issued by Sony. In determining the fair value of such financial instruments, Sony uses the present value of expected cash flows based on risk-free interest rate yield curves with certain credit risk.
Income and expenses related to financial instruments in the Financial Services segment are recorded in financial services revenue and financial services expenses in the consolidated statements of income. Income and expenses related to financial instruments in all segments other than Financial Services segment are recorded in Financial income and Financial expenses in the consolidated statements of income. Refer to Note 24. The breakdown of income and expenses related to financial instruments in the Financial Services segment for the fiscal years ended March 31, 2021, 2022 and 2023 is as follows:
For interest rate risk inherent in the insurance business, which is included in the Financial Services segment, refer to Note 13. For interest rate risk inherent in the banking business, which is included in the Financial Services segment, refer to (7) Market risks for the banking business. Risk management policy and exposure Interest rate risk is the risk the fair value of a financial instrument or future cash flows of the financial instrument will fluctuate because of changes in market interest rates. Sony without the Financial Services segment is exposed to interest rate risk that is mainly related to its liabilities such as short-term borrowings and long-term debt as well as bonds. The amount of interest will be affected by changes in market interest rates; therefore, Sony is exposed to the interest rate risk that the future cash outflows for interest payments will fluctuate. Sony raises funds by issuing fixed-rate bonds in order to avoid an increase in future interest payments that is mainly resulting from an increase in interest rates. Also, Sony utilizes interest rate swap agreements to reduce funding costs, to diversify sources of funding, and to hedge the downside risk on borrowings and debt securities resulting from unfavorable fluctuations of interest rates and currency exchange rates, and from changes in the fair value of financial instruments. Therefore, the interest rate risk associated with cash flows of Sony without the Financial Services segment is not significant.
For price risk inherent in the insurance business, which is included in the Financial Services segment, refer to Note 13. For price risk inherent in the banking business, which is included in the Financial Services segment, refer to (7) Market risks for the banking business. Risk management policy and exposure Sony is exposed to securities price risk inherent in holding of equities in other entities in Japan and overseas countries. Sony periodically assesses fair values of equity instruments and the financial conditions of the issuers of such equity instruments, and reviews its portfolio on a regular basis. Price sensitivity analysis The table below shows the effects on income before income taxes and other comprehensive income (before considering the tax effects) as of March 31, 2022 and 2023 if market prices of marketable equity instruments (e.g., stocks) had decreased by 10%.
F-5 4 SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES
For liquidity risk inherent in the insurance business, which is included in the Financial Services segment, refer to Note 13. This section does not include information regarding the insurance business other than maturity analysis for financial liabilities. Risk management policy The description below covers basic financial policy and figures for Sony’s consolidated operations except for the Financial Services segment and certain subsidiaries, which secure liquidity on their own. Furthermore, the banking business in the Financial Services segment is described separately at the end of this section. Liquidity Management and Market Access An important financial objective of Sony is to maintain the strength of its financial condition, while securing adequate liquidity for business activities. Sony defines its liquidity sources as the amount of cash and cash equivalents (“cash balance”) (excluding restrictions on capital transfers mainly due to national regulations) and the unused amount of committed lines of credit. Funding requirements that arise from maintaining liquidity are principally covered by cash flow from operating and investing activities (including asset sales) and by the available cash balance; however, Sony also raises funds as needed from financial and capital markets through means such as corporate bonds, commercial paper (“CP”) and bank loans. Sony Group Corporation, Sony Global Treasury Services Plc (“SGTS”), a finance subsidiary in the U.K. and Sony Capital Corporation (“SCC”), a finance subsidiary in the U.S., maintain CP programs with access to the Japanese, U.S. and European CP markets. The borrowing limits under these CP programs, translated into yen, were 1,166.3 billion yen in total for Sony Group Corporation, SGTS and SCC as of March 31, 2023. There were no amounts outstanding under the CP programs as of March 31, 2023. If disruption and volatility occur in financial and capital markets and Sony becomes unable to raise sufficient funds from these sources, Sony may also draw down funds from contractually committed lines of credit from various financial institutions. Sony has a total, translated into yen, of 641.5 billion yen in unused committed lines of credit, as of March 31, 2023. Details of those committed lines of credit are: a 275.0 billion yen committed line of credit contracted with a syndicate of Japanese banks, a 1.7 billion U.S. dollar multi-currency committed line of credit also contracted with a syndicate of Japanese banks and a 1,050 million U.S. dollar multi-currency committed line of credit contracted with a syndicate of foreign banks. Sony currently believes that it can sustain sufficient liquidity through access to committed lines of credit with financial institutions, together with its available cash balance, even in the event that financial and capital markets become illiquid. Sony considers one of management’s top priorities to be the maintenance of stable and appropriate credit ratings in order to ensure financial flexibility for liquidity and capital management and continued adequate access to sufficient funding resources in the financial and capital markets. However, in the event of a downgrade in Sony’s credit ratings, there are no financial covenants in any of Sony’s material financial agreements with financial institutions that would cause an acceleration of the obligation. Even though the cost of borrowing for some committed lines of credit could change according to Sony’s credit ratings, there are no financial covenants that would cause any impairment on the ability to draw down on unused facilities.Cash Management Sony manages its global cash management activities primarily through Sony Group Corporation in Japan, SCC in the U.S. and SGTS in other regions. The excess or shortage of cash at most of Sony’s subsidiaries is invested or funded by Sony Group Corporation, SGTS and SCC on a net basis, although Sony recognizes that fund transfers are limited in certain countries and geographic areas due to restrictions on capital transactions. In order to pursue more efficient cash management, cash surpluses among Sony’s subsidiaries are deposited with Sony Group Corporation, SGTS and SCC, and cash shortfalls among subsidiaries are covered by loans through Sony Group Corporation, SGTS and SCC, so that Sony can make use of excess cash balances and reduce third-party borrowings. Where local restrictions prevent an efficient intercompany transfer of funds, Sony’s intent is that cash balances remain outside of Sony Group Corporation, SGTS and SCC and that Sony meets its liquidity needs through ongoing cash flows, external borrowings, or both. Sony does not expect restrictions of capital transactions on amounts held outside of Japan to have a material effect on Sony’s overall liquidity, financial condition or results of operations. F-5 5 SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES Banking business in the Financial Services segment In the banking business in the Financial Services segment, by formulating and conforming with liquidity risk management policies, Sony manages a variety of liquidity risks. Sony defines liquidity risk as cash flow risk and market liquidity risk. Cash flow risk is the risk associated with losses due to Sony’s inability to make cash payments because of a failure to maintain sufficient cash reserves at settlement, as well as risks associated with losses if Sony is forced to raise funds under unfavorable conditions in order to fulfill cash payment obligations. The levels of cash flow risks are classified into phases based on the degree of pressure, and methods of risk management and reporting are set out for each phase, while guidelines are formulated and reviewed as necessary. Market liquidity risk is the risk associated with losses due to Sony’s inability to conduct market transactions, in particular due to an inability to unwind its market position at a given time, or due to Sony being forced to complete transactions under unfavorable market conditions, due to market turmoil or other factors. To manage market liquidity risk, Sony works to understand market liquidity conditions that pertain to the types of products it handles. Sony formulates and revises guidelines on a product-by-product Maturity analysis The following table summarizes Sony’s financial liabilities as of March 31, 2022 and 2023.
F-5 6 SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES
F- 70 SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES
The changes in other intangible assets for the fiscal years ended March 31,
F-7 1 SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES
There were no material impairment losses for the fiscal years ended March 31 , 2021, 2022 and 2023.
Insurance policies Life insurance policies that Sony underwrites in the life insurance business, which are included in the Financial Services segment, most of which are categorized as long-duration contracts, mainly consist of whole life, term life, disease and health insurance, variable life insurance and individual variable annuity contracts. The life insurance revenues for the fiscal years ended March 31, 2021, 2022 and 2023 were 913,361 million yen, 943,092 million yen and 975,799 million yen, respectively. Property and casualty insurance policies that Sony underwrites in thenon-life insurance business, which is included in the Financial Services segment, are primarily automotive insurance contracts, which are categorized as short-duration contracts. Thenon-life insurance revenues for the fiscal years ended March 31, 2021, 2022 and 2023 were 123,574 million yen, 132,908 million yen and 139,678 million yen, respectively.The insurance contract liability in which an insured event has not occurred or a surrender option has not been exercised at the reporting date is classified as non-current. However, if either the insured event has occurred or the surrender option has been exercised, Sony would no longer have the right to defer payment of these amounts. Since the insurance contract liability would be due to be settled within twelve months after the reporting period, it is classified as current.Deferred insurance acquisition costs As of March 31, 2022 and 2023, the balances of deferred insurance acquisition costs for non-traditional life insurance contracts were 261,475 million yen and 324,862 million yen, respectively.Future insurance policy benefits Liabilities for future insurance policy benefits, except the portion of liabilities for minimum guarantee benefits described below, which mainly relate to individual life insurance policies, are established in amounts adequate to meet the estimated future obligations of policies in force. These liabilities, which require significant management judgment and estimates, are computed by the net level premium method based upon the assumptions as to future investment yield, morbidity, mortality rates, lapse rates and other factors. Future insurance policy benefits are computed using interest rates ranging from 0.5% to 4.5% and are based on factors such as market conditions and expected investment returns. Morbidity, mortality rates and lapse rates used as assumptions for all policies are based on either the subsidiary’s own experience or various actuarial tables. Generally these assumptions are locked in throughout the life of the contract upon the issuance of new insurance contracts, although significant changes in experience or assumptions may require Sony to provide for expected future losses. Liabilities for future insurance policy benefits include the liabilities for the minimum guarantee benefits of individual variable annuit y and variable life insurance contracts. The details regarding the minimum guarantee benefits are presented in “Minimum guarantee benefit for individual variable annuity and variable life insurance contracts” below. Sony measures certain of these liabilities for future insurance policy benefits at fair value. Refer to (4).Policyholders’ account in the life insurance business Policyholders’ account in the life insurance business represents an accumulation of account deposits plus credited interest less withdrawals, expenses and mortality charges. Policyholders’ account in the life insurance business includes universal life insurance and investment contracts. Investment contracts are defined by the previous accounting practices in accordance with the provisions of IFRS 4. Universal life insurance includes interest sensitive whole life contracts and variable life insurance contracts. The credited rates associated with interest sensitive whole life contracts range from 1.7% to 2.0%. For variable life insurance contracts, policy values are expressed in terms of investment units. Each unit is linked to an asset portfolio. The value of a unit F-7 2 SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES increases or decreases based on the value of the linked asset portfolio. Investment contracts mainly include single payment endowment contracts, single payment educational endowment contracts, individual variable annuity contracts and policies after the start of annuity payments. The credited rates associated with investment contracts, except for individual variable annuity contracts, range from 0.01% to 6.3%. For individual variable annuity contracts, policy values are expressed in terms of investment units. Each unit is linked to an asset portfolio. The value of a unit increases or decreases based on the value of the linked asset portfolio. The liabilities for policyholders’ account in the life insurance business includes the liabilities related to the individual variable annuit y and variable life insurance contracts with minimum guarantee benefits. Sony measures certain of these liabilities for policyholders’ account in the life insurance business at fair value. Refer to Note (4).Policyholders’ account in the life insurance business is comprised of the following:
Minimum guarantee benefit for individual variable annuit y and variable life insurance contractsRegarding individual variable annuity and variable life insurance contracts, minimum guarantee benefits (minimum death benefit, minimum accumulation benefit, etc.) are provided, and Sony bears the risk of fulfilling the minimum guarantee benefits prescribed in the contracts to policyholders. The fair value measurement is applied to the liability for individual variable annuity contracts with minimum guarantee benefits. Refer to Note (4). Excluding the portion of the liability measured at fair value, the liabilities for the minimum guarantee benefits are calculated using current best-estimate assumptions and are based on the ratio of the present value of expected total excess payments divided by the present value of expected total assessments over the life of the contract. Mortality rates, lapse rates, discount rates and investment yield are used as significant assumptions for this calculation. The policyholders’ account value, net amount at risk, liability for the minimum guarantee benefit, and average attained age as of March 31, 2022 and 2023 are as follows:
F-7 3 SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES
Changes in insurance contract liabilities The changes in insurance contract liabilities are as follows:
F-7 4 SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES
Changes in deferred insurance acquisition costs The changes in deferred insurance acquisition costs are as follows:
Significant assumptions The significant assumptions and the ranges used to measure the insurance contract liabilities as of March 31, 2022 and 2023 are as follows:
Other significant assumptions are mortality rates and lapse rates. Impact from changes made to assumptions
Economic assumptions including discount rates and non-economic assumptions including mortality rates and morbidity rates, lapse rates, and operating expense rates are developed based on best estimates by product as of each cutoff date. Best-estimate assumptions are developed to reflect past and current experiences as well as expected experiences in the future. Expected future changes in assumptions should be reflected only when they are supported by sufficient rationales. Except for a deteriorating trend in mortality rates and morbidity rates, no other expected future changes are assumed in the best-estimate assumptions applied.SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES
In determining the fair value of future insurance policy benefits and policyholders’ account in the life insurance business to which Sony measures at fair value, Sony uses the present value of future expected cash flows based on mortality rates, lapse rates, discount rates, investment yield and various actuarial assumptions. These are classified within Level 3 of the fair value hierarchy since Sony primarily uses unobservable inputs in its valuation. The fair value of future insurance policy benefits and policyholders’ account in the life insurance business as of March 31, 2022 and 2023 is as follows:
The valuation techniques, significant unobservable inputs, and the ranges used to measure the fair value of the future insurance policy benefits and policyholders’ account in the life insurance business as of March 31, 2022 and 2023 are as follows:
* bp = basis point The decrease (increase) in fair value is the result of higher (lower) credit spreads, mortality rates or lapse rates. The fair value of the future insurance policy benefits and policyholders’ account in the life insurance business measured at fair value would not change significantly, even if one or more of the significant unobservable inputs are changed to reflect reasonably possible alternative assumptions. The changes in fair value of future insurance policy benefits and policyholders’ account in the life insurance business measured at fair value for the fiscal years ended March 31, 2022 and 2023 are as follows:
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