Sony Group Corporation — FY2021 Form 20-F
Reporting period: Fiscal year ended March 31, 2021, compared with FY2020. This is an annual report, not a standalone 2020 Q4 filing. Financial statements are prepared under U.S. GAAP. Sony changed its name from Sony Corporation to Sony Group Corporation on April 1, 2021.
Financial performance
Amounts below are yen unless otherwise stated.
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Sales and operating revenue | ¥8.999 trillion | ¥8.260 trillion | +9.0% |
| Operating income | ¥971.9 billion | ¥845.5 billion | +15.0% |
| Operating margin | 10.8% | 10.2% | +0.6 percentage points |
| Income before income taxes | ¥1.192 trillion | ¥799.5 billion | +49.1% |
| Net income attributable to Sony stockholders | ¥1.172 trillion | ¥582.2 billion | +101.3% |
| Basic EPS | ¥952.29 | ¥471.64 | +102.0% |
| Cash and cash equivalents | ¥1.787 trillion | ¥1.512 trillion | +¥274.6 billion |
| Stockholders’ equity | ¥5.576 trillion | ¥4.125 trillion | +¥1.451 trillion |
| Total assets | ¥26.355 trillion | ¥23.039 trillion | +¥3.315 trillion |
Operating costs included ¥525.2 billion of R&D expense, up from ¥499.3 billion; R&D was 7.2% of sales excluding Financial Services revenue, unchanged year over year. The cost-of-sales ratio worsened to 69.1% from 68.3%, while the SG&A ratio improved to 20.0% from 21.6%.
Cash flow, debt and liquidity
- Operating cash flow was ¥1.350 trillion, essentially flat year over year. Investing activities used ¥1.782 trillion, including capital spending and investments; financing provided ¥667.0 billion. The resulting net increase in cash and cash equivalents was ¥274.6 billion.
- Cash and cash equivalents were ¥1.787 trillion, and marketable securities were ¥2.902 trillion. A substantial portion of the securities and financial-service cash balances relates to the regulated Financial Services businesses and is not necessarily freely available to the wider group.
- Balance-sheet borrowings comprised ¥1.188 trillion of short-term borrowings, ¥131.7 billion of current long-term debt and ¥773.3 billion of long-term debt. This excludes lease liabilities and customer bank deposits.
- Outside Financial Services, Sony reported ¥579.5 billion of unused committed credit facilities and ¥1.054 trillion of commercial-paper program capacity, with no commercial paper outstanding at year-end. Management said it believed liquidity was sufficient.
- FY2021 dividend was ¥55 per share: ¥25 interim and ¥30 year-end. The year-end dividend was approved after the fiscal year-end and paid beginning May 27, 2021.
Business performance and changes
- Game & Network Services: Segment sales rose 34% to ¥2.656 trillion and operating income rose to ¥342.2 billion. Digital software/add-on content and network services grew; PS5 launched, with 7.8 million units sold. Hardware supply could not meet strong demand, and PS5 hardware was sold at strategic prices below manufacturing cost.
- Music: Sales increased 11% to ¥939.9 billion and operating income to ¥188.1 billion. Streaming and anime-related activity, including Demon Slayer: Mugen Train, supported growth. Results included ¥11.9 billion of gains from share sales and a business transfer.
- Pictures: Sales fell 25% to ¥758.8 billion as theater closures and production delays reduced theatrical releases and new-show deliveries. Operating income nevertheless increased to ¥80.5 billion, helped by lower marketing costs and home-entertainment sales.
- Electronics Products & Solutions: Sales declined 4% to ¥1.921 trillion, but operating income increased to ¥139.2 billion, mainly on cost reductions and improved product mix. The smartphone business returned to profit; smartphone unit sales declined to 2.9 million from 3.2 million.
- Imaging & Sensing Solutions: Sales declined 5% to ¥1.012 trillion and operating income fell 38% to ¥145.9 billion. Product mix, higher R&D and depreciation, foreign exchange and a ¥7.2 billion image-sensor inventory write-down contributed.
- Financial Services: Revenue increased 28% to ¥1.669 trillion and operating income increased to ¥164.6 billion, reflecting securities valuation changes and improved results at Sony Bank and Sony Assurance. Sony completed its ¥396.7 billion acquisition of the remaining Sony Financial Holdings shares, making it wholly owned.
Outlook, commentary and risks
- For FY2022–FY2024, Sony targets cumulative consolidated Adjusted EBITDA of ¥4.3 trillion, capital expenditures of ¥1.5 trillion and strategic investments of at least ¥2 trillion, including share repurchases. It expects cash generation of at least ¥3.8 trillion, including at least ¥3.1 trillion of operating cash flow excluding Financial Services. These are forward-looking targets, not guarantees, and use IFRS measures; Sony planned to adopt IFRS beginning in FY2022.
- Management’s long-term strategy emphasizes content and intellectual property, direct-to-consumer services, technology and cross-group collaboration. Sony aims to increase the number of people directly connected to its services from about 160 million to 1 billion. I&SS plans to diversify its customer base, pursue higher-value sensors and increase capital spending over the three-year period ending FY2024.
- COVID-19 disrupted component procurement and production, delayed music and screen content, reduced cinema and live-event activity, and affected retail and in-person insurance sales. Management warned that renewed outbreaks and restrictions could prolong or worsen these effects. Semiconductor and other component shortages were also identified as a risk, particularly for PlayStation hardware.
- Unusual earnings items: Other income included ¥247.0 billion of unrealized gains on Sony’s Bilibili and Spotify equity investments. The effective tax rate was 0.1%, principally because Sony reversed deferred-tax valuation allowances, including a ¥214.9 billion benefit in Japan. These items materially boosted reported net income and may not recur at comparable levels.
- Additional risks include intense competition and pricing pressure, foreign-exchange movements, reliance on suppliers and distribution partners, cybersecurity and intellectual-property risks, regulatory and legal proceedings, and market and interest-rate exposure in Financial Services. A U.S. export restriction on a Chinese customer reduced some image-sensor shipments and contributed to the inventory write-down.
- At March 31, 2021, total contractual obligations and commitments were ¥35.153 trillion, heavily influenced by estimated future insurance-policy and policyholder-account payments. That insurance cash-flow estimate is not equivalent to debt or the balance-sheet liability. Sony said pending legal and regulatory proceedings were not expected, based on currently available information, to materially affect results or financial position.
- After year-end, Sony completed the ¥49.8 billion AWAL and Kobalt Neighbouring Rights acquisition; the CMA review and acquisition accounting were still under review at the report date. Sony also authorized a post-year-end share repurchase of up to ¥200 billion.
Most important facts for investors to verify
- How much FY2021 earnings growth came from recurring operations versus the ¥247.0 billion investment gains and major deferred-tax valuation-allowance reversals.
- Whether cash generation and liquidity remain adequate after separating regulated Financial Services assets, customer deposits and insurance obligations from group-level resources.
- Whether Sony can increase PS5 supply amid component shortages, and the effect of hardware pricing and launch costs on G&NS profitability.
- Whether I&SS can restore profitability and diversify its customer base, and whether planned sensor investment earns adequate returns.
- Progress against the FY2022–FY2024 targets, including the IFRS transition and the assumptions underlying Adjusted EBITDA and cash-generation forecasts.
- Developments in COVID-19 effects, export restrictions, semiconductor supply, the CMA review and other material legal or regulatory matters.