Sega Sammy Holdings: Actual Results for the Second Quarter of the Year Ending March 2015

Key insights

7 takeaways

01
Sega Sammy Holdings has significantly lowered its full-year sales forecast for pachislot machines from 374,000 to 222,000 units due to regulatory changes in prototype testing.See it on page 2
02
The company is launching a Group Structure Reform targeting a 6 billion yen reduction in fixed expenses across all business segments to combat declining profitability.See it on page 4
03
New pachislot titles compliant with updated voluntary regulations regarding AT/ART functions are not expected to reach the market until the first quarter of the following fiscal year.See it on page 3
04
Profitability in the second quarter of the fiscal year ending March 2015 contracted due to rising costs and a shift in sales mix away from high-margin pachislot machines.See it on page 1
05
While digital games and pachinko unit sales showed growth, these gains were insufficient to offset poor performance in packaged software, toy sales, and amusement center operations.See it on page 2
06
Management is prioritizing the expansion of digital games and revenue-sharing models while maintaining the development schedule for a resort complex in Incheon, South Korea, slated for a 2017 opening.See it on page 2
07
New leadership has been appointed within the Sega Group to improve governance and accelerate decision-making processes during the restructuring period.See it on page 4

Summary

Sega Sammy Holdings’ financial results for the second quarter of the fiscal year ending March 2015 reveal a period of significant income contraction despite relatively stable sales. The decline in profitability is primarily attributed to rising costs within the Pachislot and Pachinko Machines segment, compounded by a shift in the sales mix away from high-margin pachislot machines. While digital games and pachinko unit sales showed strength, these gains were offset by sluggish performance in packaged game software, toy sales, and amusement center operations.

The company has implemented a downward revision to its full-year forecast, largely due to changes in prototype testing operational methods for pachislot machines. These regulatory adjustments have necessitated a shift in sales schedules, leading to a projected reduction in annual unit sales from 374,000 to 222,000. Consequently, the industry expects a temporary decline in title availability as manufacturers adapt to new voluntary regulations regarding AT/ART functions, with new compliant titles not anticipated until the first quarter of the following fiscal year.

To address these challenges, the organization is initiating a comprehensive Group Structure Reform aimed at improving profitability and streamlining operations. This strategy includes a target to reduce fixed expenses by 6 billion yen across the entire group, with no specific business segment exempt from potential cost-cutting measures. Management is prioritizing the growth of digital games and revenue-sharing models while simultaneously focusing on the development of a resort complex in Incheon, South Korea, which remains on track for a 2017 opening. The restructuring effort is further supported by the appointment of dedicated leadership to accelerate decision-making and governance within the Sega Group.