SEGA Sammy group post profits of 7 billion yen

There was plenty of good news in SEGA Sammy’s recently disclosed financial report for the first period for the fiscal year ending March 2011, although note all of it was a rossy picture. Despite that, the group posted strong profits of 7 billion yen this quarter, an exceptionally sound result considering recent reports from other major publishers. Read on to follow the general breakdown. 

 

General 

The group oversaw a radical turn around this quarter in which net sales jumped from 60,461 million yen last year to ¥91,340 million. The increase helped to ensure that in this quarter, the group managed a cool ¥7,000 million profit (Roughly 52 million / $80 million in today’s exchange) that’s compared to a loss of ¥10,293 million this quarter last year. 

Amusement Machines 

 

SEGA continued to enjoy strong sales from AM2’s Border Break, which continued it’s shift with an impressive ¥600 million in revenue for the arcade business. But the big seller for SEGA was Sangokushi War 3, which managed a cool 1.5 billion in revenue for SEGA and will no doubt continue to lift the group in the coming quarters, the series proving to be a major hit for SEGA. Finally World Cup Champion Football Intercontinental Clubs Series managed to gather SEGA ¥500 million in sales, another consistent performer for the division. 

 The group also announced that Project Diva Arcade has begun to be sold under the revenue sharing model that more and more of SEGA’s arcade titles have incorporated, it is cited that sales of Border Break, Sangokushi War 3 and World Cup Champion Football also include this revenue sharing method SEGA now employs. The group is hoping that this will allow for long-term stable earnings and help arcade operators invest more in newer arcade machines. 

At the end of it, SEGA’s arcade business was another side of the business that took an upturn compared to this quarter last year. Net sales were ¥10,442 million, an increase of 24.0% and operating income was ¥1,399 million compared to an operating loss of ¥1,077 million for the same period in the previous fiscal year. Another thing to note was Research and Development costs for this period was ¥1,800 million, compared to the ¥2,200 million the same period last fiscal year. 

Amusement Centre Operations 

The group’s troubled Amusement Centres continued to see closures in various arcade centres, with 6 more being closed down, although one was opened in the domestic market. In total SEGA currently still have 255 centres still open in Japan, although another 7 is still expected to be closed by the end of fiscal year ending March 2011. Further closures to overseas operation will see another 7 centres closed taking the total to 14 and SEGA will close down a few more of their dart bars from 47 to 43. 

Despite all this, the segment managed to post an operating profit, although a rather minor one at ¥177 million, it still has done better than this period last fiscal year in which it posted an operating loss of ¥125 million. Due to continued closure of several centres, the operation did see a decline in revenue from ¥14,100 million to ¥11,000 million, of course due to the closure of non-profitable centres, it allows SEGA to be able to post an operating income this quarter, let’s hope it continues. 

Consumer Business 

 

The consumer business for the group saw mixed results. During this period it oversaw the release of Iron Man 2 and Alpha Protocol, both doing 1,120,000 and 700,000 respectively. However SEGA cited weak sales in overseas markets as a reason for under performing in software sales. Despite that, video game sales however managed to sell 24% more units this quarter than the same period last year, in which it recorded 2,650,000 in sales. It is interesting to note that Alpha Protocol and Iron Man 2’s sales combined were only around 90,000 units for the PC. 

The group managed to sell 1,680,000 software products in the U.S from 6 titles (12 SKUs altogether) 1,330,000 copies in Europe from 9 titles (12 SKUs) and 270,000 copies in Japan and other regions from only one title, bringing a grand total of 3,290,000 copies. The console that SEGA sold the most on this period was the Playstation 3 with 590,000 sales generated, followed by the Xbox360, NDS, Wii, PSP and PC. A further 1,290,000 copies were sold from SEGA’s catalogue sales (Titles released before this period) 

 

The SEGA Sammy Group did cite that they need to adapt to changing market conditions and develop more games for social networks and smartphones. No doubt this is what SEGA America would be tasked with handling, whilst SEGA Europe continues to be the hub for console game development in overseas market, as stated by Mike Hayes some months back. 

In the other sectors of the group, SEGA Toys continued to enjoy the massive success of Bakugan at home and abroad remaining solid, in particular overseas revenue from Bakugan were robust. PC and mobile games’ sales remained solid too, thanks primarily to downloadable PC titles (I would imagine this is in regards to Stream and such) and the 14th Detective Conan film had solid sales for SEGA Sammy’s TMS. 

 

However, even with the segment recording an increase in net sales from 15% amounting to ¥20,859 million, the consumer business posted an operating loss of ¥636 million, although that is not entirely bad news, as this period last fiscal year, the group saw a ¥4,500 million loss. Research and development cost amounted to 4,400 million this period (And keep in mind, that figure includes all of the consumer business, not just video games) that is down from 5,800 million. Indeed SEGA’s slimming of their production line has brought down R&D expenses and has significantly helped them get closer to the black. 

Pachislot and Pachinko Machines 

 

The major bread maker though this time round for SEGA Sammy, was the pachislot and pachinko machines and the segment recorded some astonishing improvements in sales that has, as far as pachislot is concerned, has caused the group to revise their through to 2nd quarter predictions from 100,000 units to 180,000 units. For the first period of the fiscal year March 2011, the group recorded 109,621 units sold of pachislots (Up from 5,111 this period last fiscal year) and 49,240 units sold of pachinko machines (Down from 53,748) 

The best selling pachislot product for SEGA Sammy was Pachislot Souten-no-Ken, which managed to sell 71,000 units, much more than half of the sales from this one department attributed to that one title. Whilst for pachinko machines, the group’s best selling title was Dejihane CR Souten-no-Ken, managing to sell 16,000 units. 

In total, the group manages to gather a large amount of sales from this segment of the business, with net sales amounting to ¥48,900 million, up from 19,600 million from the same period last fiscal year. Operating income came to a total of ¥15,133 million, compared with an operating loss of ¥1,037 million for the same period in the previous fiscal year. This drastic change in Sammy’s fortunes is certainly helping the whole group to begin to post strong a desired profits. 

Closing 

Despite the consumer business failing to make an operating profit, the group has seen improvements from last year this period in every single segment; they’re losing less money and making more money in certain parts of the outfit. So far this year has started of much much better for the group than the previous fiscal year, which at this point was particularly difficult for the company. 

Certain projections have been changed. SEGA has revised operating income through next quarter for the Amusement Machines from ¥100 million to ¥600 million, while Amusement Centres losses have been marked down from ¥700 million loss to ¥100 million. However it’s not all good news, the consumer business is also predicted to record an even larger loss, having missed it’s targets this quarter, SEGA expects the operating loss to go from ¥2 billion to ¥2.5 billion, no doubt poor sales of Iron Man 2 and Alpha Protocol are having an adverse effect on predictions the group is making on this segment. Sales of video games are predicted to be lower than the group expected, going from 6,320,000 units to 5,000,000 units. Despite this, with the exception of Amusement Centres, the consumer and arcade division of SEGA is expected to beat the results they posted for 2Q, in which they posted ¥8 billion and ¥700 million operating loss respectively. 

 The pachinko and pachislot business is however, expected to make a large sum of money for 2Q. Projections have been revised from an operating income of ¥20.5 billion to ¥39.5 billion, an incredible spike. In total, the group is expecting operating income to go from their initial ¥5 billion operating profit, to ¥17 billion for the next quarter. Compared to the last fiscal year’s Q2, where SEGA Sammy saw an operating loss of ¥6.3 billion, a turn around is expecting from the group’s hierarchy. 

In the end, the group has shown major improvements in all areas, however whilst the arcade business is finally starting to post consistent, if somewhat minor, profits again, certain segments within SEGA are still losing money. Despite this, streamlining the development of console games, in particular making sure fewer games are released and those that are released happen to be major titles able to make SEGA money, the consumer business should begin to post profits by the end of this fiscal years. There is next to no chance of pachislot and pachinko actually posting major losses like they did at one point which caused the group to post a loss of £362 million/$500 million. The closure of several non-profitable should help the Amusement Centres slowly become profitable once more for SEGA, however that is still sometime away. Overall the health of the group seems to be slowly going from strength to strength. 

That closes it for another report, I hope you’ve enjoyed reading it and wish you a good day, until next time!

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