SEGA-Sammy’s Q1 2015 financial report detailed and explained

SEGA-Sammy recently announced it’s first half results for the fiscal year and it came with mixed results. Some divisions have beaten expectations so far but the gloomy outlook for the rest of the year has effected the final net income expected by the group. During this period SEGA only released one major title but another up and coming title looks set to outdo their expectations, hit the link to find out what SEGA Sammy have been doing well and what the future holds for the group.

 CONSUMER DIVISION

We begin with the core business at the heart of SEGA, their consumer division. Despite what you may have read on the internet, SEGA’s consumer division actually posted a healthy operating profit. The biggest selling title announced in this period was Persona 4 The Ultimax Ultra Suplex Hold that they managed to ship 230,000 titles. However whilst SEGA announced that for the Persona spinoff but more on that later. SEGA managed to ship 710,000 packaged game units to Japan, 1,420,000 to the United States and 1,960,000 to Europe bringing total shipped packaged games to 4,100,000, comfortably beating their expectations by an odd 30,000 units. However it was no thanks to their Japanese sales were they missed their initial target by over 600,000 units, but thanks to Europe and America they managed to still remain track on their mid year goals.

Going back to my previous point, using a simple process of elimination there was in fact a bigger seller this half year than a Persona spin-off. The recently released Creative Assembly title Alien: Isolation seems to have had pre-orders of 430,000 units just for the Playstation 4 (290,000) and Xbox One (140,000) beating SEGA’s pre-release expectations of 160,000 for the current gen twins by 270,000 units more, massive success for SEGA. When you factor in the sales for the Xbox 360, Playstation 3 and PC versions for the title, we should be expecting them to have shipped out 600,000 units for Alien: Isolation prior to launch. One has to congratulate The Creative Assembly if they get such a well deserved success to add to their already impressive portfolio.

SEGA also got some good news for their MMORPG Phantasy Star Online 2 with them registering over 1 million downloads for the Playstation Vita version alone. It’s unknown if the previously announced 3 million figure announced for registered users for Phantasy Star Online 2 included the Playstation Vita fanbase but if it did not than having over 4 million users is a fantastic achievement for SEGA. The highly successful mobile RPG Chain Chronicles now has over 4 million downloads with SEGA further looking to increase the value of the brand by producing more tie in media such as animes and comics.

It wasn’t all good news for the consumer division as the much publicized Sonic Boom and the delayed Phantasy Star Nova seem to give SEGA little confident of matching their initial expectations. Sonic Boom has had it’s forecast revised downwards to 300,000 from the original 600,000 for the Wii U version with the expected full year sales for the 3DS version taking a massive hit too down from 2,270,000 to 1,380,000. Whilst it’s harder to predict Phantasy Star Nova reduced numbers, we can tell from the reduced sales number for the Playstation Vita it has had an effect on SEGA’s full year expectation. But whilst the full year Wii U, 3DS and PSVita have had revised forecast downwards, the Playstation 4, PC and Xbox One catalog titles have been revised upwards.

To round of this segment, SEGA managed to produce 15.3 billion in packaged game sales, 21.9 billion in digital content sales, 3.5 billion in toy sales and a further 6.6 billion yen in animation sales. It saw SEGA’s consumer division post net revenue of 48.2 billion yen for the half year and a better than expected 900 million yen operating profit (SEGA was expected a loss during this period of 200 million yen.) Despite beating expectations for the half year, the group revised down their full year forecast from 6.6 billion yen operating profits to 5 billion. They cite that although first half results have been good, the toy and video games are expected to fall behind their expectations for the full year but digital sales should remain consistent.

 ARCADE SALES AND AMUSEMENT CENTERS

There wasn’t many good signs for SEGA’s struggling arcade division for the half year but it was another division that managed to beat expectations. Despite having no major seller during this period and relying on main stay titles from the previous fiscal year, the division still did enough to post a minor operating profit in arcade sales. The standout performer was last year’s big hit StarHorse 3 which generated 1 billion yen in sales, followed by SEGA’s long running historical arcade game Sengoku Taisen and World Club Champion Football Series, both generating 800 million yen in sales. The division managed to generate revenues of 18 billion yen with an operating profit of 200 million yen compared to an expected lose of 1.7 billion yen, it was a good turnaround considering there was no major titles to drive sales.

The side of the arcade division that did worse than expected was the Amusement Centres. The troubled portion of SEGA still didn’t manage to quite turn the profit despite posting strong net sales of 20.8 billion yen, however the division was expected to make barely any money. Instead SEGA saw another lose here of 200 million yen but cited that a tax hike on consumption lead to an operating loss, noting that sales were actually up year on year. The group commented that they’ll continue to streamline profitability by closing down three unprofitable facilities whilst opening another 3 more in more profitable areas. Due to the minor lose, SEGA is expecting it to carry over to the full year, forecasting a loss of 800 million yen, up 200 million from their initial forecast.

 PACHINKO & PACHISLOT

The big money maker in the group still continue to produce the most money and the biggest operating profit but despite all that, even Sammy began to revise down their forecast for the full year. The Pachislot sales missed their target and not by any small amount either, it was down by 9.9 billion yen to 34.6 billion yen. The drop in expectations was blamed purely on pushing back the release date of major pachislot machines, further more for the full year they are expecting a drop in units ordered from 374,800 to 222,998. Thankfully the pachinko sales actually beat expectations by a large margin, from 16.9 billion to 25.3 billion net revenue and Sammy have revised the figures up for the sales of pachinko machines. With half year operating profits coming at 7.3 billion and beating their expectations of barely making any money, the group still decided to revise down forecost due to poor pachislot sales. SEGA Sammy expects operating profits for the division to be 25 billion, still a large amount but a massive 20 billion yen decline to what they expected initially.

CONCLUSION

Now the interesting part and the bit that sent a few alarm bells ringing and that was restructuring of SEGA Sammy’s core business. It’s difficult to say if this is just buzzwords to make investors confident in the group or if this is due to some legitimate change in the organisation. First up the goals to improve Sammy’s pachinko and pachislot business are simple, double down on what is successful and exert the strength of the brand. What changes are afoot for SEGA is more interesting with first up some personal change with Haruki Satomi, the son of majority sharehold and SEGA Sammy president Hajime Satomi, becoming Executive Vice President and Representative Director for SEGA.

Second up would be how they’re restructuring it and putting digital content at the core of the newly named consumer division now called Entertainment Content Business. Now this was no surprise as we full well knew this plan in advance however they leave any mention of packaged goods. What’s interesting is they now mention a new division for SEGA’s Entertainment Content business, Video-related business, but no mention what that entails. Furthermore they say toys will become part of SEGA’s new Entertainment Content business, this is despite SEGA already having toy’s part of the consumer division. Odd still though is no mention of packaged games but digital content could easily refer to video games in general whilst the video-related business be for the consumer division’s animation department. Finally the third pillar in the company, SEGA Sammy is looking to established their resort business by April 2015 which should no doubt provide some sort of boast to the sales for both Sammy’s gambling business as well as SEGA’s arcade division.

And despite multiple divisions posting healthy operating profits and beating the half year expectations by losing less money than expected from 7 billion yen to 2 billion yen with net sales of 154.2 billion yen, SEGA Sammy has revised their forecasts down due to the harsher than expected market conditions for their core businesses from lowered pachislot sales and the expected financial failure of Sonic Boom. Net income has been revised down from 21 billion yen to 4 billion yen, also effected due to construction of their resort business. One should expect the group to recover quickly and this might just be a relatively minor blip, however for a strong future for the group may come down to how well they can minimise failures such as Sonic Boom in the beginning and expanding on runaway successes like Alien: Isolation, grapple the Japanese mobile market (Valued at over 700 billion yen as of 2014.) how to fix the ailing health of the arcade division and of course if the third pillar, the resort business is a success. Whatever the case, the group is definitely taking some form of action for the future, now the question is, will it be the right one?

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