Sega-Sammy have released a revised forecast for the first half of the fiscal year ending March 31, 2017 (from April 1, 2016 to September 30, 2016). While they expect lower net sales compared to their previous forecast, the contrary is true for their operating income. In particular, they expect to reach an operating income of 14,000 million yen (around $139 million), more than double the initial forecast of 6,500 million yen (around $64.5 million). Sega-Sammy attributes these results to several factors, which we discuss in more detail below.
While the net sales in the Pachislot and Pachinko Machines Business are somewhat lower than expected, profits are higher than expected due to cost-cutting measures involving reusing components, as well as a drop in expenses centered on development costs. This means a slightly higher than expected profit from this segment of the Sega-Sammy Holdings.
For the Entertainment Contents Business (which encompasses much of what we regard as “SEGA”). Sega-Sammy notes a “continuation of strong results”. They highlight the ongoing success of the PlayStation 4 version of Phantasy Star Online 2. as well as robust sales for their mobile titles Puyopuyo!! Quest, CHAIN CHRONICLE – Kizuna no Shintairiku and Hortensia Saga. Sega-Sammy also notes that sales for the recently released Atlus RPG Persona 5 are “robust”, confirming that the game is performing to expectations.
In terms of their amusement centers, the utilization of Kancolle Arcade machines “continues to be steady”. All this, combined with the animated film Detective Conan: The Darkest Nightmare achieving new box office record for the series, means that Sega-Sammy expects slightly higher net sales and a much higher operating income for their Entertainment Contents Business. Indeed, of the additional 7,500 million yen Sega-Sammy expects to earn compared to their previous forecast, 6,700 million yen comes from their Entertainment Contents Business.
The company also clarifies that they will be recording an extraordinary gain from the sale of “noncurrent assets” (land and buildings) in order to secure capital, and that they have acquired an overseas PC game development company (Endless Legend developer Amplitude). These actions are part of their structural reforms aimed at improving profitability and capital efficiency.
While we’ve seen revised forecasts from Sega-Sammy before, it’s good to see one where they announce that they expect higher profits. Hopefully this trend will continue!