SEGA SAMMY HOLDINGS (6460) FY2026 FY Earnings Report

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Executive Summary

The Company reported higher revenue but fell into a net loss due to impairment losses, with the primary feature being that the benefits of revenue growth in the core business were offset by one-time losses. Revenue increased to ¥487.54B (+13.7% YoY), while Operating Income declined to ¥47.13B (-2.1%). Net Income attributable to owners of the parent was ¥-5.76B, marking a shift into the red from ¥45.06B in the previous year. Ordinary Income increased to ¥54.20B (+2.1%), but the recognition of extraordinary losses totaling ¥58.84B, including ¥54.63B in impairment losses related to Rovio and Stakelogic, was the primary cause of the net loss.

Factors Affecting Earnings

【Revenue】The Amusement Machines Business increased 36.0% YoY to ¥132.06B, while the Gaming Business grew 364.4% to ¥25.31B due to the consolidation effect of acquisitions, significantly driving consolidated revenue growth. Meanwhile, the Entertainment Contents Business, the largest segment accounting for 67.5% of the revenue mix, grew only 1.6% to ¥326.64B, making a limited contribution to growth.

【Profit and Loss】The Operating Income margin declined to 9.7% from 11.2% in the previous fiscal year, as the gross margin fell to 44.2% from 44.9% and the SG&A expense ratio increased to 34.5% from 33.7%. Ordinary Income increased, supported by non-operating income including ¥5.40B in equity-method investment gains. However, Net Income turned negative due to extraordinary losses of ¥58.84B, including impairment losses of ¥31.99B related to Rovio and ¥18.05B related to Stakelogic. Segment earnings also reflected a decline in profitability: profit from the Entertainment Contents Business fell 17.8% to ¥34.45B, while the Gaming Business shifted to a loss of ¥0.84B, resulting in a pattern of higher revenue but lower profit.

Segment Analysis

The Amusement Machines Business achieved higher revenue and profit, with Revenue of ¥132.06B (+36.0%), segment profit of ¥33.30B (+58.8%), and a margin of 25.2%, the highest profitability among the three businesses. The Entertainment Contents Business posted only modest revenue growth of 1.6% to ¥326.64B, while segment profit declined 17.8% to ¥34.45B and the margin fell to 10.5%, weighing on consolidated profit. The Gaming Business expanded rapidly, with Revenue increasing 364.4% to ¥25.31B due to the consolidation effect of acquisitions, but recorded a segment loss of ¥0.84B, equivalent to a margin of -3.3%, indicating that monetization of the expanded business has not yet been achieved. It should be noted that segment profit is calculated on an Ordinary Income basis and therefore differs in calculation basis from consolidated Operating Income.

Key Financial Metrics

【Profitability】The Operating Income margin declined to 9.7% from 11.2% in the previous fiscal year, while the Net Income margin turned negative at -1.2%, compared with 10.5% previously. The gross margin was 44.2%, compared with 44.9% in the previous fiscal year, and the SG&A expense ratio was 34.5%, compared with 33.7%. Even amid revenue growth, higher expenses placed pressure on profit margins.【Cash Flow Quality】Operating Cash Flow (OCF) was secured at ¥25.94B, but increases of ¥11.67B in accounts receivable and ¥18.31B in inventories, together with a ¥8.23B decline in accounts payable, resulted in an outflow of working capital that constrained cash conversion. As a result, Free Cash Flow (FCF) was limited to ¥3.43B.【Investment Efficiency】ROE deteriorated to -1.6% due to the net loss, while capital expenditures of ¥6.18B were below depreciation and amortization of ¥16.17B. Research and development expenses were ¥28.97B, equivalent to 5.9% of Revenue, indicating that investment in content development is continuing.【Financial Soundness】The Equity Ratio was 56.6%, interest-bearing debt was ¥132.00B, and leverage was moderate at approximately 2.1x Debt/EBITDA. Together with cash and deposits of ¥153.37B, the Company’s financial foundation remains stable.

Cash Flow Analysis

Operating Cash Flow was ¥25.94B, an increase of 24.4% YoY, but the gap with the net loss of ¥5.76B was attributable to the addition of non-cash expenses, including ¥54.63B in impairment losses. Trade receivables increased by ¥11.67B and inventories by ¥18.31B, while trade payables declined by ¥8.23B. This deterioration in working capital reduced OCF from the subtotal of ¥28.01B to actual OCF of ¥25.94B. Investing Cash Flow was ¥-22.51B, primarily due to the acquisition of subsidiary shares amounting to ¥22.52B. Capital expenditures of ¥6.18B remained below depreciation and amortization of ¥16.17B. Financing Cash Flow was ¥-56.62B, with the main outflows consisting of share repurchases of ¥32.01B, dividend payments of ¥11.56B, and repayments of long-term borrowings of ¥7.50B. Consequently, Free Cash Flow was limited to ¥3.43B, indicating limited capacity to fund shareholder returns and acquisition investments solely through internally generated cash. Nevertheless, cash and cash equivalents remained substantial at ¥153.78B at fiscal year-end.

Quality of Earnings

Ordinary Income of ¥54.20B was partly supported by non-operating income such as equity-method investment gains of ¥5.40B and interest income of ¥3.27B. Non-operating income amounted to 2.5% of Revenue, a level that does not indicate excessive dependence. However, the item that had a significant impact on final earnings was extraordinary losses of ¥58.84B. Impairment losses of ¥54.63B, accounting for more than 90% of extraordinary losses, were attributable to a temporary review of the profitability of goodwill and intangible assets related to Rovio and Stakelogic. Consequently, Ordinary Income and Net Income diverged significantly at ¥54.20B and ¥-5.76B, respectively, indicating that earnings for the current period were dominated more by non-recurring accounting losses than by recurring operating earning power. Comprehensive Income was positive at ¥16.45B. The gap from Net Income was attributable to foreign currency translation adjustments of +¥20.76B, as translation gains from overseas subsidiaries into yen effectively offset the final net loss.

Earnings Forecast and Guidance

For the next fiscal year ending March 2027, the Company forecasts Revenue of ¥510.00B (+4.6% YoY), Operating Income of ¥44.50B (-5.6%), Ordinary Income of ¥47.50B (-12.4%), and forecast EPS of ¥160.36. While continued revenue growth is expected, the plan calls for Operating Income and Ordinary Income to fall below the current-period results and does not assume an improvement in the core operating margin. Net Income attributable to owners of the parent is expected to turn profitable from the current-period loss, primarily on the assumption that the large-scale impairment losses will not recur.

Shareholder Returns

The annual dividend was ¥55 per share, comprising an interim dividend of ¥27 and a year-end dividend of ¥28, an increase from ¥25 in the previous fiscal year. Since Net Income attributable to owners of the parent was a loss of ¥5.76B for the current period, the Payout Ratio cannot be calculated and is not disclosed. Share repurchases totaled ¥32.01B, and together with total dividends of ¥11.46B, total shareholder returns amounted to ¥43.47B. The Company returned an amount substantially exceeding Free Cash Flow of ¥3.43B, utilizing capital capacity supported by cash and deposits of ¥153.37B and low leverage. The dividend forecast for the next fiscal year is also maintained at ¥55 per share, and if forecast Net Income of ¥32.50B is achieved, dividend and earnings coverage is expected to improve.

Risk Factors

1. Risk of recurring impairment of goodwill and intangible assets: The Company recorded impairment losses totaling ¥54.63B during the current period, comprising ¥31.99B related to Rovio and ¥18.05B related to Stakelogic. Although remaining goodwill has been reduced to ¥14.57B, intangible fixed assets amount to ¥80.11B, representing 12.8% of total assets, and additional impairment losses could arise depending on future profitability assessments.

2. Delayed monetization of the Gaming Business: Revenue expanded rapidly to ¥25.31B (+364.4%), but the segment remained at a loss of ¥0.84B, equivalent to a margin of -3.3%. Integration of acquired companies such as Stakelogic and GAN, as well as regulatory compliance, represents a structural challenge that will determine the success of recovering the investments.

3. Deterioration in working capital and declining cash conversion efficiency: Accounts receivable increased by ¥11.67B and inventories by ¥18.31B, while accounts payable declined by ¥8.23B, placing downward pressure on OCF. Work in progress amounted to ¥78.49B and constituted the majority of inventories. The pace at which development and production assets are converted into sales will determine the Company’s future cash flow generation capacity.

Industry Benchmark (For Reference; Prepared by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The Operating Income margin exceeds the industry median, while the Net Income margin is substantially below the industry median due to the impact of impairment losses.

Growth and Capital Efficiency

The Revenue growth rate is among the higher levels in the industry, driven by growth in the Amusement Machines and Gaming Businesses.

※Source: Prepared by the Company

Key Takeaways from the Financial Results

1. Coexistence of revenue growth and declining core operating margin: Revenue increased 13.7%, a high rate of growth even within the industry, but the Operating Income margin declined to 9.7%. The simultaneous decline in the gross margin and increase in SG&A expenses indicate a structure in which revenue growth does not directly translate into profit growth, making this an important point in assessing earnings quality.

2. Nature of the net loss: The net loss of ¥5.76B was primarily attributable to non-recurring impairment losses of ¥54.63B, while Ordinary Income increased to ¥54.20B. The financial results indicate that the current-period loss was more the result of a reassessment of past M&A investments than a deterioration in recurring operating earning power.

3. Profitability gap between segments: The Amusement Machines Business maintains a highly profitable base with a margin of 25.2%, while the margin of the largest segment, the Entertainment Contents Business, declined to 10.5%, and the Gaming Business remained loss-making. The stability of consolidated earnings is structurally dependent on changes in the profitability gap among the respective segments.

Theoretical Stock Price (Reference Value)

Sensitivity: ¥1,801–¥1,907 at Cost of Equity ±1%, and ¥1,850–¥1,856 at ω±0.1.

Note:

• Goodwill amortization of ¥25.8 per share is added back to earnings (as a non-cash expense and to improve comparability with IFRS companies).

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated solely from publicly available data; this is not a forecast of the market price or a recommendation of any specific investment action, and does not forecast or guarantee future stock prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting a professional where necessary.

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