SEGA SAMMY HOLDINGS INC. FY2026 FY Earnings Report

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Executive Summary

For the fiscal year ended March 2026, Revenue was ¥4,875.4B (YoY +¥585.9B, +13.7%), Operating Income was ¥471.3B (YoY -¥10.0B, -2.1%), Ordinary Income was ¥542.0B (YoY +¥10.9B, +2.1%), and Net Income attributable to owners of the parent was -¥57.6B (YoY -¥495.7B, turned to a loss). While revenue and Ordinary Income increased, a special loss for impairment of ¥546.3B (goodwill and intangible assets of Rovio and Stakelogic) was recorded, resulting in a final net loss. The Pachislot/Pachinko Machine Business (遊技機事業) led growth with Revenue +35.9% driven by new models, and the Gaming Business rapidly expanded with Revenue +362.7% following consolidation of Stakelogic and GAN. However, SG&A increased to ¥1,682.8B (YoY +16.4%), outpacing revenue growth and causing the operating margin to decline from 11.2% to 9.7% (down 1.5pt).

Drivers of Performance

[Revenue] Revenue of ¥4,875.4B (+13.7%) by segment: Pachislot/Pachinko Machines +35.9% (¥1,321.6B), Gaming +362.7% (¥253.1B), Entertainment Content +1.6% (¥3,272.5B). Pachislot/Pachinko benefited from successful new model launches, and Gaming surged due to consolidation in Q1 of Stakelogic (12 subsidiaries) and GAN (23 subsidiaries). Entertainment Content remains the core at 67.1% of revenue composition but grew only modestly YoY. Gross margin was 44.2% (prior 44.9%), roughly flat; gross profit rose to ¥2,154.1B (+¥22.5B, +1.1%) due to revenue increase.

[Profitability] SG&A of ¥1,682.8B increased by ¥237.0B (+16.4%) YoY, driven mainly by advertising expenses of ¥382.2B (prior ¥316.5B) and salaries and allowances ¥320.2B (prior ¥238.4B). Operating Income was ¥471.3B (-2.1%), but non-operating items such as equity-method income of ¥54.0B (prior ¥35.3B) and interest income of ¥32.7B (prior ¥34.5B) contributed, resulting in Ordinary Income of ¥542.0B (+2.1%). Special losses totaled ¥588.4B (impairment losses ¥546.3B, business restructuring costs ¥19.9B, etc.), producing loss before tax of -¥37.8B; after income taxes of ¥19.7B, Net Income attributable to owners of the parent was -¥57.6B (turning from ¥450.5B profit prior year). One-off items include impairment of goodwill and intangibles at Rovio (Entertainment Content) ¥320.0B, and impairment of goodwill and tangible fixed assets at Stakelogic (Gaming) ¥180.5B. Excluding impairments, the trend at the Ordinary Income level remains profit-increasing, and the final net loss is attributable to one-off factors. Conclusion: revenue up, Ordinary Income up, final net loss.

Segment Analysis

Entertainment Content: Revenue ¥3,272.5B (+1.6%), Operating Income ¥344.5B (-17.8%), margin 10.5% (down 2.5pt from 13.0% prior). Pachislot/Pachinko Machines: Revenue ¥1,321.6B (+35.9%), Operating Income ¥333.0B (+58.8%), margin 25.2% (improved 3.6pt from 21.6%) maintaining high profitability. Gaming: Revenue ¥253.1B (+362.7%), Operating Loss ¥8.4B (turned to loss from ¥21.9B profit prior), margin -3.3%. Gaming revenue surged from expanded consolidation scope, but PMI costs and impairments worsened profitability. After company-wide adjustments, Operating Income of ¥471.3B is contributed almost equally by Pachislot/Pachinko Machines and Entertainment Content.

Key Financial Metrics

[Profitability] Operating margin 9.7% (down 1.5pt from 11.2%), gross margin 44.2% (down 0.7pt from 44.9%), SG&A ratio 34.5% (up 0.8pt from 33.7%). ROE deteriorated to -1.6% (prior 12.2%) due to net loss. [Cash Quality] Operating Cash Flow (OCF) was ¥259.4B, a conversion rate of 55.0% against Operating Income ¥471.3B; deterioration in working capital (accounts receivable +¥116.7B, inventories +¥183.1B, accounts payable -¥82.3B) was the main cause. OCF/EBITDA ratio is 0.41x, indicating weak cash generation. [Investment Efficiency] Total asset turnover improved to 0.777x (prior 0.665x). Backlog-to-revenue proxy using contract liabilities of ¥183.3B is equivalent to 3.8%, indicating limited future sales backlog. [Financial Soundness] Equity Ratio 56.6% (prior 59.1%) remains stable, current ratio 343.3%, Debt/EBITDA 2.09x, Interest Coverage (OCF / interest paid) 10.5x indicating investment-grade metrics. Goodwill ¥145.7B is 4.1% of shareholders’ equity, relatively low.

Cash Flow Analysis

OCF was ¥259.4B (prior ¥208.6B, +24.4%), representing net OCF subtotal ¥280.1B less income taxes paid ¥110.5B. Working capital deteriorated with accounts receivable +¥116.7B, inventories +¥183.1B, accounts payable -¥82.3B, extending CCC to 176 days (YoY +27 days). Investing Cash Flow was -¥225.1B, with capital expenditure ¥61.8B, intangible asset investments ¥71.0B, and acquisitions of subsidiary shares ¥225.2B (Stakelogic, GAN, etc.) as major outflows. Free Cash Flow was limited to ¥34.3B. Financing Cash Flow was -¥566.2B, including dividend payments ¥115.6B, share buybacks ¥320.1B, long-term borrowings repayment ¥75.0B, and short-term borrowings reduction ¥43.3B. Total shareholder returns (dividends + buybacks) of ¥435.6B far exceeded FCF ¥34.3B, resulting in a decrease in cash and deposits by ¥1,533.7B (from ¥2,003.6B prior, -23.4%). While cash on hand remains ample, sustaining shareholder returns without normalizing working capital will be difficult.

Quality of Earnings

There is a large gap between Ordinary Income ¥542.0B and Net Income -¥57.6B, mainly due to special losses of ¥588.4B (impairments ¥546.3B). Non-operating income of ¥121.0B comprised interest income ¥32.7B, equity-method income ¥54.0B, and foreign exchange gains ¥10.2B, and is of recurring nature. Non-operating expenses ¥50.2B included interest expense ¥26.6B and foreign exchange losses ¥12.4B. Impairments relate mainly to acquisition-date valued assets of Rovio (Entertainment) and Stakelogic (Gaming) and are one-off items with low likelihood of recurrence in subsequent periods. OCF ¥259.4B far exceeds Net Income -¥57.6B after adjusting for non-cash items such as depreciation ¥161.7B and impairment losses ¥546.3B, while reflecting working capital deterioration. Comprehensive income ¥164.5B is ¥222.1B higher than Net Income -¥57.6B, driven mainly by translation adjustments ¥207.6B; these valuation gains are not realized profits. Accrual indicator OCF/Operating Income at 55.0% is low, suggesting declining quality of earnings due to working capital expansion.

Forecasts & Guidance

Guidance for the fiscal year ending March 2027: Revenue ¥5,100.0B (YoY +4.6%), Operating Income ¥445.0B (-5.6%), Ordinary Income ¥475.0B (-12.4%), Net Income attributable to owners of the parent ¥325.0B (return to profit). Progress rates based on current fiscal year-end results show full-year achievement rates of 95.6% for Revenue, 105.9% for Operating Income, and 114.1% for Ordinary Income, already exceeding plan levels; however, guidance is conservative to account for higher costs in H2. Dividend forecast is ¥27 per share (reduction from ¥55 this fiscal year), implying a payout ratio of approximately 16.8% against forecast Net Income ¥325.0B. Assuming impairments subside next year, revenue growth is expected to continue but guidance is cautious reflecting front-loaded investments (advertising & R&D) and Gaming startup costs.

Shareholder Returns

Dividends were Interim ¥27 + Year-end ¥28 = Annual ¥55, total dividends ¥115.6B (prior ¥112.1B). Due to the net loss this period, payout ratio is not calculable; prior year was 24.8%. Share buybacks amounted to ¥320.1B (prior ¥100.1B), making total shareholder returns ¥435.6B, which is 1,269% of FCF ¥34.3B — a substantial excess. While cash on hand of ¥1,533.7B supported aggressive returns, enhancing returns without accompanying cash generation raises sustainability concerns. Next year’s guidance plans a dividend of ¥27 (cut), implying a payout ratio of about 16.8% on forecast Net Income ¥325.0B. No announcement on continuation of buybacks; improving OCF via working capital efficiency will be key to restoring return capacity.

Risk Factors

1. Working capital efficiency deterioration: Accounts receivable +28.3%, inventories +28.2%, accounts payable -25.9% concurrently, extending CCC to 176 days (prior 149 days, +27 days). Inventory days outstanding 149 days and work-in-progress of ¥78.49B remain elevated, pressuring cash generation. OCF/EBITDA 0.41x is low; normalizing working capital is urgent.

2. Elevated SG&A and declining operating margin: SG&A ¥1,682.8B (YoY +16.4%) outpaced revenue growth +13.7%, pushing operating margin from 11.2% to 9.7% (down 1.5pt). Advertising ¥382.2B (+20.8%) and salaries & allowances ¥320.2B (+34.3%) are main drivers. Relaxed cost discipline is pressuring profitability; controlling SG&A ratio remains an ongoing issue.

3. PMI and impairment risk in Gaming: Despite Revenue +362.7% from consolidation of Stakelogic and GAN, Gaming recorded an operating loss of ¥8.4B (turned from ¥21.9B profit prior). An impairment of ¥180.5B was recorded at Stakelogic this period, but risks remain from delayed integration benefits or additional impairments. Goodwill ¥145.7B (estimated ~60% attributable to Gaming) recoverability will depend on future monetization progress.

Industry Benchmarks (Reference — Company Estimates)

Profitability & Returns

Operating margin exceeds industry median by 1.9pt, indicating relatively high level despite SG&A increases. Net margin is below median due to impairments, but underlying Ordinary Income-level earning power is at or above industry norms.

Growth & Capital Efficiency

Revenue growth of +13.7% substantially outpaces the industry median, driven by new Pachislot/Pachinko models and Gaming consolidation. Growth rate exceeds manufacturing average by over 10.0pt.

※ Source: Company compilation

Earnings Highlights

1. Final net loss driven mainly by one-off impairments while core earning power is intact: Net loss -¥57.6B was driven by impairments ¥546.3B (Rovio, Stakelogic), whereas Ordinary Income was ¥542.0B (+2.1%) maintaining an upward trend. OCF ¥259.4B and EBITDA-level metrics remain solid; return to net profit is expected next year as impairments lapse. While the risk of additional impairments on already-impaired assets is reduced, integration progress of the Gaming business remains a focus.

2. Working capital inefficiency is the bottleneck for cash generation: CCC 176 days (YoY +27 days), inventory DIO 149 days, and OCF/EBITDA 0.41x reflect working capital expansion compressing FCF to ¥34.3B. Dividends + buybacks ¥435.6B substantially exceeded FCF, reducing cash by ¥469.9B. Expanding OCF next year will require inventory and WIP reduction and stronger collections; progress in working capital management will determine the sustainability of shareholder returns.

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This report was automatically generated by AI analyzing XBRL financial statement data. It is not a recommendation to invest in any specific securities. Industry benchmarks are reference information compiled by the Company based on public financial statements. Investment decisions are your own responsibility; consult professionals as necessary before making investment decisions.

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