SEGA SAMMY HOLDINGS INC. FY2027 Q1 Earnings Report

Quick View

Executive Summary

During the quarter, the Company returned to profitability from a loss in the year-ago period, achieving higher revenue and income. Revenue was ¥950.3B (+17.3% year on year), Operating Income was ¥23.8B, representing a return to profitability from ¥-5.2B in the prior year, Ordinary Income was ¥36.1B, representing a return to profitability from ¥-21.2B in the prior year, and Net Income was ¥21.7B, representing a return to profitability from ¥-33.9B in the prior year. The primary drivers of improvement were a significant recovery in the Pachislot and Pachinko Machines Business (+58.5% revenue, returning to profitability) and stable earnings from Entertainment Contents. Meanwhile, the Gaming Business, whose scope of consolidation expanded through M&A, recorded a loss due to initial integration costs.

Factors Affecting Performance

【Revenue】Revenue was ¥950.3B, up +17.3% year on year. By segment, Entertainment Contents generated ¥685.9B (+1.1%, accounting for 72.8% of total revenue), the Pachislot and Pachinko Machines Business generated ¥175.6B (+58.5%), and the Gaming Business generated ¥80.3B (+491.6%, primarily due to the expansion of the scope of consolidation through M&A). Group-wide growth was driven by expansion in the Pachislot and Pachinko Machines and Gaming businesses, while the core Entertainment business was nearly flat.

【Profit and Loss】Gross profit was ¥433.3B, with a gross margin of 45.6% (42.1% in the prior year, +350bp improvement). SG&A expenses were ¥409.4B, and the SG&A ratio was 43.1% (42.8% in the prior year, +30bp increase), representing a slight increase. However, the improvement in gross margin absorbed the increase, and Operating Income returned to profitability at ¥23.8B (Operating Income margin of 2.5%, compared with -0.6% in the prior year). Segment profit improved in the Pachislot and Pachinko Machines Business to ¥28.6B (returning to profitability from ¥-36.3B in the prior year) and in Entertainment Contents to ¥58.6B (+16.7%), while the Gaming Business turned unprofitable at ¥-18.0B (down from +¥1.8B in the prior year) due to integration costs. Ordinary Income reached ¥36.1B, boosted by ¥22.4B in non-operating income (including ¥8.3B in interest income and ¥4.2B in foreign exchange gains) and ¥1.9B in equity-method investment gains and losses. Net Income was ¥21.7B after ¥12.7B in income taxes and other taxes (effective tax rate of approximately 36.9%). Revenue and income both increased.

Segment Analysis

Segment profit was ¥58.6B for Entertainment Contents (8.5% margin, +16.7% year on year), ¥28.6B for the Pachislot and Pachinko Machines Business (16.3% margin, returning to profitability from ¥-36.3B in the prior year), and ¥-18.0B for the Gaming Business (-22.4% margin, deteriorating from +¥1.8B in the prior year). The Pachislot and Pachinko Machines Business had the highest profit margin and became a core source of Group-wide profit, while the Gaming Business diluted the Group-wide margin because of substantial initial integration costs associated with the acquisitions of Stakelogic B.V., GAN Limited, and others. Total segment profit of ¥69.2B, after an adjustment of ¥-33.1B for corporate expenses and other items, reconciles to Ordinary Income of ¥36.1B. The Company has a highly concentrated structure, with 72.8% of revenue dependent on Entertainment Contents, confirming an imbalance in the business portfolio.

Key Financial Metrics

【Profitability】Operating Income margin improved substantially to 2.5% (from -0.6% in the prior year), while Net Income margin improved to 2.3% (from -4.2% in the prior year). However, SG&A expenses remain high at 43.1% of revenue relative to the 45.6% gross margin, indicating limited cost absorption capacity, and the Operating Income margin remains low. 【Cash Flow Quality】Of Ordinary Income of ¥36.1B, a net increase of +¥12.3B from non-operating income (including ¥8.3B in interest income, ¥4.2B in foreign exchange gains, and ¥1.9B in equity-method investment gains and losses) contributed to results, indicating a meaningful degree of reliance on non-operating factors. 【Investment Efficiency】ROE was low at 0.6%, reflecting low total asset turnover and low asset efficiency. 【Financial Soundness】With an Equity Ratio of 58.2% (56.5% in the prior year) and cash and deposits of ¥1,412.5B against short-term borrowings of ¥75.0B, liquidity and capital safety remain at high levels.

Cash Flow Analysis

Although a statement of Operating Cash Flow (OCF) is not disclosed, cash trends can be assessed from changes in the balance sheet. Against Operating Income of ¥23.8B, net non-operating income of +¥12.3B (including interest income, foreign exchange gains, and equity-method investment gains) boosted Ordinary Income, indicating that part of current-period earnings depends on non-operating factors. Extraordinary gains and losses were a modest net ¥-1.7B, and the impact of temporary factors was limited. Cash and deposits were ¥1,412.5B in the current period (down from ¥1,533.7B in the prior year), but remained at a sufficient level relative to short-term borrowings of ¥75.0B. Accounts receivable decreased -27.5% from ¥675.8B in the prior year to ¥490.2B, suggesting working capital improvement in terms of credit and collection. However, work in process increased to ¥895.6B (from ¥784.9B in the prior year), requiring monitoring from the perspective of funds tied up in inventory.

Earnings Quality

Recurring earnings for the current period were centered on business profits from Entertainment Contents and the Pachislot and Pachinko Machines Business. However, Ordinary Income of ¥36.1B includes contributions from non-operating factors such as ¥1.9B in equity-method investment gains and losses, ¥8.3B in interest income, and ¥4.2B in foreign exchange gains. Although non-operating income was not particularly large at 2.4% of revenue, its contribution was meaningful relative to Operating Income of ¥23.8B, warranting attention to potential reversals in the following fiscal year and beyond. Extraordinary gains amounted to ¥1.6B (primarily gains on sales of fixed assets), while extraordinary losses amounted to ¥3.3B (primarily ¥3.0B in impairment losses on investment securities), resulting in a small net loss of ¥-1.7B and a limited impact on Net Income. The gap between Ordinary Income of ¥36.1B and Net Income of ¥21.7B was primarily attributable to ¥12.7B in income taxes and other taxes (effective tax rate of approximately 36.9%) and does not represent an unusual divergence.

Earnings Forecast and Guidance

Progress against the full-year plan was 18.6% for Revenue (¥950.3B/¥5,100B), 5.4% for Operating Income (¥23.8B/¥445B), 7.6% for Ordinary Income (¥36.1B/¥475B), and 6.7% for Net Income (¥21.7B/¥325B). Progress was below a simple one-quarter benchmark of 25%, with the shortfall particularly pronounced for Operating Income and Net Income. The full-year plan assumes declines of -5.6% in Operating Income and -12.4% in Ordinary Income from the prior year, implying an earnings structure premised on title releases and the realization of integration synergies in the second half. As of the current quarter, there have been no revisions to the earnings forecast or dividend forecast.

Shareholder Returns

The Company’s full-year dividend plan is ¥55 per share (increased from the prior-year dividend of ¥27). Based on approximately 202.8 million weighted-average shares outstanding during the period, total annual dividends are calculated at approximately ¥11.15B, resulting in a Payout Ratio of approximately 34% against the Company’s planned Net Income attributable to owners of the parent of ¥325B. Treasury shares decreased -43.7% from ¥462.8B at the end of the prior year to ¥260.4B, increasing flexibility in capital policy. There has been no revision to the dividend forecast during the current quarter.

Risk Factors

1. Gaming Business integration costs: Segment profit in the Gaming Business, whose scope of consolidation expanded through M&A, was ¥-18.0B (down from +¥1.8B in the prior year), with initial integration costs weighing on Group-wide earnings.

2. Concentration of the business portfolio: Entertainment Contents accounts for 72.8% of revenue, resulting in a structure with high dependence on major titles.

3. Reliance on non-operating factors: Of Ordinary Income of ¥36.1B, non-operating factors such as interest income, foreign exchange gains, and equity-method investment gains contributed +¥12.3B. These factors are expected to normalize from the following fiscal year onward.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (manufacturing)

Profitability and Returns

The Company’s profitability is below the industry median, with both Operating Income and Net Income margins ranking low within the industry.

Growth and Capital Efficiency

The Revenue growth rate significantly exceeds the industry median, demonstrating a high level of growth within the industry.

※Source: Company analysis

Key Takeaways from the Financial Results

1. The Company as a whole returned to profitability from a loss in the year-ago period. The recovery was driven by an improvement in gross margin (+350bp) and the recovery of the Pachislot and Pachinko Machines Business, marking a turning point toward a trend of higher revenue and income.

2. The Operating Income margin of 2.5% and Net Income margin of 2.3% remain below the industry median, and absolute profitability levels remain low. Progress in the integration of the Gaming Business will be key to improving the Group-wide margin going forward.

3. Progress against the full-year plan was gradual, at 5.4% for Operating Income and 6.7% for Net Income, suggesting that the plan is weighted toward the second half. Because Ordinary Income includes contributions from non-operating factors such as foreign exchange, interest rates, and the equity method, it will be useful from the next quarter onward to monitor the normalization of these factors and confirm support from earnings generated by operating activities.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly available data using a residual income model (Ohlson-type model with an explicit 5-year fade). It is not a forecast of the market share price or a recommendation to take any specific investment action.

Sensitivity: ¥1,728–¥1,830 at ±1% for the cost of equity capital, and ¥1,777–¥1,779 at ±0.1 for ω.

Notes:

• Net assets as of the end of the quarter are used (there is a time lag relative to the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual income model / Interest rate reference month: 2026-07 / This value does not predict or guarantee the future share price)

---

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

---End of Report---