SEGA releases Q1 09 figures: sales down 19% YoY

By Stephany Nunneley, Friday, 31 July 2009 20:07 GMT

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SEGA has released it’s financial figures for Q1 2009 ending June 30, and company-wide revenue was ¥60.5 billion ($638.4 million) net, down 19 percent year on year.

The company reduced its loss from 10.5 billion ($110.8 million) to 10.3 billion ($108.6 million) year-on-year, with 2.65 million software units moved worldwide.

Home videogame software sales were largely firm, but other aspects of the business were weak, such as the arcade stuff.

More through the press release below.

During the first quarter of the fiscal year ending March 31, 2010, the Japanese economy continued to face uncertain prospects for recovery. Corporate business performance and the employment outlook in Japan worsened, and weak personal consumption persisted, due to the global economic recession that has grown more acute since last year.

In this climate, the pachislot and pachinko industry is witnessing a firm drive to replace older pachinko machines with models offering more diverse gameplay. The pachislot market, however, has yet to mount a full-fledged recovery. Nevertheless, the development and launch of innovative models are expected to revitalize this market.

In the amusement machine and amusement center industry, conditions remained difficult due to sluggish personal consumption. The industry awaits the development and launch of new game machines that will support amusement center operators and lead the market by addressing the diversified needs of customers, including families and casual players.

In the home video game software industry, growth in demand for software has leveled off in Japan and North America, due to the popularization of the current generation of game platforms. Nevertheless, demand remains relatively firm in Europe.

In this business environment, net sales for the first quarter of the fiscal year ending March 31, 2010 amounted to ¥60,461 million, down 19.0% year on year. The Group posted an operating loss of ¥7,820 million, compared with an operating loss of ¥10,290 million for the same period year ago. The Group recorded a net loss of ¥10,293 million, compared with a net loss of ¥10,533 million for the same period in the previous fiscal year. These results reflect the anticipated concentration of sales of major titles in the pachislot and pachinko machines segment, amusement machine sales segment, and consumer business segment in the second half of the current fiscal year.

Results by business segments were as follows.

《Pachislot and Pachinko Machines》 In the pachinko machine business, the Group recorded brisk sales of “CR Kidou Shinsengumi Moeyo Ken2” under the TAIYO ELEC brand. Although the Group launched “CR Hakushon Daimaou3” under the Sammy brand, the decision to delay the release of certain other title until the second quarter resulted in the sale of a total of 53 thousand pachinko machine units during the first quarter. In the pachislot machine business, with no launch of new models planned during the first quarter, overall pachislot machine sales totaled 5 thousand units for the period, reflecting sales of models launched in the previous fiscal year. As a result, the segment recorded sales of ¥19,754 million (an increase of 60.8% year on year) and an operating loss of ¥1,037 million (compared with an operating loss of ¥4,350 million a year earlier).

《Amusement Machine Sales》 In the amusement machine sales business, with no major titles scheduled for launch in the first quarter, sales were concentrated largely on the sale of cards and other consumables for amusement machines, as well as sales of “GALILEO FACTORY,” a large medal game launched in the previous fiscal year. As a result, sales in this segment declined 42.0%, to ¥8,419 million, with an operating loss of ¥1,077 million (compared with operating income of ¥703 million a year earlier).

《Amusement Center Operations》 In the amusement center operations business, sales at existing SEGA amusement centers in Japan were weakened by sluggish personal consumption, at 96.0% of the level during the same period in the previous fiscal year. Facing difficult business conditions, the Group continued to close domestic amusement centers with low profitability or future potential. In the first quarter, the Group closed 25 amusement centers and opened 1 new amusement center. Consequently, the Group operated a total of 298 amusement centers at the end of the period. As a result, the segment reported a 18.9% decline in sales to ¥14,139 million, and an operating loss of ¥125 million, compared with an operating loss of ¥1,577 million for the same period in the previous fiscal year.

《Consumer Business》 In the consumer business, home video game software sales were largely firm, although certain repeat titles’ sales were weak in overseas. For the period, the Group sold 990 thousand video game copies in the United States, 1,120 thousand copies in Europe and 530 thousand copies in Japan and other regions, for a total of 2,650 thousand copies. In the toy sales division, sales were weak in Japan, but overseas sales were buoyant for “BAKUGAN.” In the mobile phone and PC content business, sales were brisk mainly for downloadable games for PCs. In the animated films business, the production and sales of animated films exceeded the results of the same period in the previous fiscal year, but the profit was slightly lower than the level during the same period in the previous fiscal year due to the factors such as an increase of production expenses. As a result, this segment posted 40.8% decline in sales to ¥18,074 million, and an operating loss of ¥4,500 million, compared with an operating loss of ¥4,115 million for the same period in the previous fiscal year.

(2) Consolidated Financial Position Total assets as of June 30, 2009 were ¥391,504 million, a decrease of ¥32,434 million from the previous fiscal year end. This was primarily attributable to decrease of ¥37,589 million in notes and accounts receivable, despite an increase of ¥5,695 million in short-term investment securities, such factors as negotiable certificates of deposit.

Net assets were ¥231,801 million, a decrease of ¥10,731 million from the previous fiscal year end, largely due to a net loss, and the payment of dividends. The current ratio remained at a high level of 327.8%, up 32.8 points from the previous fiscal year end. As a result, the equity ratio was 53.9%, up 1.5 points from the previous fiscal year end.

(3) Projection for Consolidated Results In the second quarter, the Group is scheduled to launch the sale of “Pachinko CR Kyutei Nyokan Chamgum no Chikai,” a major title in the pachinko machine business under the Sammy brand. In the pachislot machine business, the Group plans to launch “Pachislot Eureka Seven,” a major Sammy branded title offering innovative gameplay. In the amusement machine sales business, the Group is planning to launch the videogame “BORDER BREAK,” as a major title in this business. In the amusement center operations business, the Group is anticipating a recovery in amusement centers’ profitability as the spread of major titles gains momentum in the second half of the year. In the consumer business, the Group is scheduled to launch major titles in Japan and overseas in the home video game software sales business in the second half of the year.

During the first quarter, the Group made firm progress towards meeting forecasts announced on May 13, 2009 for consolidated operating results cumulative for the first half and for the entire year ending March 31, 2010. Consequently, no changes have been made to consolidated business forecasts at this time.

(4) Other Changes in accounting principles, procedures, method of presentation associated with the preparation of the quarterly consolidated financial statements. Content production expenses related to game software and amusement machines conducted primarily by the consolidated subsidiary SEGA CORPORATION have previously been accounted for as cost of sales at the time that such expenses are incurred (when production work is outsourced, these expenses are first posted as advance payments, and later treated as cost of sales at the time that production work is inspected). However, from the first quarter of the fiscal year ending March 31, 2010, goods recognized as products for commercialization will be posted under inventories as work in process, with opting to treat the amount of such expenses equivalent to the actual sales volume recorded among projected sales volume as cost of sales. The rationale for this change is to redeploy a framework capable of properly evaluating the certainty of realizing earnings by clarifying decision-making processes at the development stages of each project in line with efforts to review and enhance the development structure. This change will enable the appropriate disclosure of income for a given fiscal period by directly matching content production expenses, which have tended to grow sharply in recent years, with commensurate earnings.

As a consequence of this change, work in process under inventories increased by ¥941 million, advance payments decreased by ¥281 million, foreign currency translation adjustment decreased by ¥4 million, while operating loss, and loss before income taxes and minority interests each decreased by ¥654 million.

The impact of this change on segment information is discussed in the Segment Information section of this report.

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