6460.T6460.TJPX
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Operator: We are now on time. Thank you very much for connecting with us today for Sega Sammy Holdings Inc.’s Q1 financial results briefing for the fiscal year ending March 31, 2026. The material to be used today will be the financial results presentation posted on our website. If you are participating by phone or have difficulty viewing the materials on the streaming screen, please check there. First, I would like to introduce today’s speakers. Makoto Takahashi, Executive Vice President and Executive Officer.
Makoto Takahashi: Thank you very much.
Operator: Nobuaki Yoshii, Director of IR/SR Department, Corporate Planning Division.
Nobuaki Yoshii: Thank you very much.
Operator: Takahashi will explain the Q1 results and outlook for the fiscal year ending March 31, 2026. After all explanations are given, there will be time for a question-and-answer session. Executive Officer Takahashi, please begin.
Makoto Takahashi: I will now explain the Q1 results for the fiscal year ending March 31, 2026 and our future initiatives. The document we will use today is the financial results presentation uploaded on our website.Now, please see page three. Although there were fewer new products, etc. overall in the quarter under review, sales were generally at the level we had expected, resulting in a smaller loss than expected at the operating income level. As I will explain later by segment, the Pachislot and Pachinko machines business and the gaming business made a good start in terms of operating income, while the entertainment contents business performed generally in line with expectations. Although operating income exceeded expectations, adjusted EBITDA results were generally in line with expectations due to foreign exchange losses recorded in non-operating expenses. Looking ahead, as we move forward with the introduction of mainstay titles in each of our businesses, we expect to see full-fledged results from Q2 onward. See page four. In Q1 of the current fiscal year, the acquisitions of Stakelogic BV, which operates a B-to-B gaming content supplier business, and GAN Limited, which operates a B-to-B platform business for US casino operators, were completed. With regard to the impact of these acquisitions, the balance sheet has been consolidated from Q1. However, since both companies close their books in December, P&L will be included from Q2, which is three months later than Q1. The specific amount of impact on the full-year business results is currently under scrutiny. We will announce the results as soon as they have been carefully examined. The amount of goodwill is based on provisional accounting treatment because the allocation of acquisition cost has not been completed at this time. For Stakelogic, we estimate that it will be approximately JPY18.6 billion, and for GAN, approximately JPY17.4 billion. Acquisition of treasury stocks based on the shareholder return policy has been completed. The Company also cancelled its treasury stock. As for the cancellation of treasury stock, 20 million shares were cancelled, resulting in 11 million treasury stocks at the end of Q1. Page five shows results by segment for your easy reference. Page six discloses the breakdown of adjusted EBITDA adjustment items for Q1 of the current fiscal year, also for your reference. Page seven is the effect of exchange rate fluctuations. In Q1, there was no significant impact on the operating income level, but a foreign exchange loss of approximately JPY2.9 billion was recorded as a non-operating expense in the ordinary income level due to the revaluation and settlement of foreign currency denominated receivables and payables, etc. Part of the foreign exchange loss was due to the revaluation of US dollar-denominated assets when held by Rovio. On the closing date, Rovio's USD-denominated assets was revalued into euro-denominated assets, but a differential loss occurred due to the depreciation of the US dollar against the euro—from USD1 and EUR0.925 at the end of March 2025 to EUR0.853 at the end of June. The exchange rates are as stated. Page eight shows the various expenses. In the entertainment contents business in the quarter under review, R&D expenses content production costs decreased due to a review of development costs in the European structural reform for the fiscal year ended March 31, 2025. In addition, capital expenditures have increased due to the progress of development of some F2P titles. Looking ahead, we expect an increase in R&D expenses, content production expenses, and advertising expenses in the entertainment contents business, where new mainstay titles are being introduced. In the Pachislot and Pachinko business, the Company is investing in personnel-saving automated warehouses and other facilities to improve efficiency. Page nine is the balance sheet. Regarding assets, cash and deposits decreased due to the acquisition of Stakelogic and GAN, and goodwill increased as a result of the start of consolidation. There was no significant change in liabilities. Regarding net assets, shareholders' equity decreased due to the payment of dividends and the repurchase of treasury stock. The cash flow has not been audited yet, but we will provide the approximate results for your reference. Operating cash flow is expected to be minus JPY11.7 billion, investing cash flow minus JPY19.5 billion, and financing cash flow minus JPY17.9 billion. Overall cash flow, including a foreign currency translation adjustment of minus JPY1.3 billion related to cash, deposits, and cash equivalents, is expected to be negative JPY50.6 billion. Page 10 shows the trend of the balance of content production expenses in the entertainment contents business. The balance of content production expenses is on an upward trend due to the fact that each of our domestic and overseas studios is investing in the development of several new titles, mainly for our mainstay IPs, and that we did not launch any major new titles in Q1 of the current fiscal year. Next, I will explain the details by segment. Starting on page 12, we will discuss the entertainment contents business. Overall, Q1 of the fiscal year ending March 31, 2026 started as expected, generally in line with expectations. As for F2P titles for the global market, a key initiative of the medium-term management plan, Persona5: The Phantom X officially launched its service on June 26, and has made a smooth start. Repeat sales of full games were lower than expected in Q1, but have been recovering since July. We will continue to work on strengthening digital sales and expanding sales regions, aiming to increase the number of units sold. In addition, revenues from the provision of titles for subscription services and character licensing exceeded both the results of the same period of the previous year and our expectations. We will continue our efforts to expand in order to strengthen our revenue base. Looking ahead, we plan to introduce new titles in each area, including Sonic Racing, scheduled for release in September, a new Football Manager title, and Sonic Rumble. Page 13 is an explanation of each sub-segment. For full game and F2P, we have already explained earlier. In the animation area, the Conan movie, which was released in April, performed well, with box-office revenues surpassing JPY14 billion. We expect distribution revenues from the Conan movie to be recorded in Q2 as in past years, and other mainstay animation productions will also begin airing from Q2 onward. Although the Company continued to record allocated revenues from Sonic films, revenues related to Knuckles—a spin-off of the Sonic films that began to be released in the same period of the previous year—were generated only in the previous fiscal year, and these revenues were lower than in the same year-ago period. The Company's forecast has been slightly exceeded. The distribution income from the third Sonic movie is not included in this fiscal year's plan and is expected to contribute from the next fiscal year onward. AM&TOY results were generally in line with expectations. From Q2 onward, we plan to move forward with full-scale efforts, including the introduction of a new claw machine product. Page 14 shows quarterly sales of full game for your reference. Repeat titles, as mentioned earlier, were lower than in the same period of the previous year due to the absence of mainstay titles in new releases. Page 15 is also for reference. What you see here is the product development schedule for the consumer area of the entertainment contents business. Page 16 is the roll-out schedule for the animation area and AM&TOY. The animation area also includes licensing-out and investment projects. Next slide, please. Persona5: The Phantom X officially launched its service on June 26 and ranked first in the domestic free game download rankings on its first day. Sales of the US and European versions have gotten off to a good start, accounting for 30% to 40% of total sales. We will continue our efforts to strengthen our operations. On July 18, we opened SEGA Store Tokyo, our first flagship store in Japan. By strengthening touch points for SEGA IP and using the site as a showcase for licensees, we will widely disseminate the diverse IP possessed by SEGA. Moving on to the next slide, these are the new titles for this quarter in the consumer area. The products are scheduled to be launched and made available sequentially from Q2 onward. From here, we will discuss the Pachislot and Pachinko machines business. There were no Pachislot titles sold during the quarter under review. In Pachinko machines, sales of Dejihane P Hokuto No Ken Jibo, P Zombie Land Saga, and other products have made a good start in the operating income phase, exceeding internal expectations. Looking ahead, we have begun to launch mainstay titles, and in Q2 we will launch Pachislot and Pachinko machines based on the popular IP Tokyo Revengers. The status of Tokyo Revengers will be explained later. This is the sales schedule for the Pachislot and Pachinko machine business. Although the Pachislot machine industry as a whole continues to face a low level of compliance, we will strive to supply competitively developed titles through uncompromising development. On the other hand, we anticipate that the sales schedule may be affected by the compliance status. In such cases, we will always consider ways to mitigate the impact, such as giving priority to applications for our mainstay titles. As a notable title for Q2, we will introduce Tokyo Revengers for both Pachislot and Pachinko machines. The Tokyo Revengers Pachislot machine is the first of the new cabinet. In the Pachinko/Pachislot market, which continues to shrink over the long term, the introduction of new machines with a view to reducing the burden on parlors and users in the future is a measure to create an environment for coexistence and co-prosperity in the industry. Current sales have been favorable, with orders in excess of 25,000 units, compared to our plan of 20,000 units. For the Tokyo Revengers Pachinko machine, a Lucky Trigger 3.0 Plus compatible model was introduced in July. As for the sales situation, 20,000 units were sold out in the initial plan at the beginning of the fiscal year, and the highest operation results were achieved among Lucky Trigger 3.0 Plus compatible models in the initial run. Additional sales are also planned due to the strong demand. Finally, there is the gaming business. Sales of video slot machines were strong in the US, resulting in a favorable start in Q1. As mentioned earlier, M&A-related expenses were recorded in connection with the completion of the Stakelogic and GAN acquisitions, but were already factored into the initial plan for the period. In Paradise City in South Korea, the casino continued to maintain strong sales, especially to Japanese VIP customers, resulting in an amount accounted for under the equity method of JPY1.1 billion, contributing to a positive start in ordinary income and adjusted EBITDA. Looking ahead, in gaming equipment sales, we will continue to strengthen sales of the Super Burst series for our mainstay Railroad Riches series and to reinforce operations at Paradise City. The impact of Stakelogic and GAN on the full-year earnings forecast is under scrutiny as mentioned earlier, and will be announced as soon as the review is completed. This slide shows the main products of our gaming equipment for your reference. In addition to strengthening sales of these hit models, we will work to further strengthen our contacts with casino operators by cultivating new operators and increasing customer engagement. Page 25 is about PARADISE SEGASAMMY in Korea. The inclusion of this group's results will be from January to March 2025 for PARADISE SEGASAMMY, as it will be recorded with a three-month delay. Casino sales continue to be strong, especially among Japanese customers, and the amount of Japanese VIP customers dropped off in May remained at a high level, recording a record high since the opening of the casino. Going forward, we expect the continued strong casino sales to drive profit contributions from equity-method earnings. This concludes my explanation. Thank you for your attention.
Operator: Thank you very much. This completes the explanation of the financial results for Q1 of the fiscal year ending March 31, 2026.
Operator: Now, let’s move on to the question-and-answer session. First, we would appreciate your cooperation in limiting the number of questions to three per person, which we will answer one at a time. If you have additional questions, please raise your hand again. Well then, Maeda from SMBC Nikko Securities, please ask your questions.
Makoto Takahashi: Thank you. Regarding the first question, as I mentioned earlier, in Q2, the Revengers contributed more and are now exceeding the plan. As for Pachinko machines, our mainstay titles such as Hokuto and Kabaneri will continue to be released in the future, but they have not yet passed the certification test, so I am not able to give you any information about the timing of their release. Development is progressing smoothly, and we will make every effort on site to launch the product on this occasion. On the other hand, we are aware that we are making progress as planned with Sonic Racing, Football Manager, and Sonic Mobile, which are mainly consumer titles, so as I explained earlier, we expect to see an increase in these main titles in Q2 and onward. Therefore, we are not making any major changes to the plan.
Nobuaki Yoshii: Excuse me. As for Sonic Rumble, it was originally scheduled to launch in May, but we have postponed the launch and are now in the process of additional development. We are currently considering a future launch schedule based on that as well, so there is no change from the status of undecided yet.
Eiji A. Maeda: Thank you very much. The second question is that the compliance rate for Pachislot certification is strict. I think this has been the case for some time, but I am not sure if there are any new hurdles that have been raised here. You have explained the main titles for the future. If you could not get two big ones, would you also have a back-up plan for the future?
Makoto Takahashi: The average compliance rate for Pachislot would be about 15%. The percentage remains low, ranging from 13% to less than 20%. However, we have also received information that the compliance rate has been slightly increasing recently. We are going to take this situation into consideration and comply with the new models, while keeping in mind that if we release a half-baked model, it will damage our brand. We will try to strike a balance between the two. Basically, we would like to release a major title this fiscal year, but since we are developing various titles at the same time in our development team, we may release another machine if such a situation arises. As I explained earlier, I believe that our first order of business this fiscal year is to focus on our mainstay titles.
Eiji A. Maeda: I'm sorry. Regarding the repeats in the consumer area of games, you said that Q1 was weak. Also, you mentioned that you are in a recovery trend, but could you tell us about the reasons for each of the weak sales, the factors for the recovery trend, and the repeats of game software? That's all from me.
Makoto Takahashi: Thank you. In Q1, the quasi-new products have contributed greatly to this quarter, but Metaphor and Sonic X Shadow, which were released last year, have fallen slightly short of our expectations. We have heard that our company is not alone in this regard, but we have seen that the market for repeat titles has been weak overall for the past several months. I wonder if the launch of the Switch 2 may have had some impact here. Looking at the figures from July, we have confirmed that they have returned to the level of our plan, and we believe that we will be able to make progress from Q2 onward without changing our plan. On the other hand, the Persona series and other series continue to perform well, and we are able to repeat sales of strong titles. That is all.
Eiji A. Maeda: Thank you very much.
Operator: Thank you. Now, Morita from Okasan Securities, please start.
Masashi Morita: I am Morita from Okasan Securities. I have three questions. First, I'm sorry to go into a bit of detail, but as you can see on page three of the supplementary materials, sales for license revenue and subscriptions in the “other” category of the consumer area have increased considerably in Q1 compared to the same period last year. I would like to know what kind of situation you are experiencing in this area. Like whether this growth rate will continue in the future. Or, what kind of image should we have of the profit to sales ratio here? This is the first question.
Makoto Takahashi: In Q1, the subscriptions for the 2024 edition of Football Manager are increasing because we were not able to launch the 2024 version last year, and the Metaphor game pass is also contributing to the subscriptions. Therefore, the subscriptions are, in a sense, a one-time or current period portion, so the subscriptions were positive for the current period. On the other hand, licensing revenues continue to be strong and have exceeded our projections. What is particularly noticeable in Q1 of this fiscal year is that other licensing revenues, such as those from Persona and other products other than Sonic, are also increasing considerably. We believe that the transmedia strategy we have been pursuing is showing results in the figures.
Masashi Morita: I'm sorry. To follow up on the first point, regarding Metaphor, for example, the point is that it was most recently in the area of subscription revival. For example, is it correct to think that the production portion of the balance sheet, which is on your company's balance sheet, and the production recording, would also occur at that time?
Makoto Takahashi: Since the amortization of development costs is on schedule, the up-front fees from supplying such subscriptions go directly to sales.
Nobuaki Yoshii: Regarding amortization, it is only a development stance, individually, 25% for the first month only, and then 23 months of straight- line amortization from there. It's a kind of accelerated write-off process if we don't recover it, so it's basically not like we suddenly drop something additional in response to a little bit of income. It's just because [inaudible] has grown.
Masashi Morita: Thank you very much. Second, regarding the animation area within entertainment contents. Please explain the situation here. Despite the increase in sales, operating income has been a bit difficult.
Makoto Takahashi: Is it correct that that is a comparison to last year?
Masashi Morita: Yes. Compared to the same period of the previous year.
Makoto Takahashi: Last year, Sonic's movie revenue was JPY1.7 to JPY1.8 billion, as I recall, which is a fairly direct income and directly related to profit. In contrast, Sonic's film income was JPY800 million this fiscal year, so I think the profit margin is declining. On the other hand, some of the animation revenues are coming from Conan and other areas, so the revenues themselves are rising, and there was also Knuckles last year, so the structure is changing a bit.
Masashi Morita: Thank you very much. Third, regarding Sonic Rumble and Sonic Racing, I'm told that Sonic Racing is in September and Sonic Rumble is by the end of this year, but I don't know when. However, considering the remaining period, these two titles will be close to each other. If this happens, what do you call this in terms of marketing, is it going to be synergy or a hunting ground, or still not relevant in the first place? Please let us know if you have any marketing ideas about putting out the products at some close timing.
Makoto Takahashi: F2P and full games are different, as is the customer base, so basically we don't think there is any such thing as a hunting ground. Although there is a certain degree of synergy from the expansion of Sonic's media and advertising activities, I do not think that there is any strategic linkage between these activities at this time. In any case, Sonic Rumble has been delayed considerably, so we are developing various measures to launch it this fiscal year. Naturally, with the help of Rovio's marketing team, we are conducting various tests in different countries. In some countries, we have achieved our KPI targets, and we believe that we are getting close to the launch of the product, so we are planning to launch the product during this fiscal year with a high degree of precision.
Masashi Morita: Thank you very much.
Operator: Thank you. Now, Zhai from UBS Securities, please go ahead.
Yijia Zhai: I am Zhai from UBS Securities. Thank you for giving me this opportunity. First of all, how much of each of the two F2P games, Persona5: The Phantom X and Sonic Rumble, were included in your initial guidance? How is the progress of Persona, which has already been released, compared to your initial forecast, and how will the postponement of Sonic Rumble negatively impact your full-year guidance?
Makoto Takahashi: First of all, P5X, the figures are incorporated in the guidance for this fiscal year, where we expect specific monthly sales in excess of JPY1 billion. I would say that the amount is between JPY1 billion and JPY2 billion. We are aware that this is a very big title for us. For Q1, it was launched on June 26, so it lasted only five days, but sales exceeded JPY1 billion, and as I mentioned earlier, we are number one in downloads. Sales have been very strong in July and have exceeded our expectations, but sales have been fluctuating due to the timing of updates and other factors. We will continue to strengthen our operations in order to achieve our goals for the current fiscal year. We expect the same level of sales and monthly sales scale for Rumble, but we have indicated that this will be after the winter of this fiscal year, so compared to P5X, the contribution to sales for this fiscal year will be small. Also, since we are planning to spend a lot of money on advertising and promotion, the contribution to profit will also be quite small. That is all.
Yijia Zhai: Thank you. The second question is about Rovio. Although your initial guidance was for an increase in sales, a look at the actual situation in Q1 shows that sales have continued to decline. I would appreciate it if you could give me some background on the details there, whether this is something different from the forecast at the beginning of the period, or whether, in fact, the acceleration of sales will start in H2 of the year.
Makoto Takahashi: Regarding Rovio, it is true that we are currently making progress below the plan. The main reason is that Angry Birds 2 and the Angry Birds series are still in the doldrums. This has been the case since last year, but we have been holding back strategically because the overall market for F2P mobile games is becoming more and more competitive, and it is difficult to achieve our KPI for increasing sales even with advertising expenses. However, in recent months, we have strategically increased our advertising expenses, and as a result, we are seeing an upward trend, including DAUs. In addition, a major update is scheduled for the next quarter and beyond, so we will monitor Rovio's progress in order to catch up with the plan once again.
Nobuaki Yoshii: Angry Birds 2, which will be updated in the future, is a title that we have been working on intensively, and it is starting to improve as a title. However, looking at the overall situation, other titles are slightly below plan.
Yijia Zhai: Thank you. As a follow-up to your earlier comment, in the past, there was a comment that even though sales were down a bit, by holding down costs and so on, there was not much of a decrease in profits. Am I correct in assuming a similar understanding for the current fiscal year or for this quarter?
Makoto Takahashi: For Rovio, correct?
Yijia Zhai: Yes, that's right.
Makoto Takahashi: Regarding Rovio, we have been watching the balance between sales and expenses, as well as advertising and promotional expenses, but sales have fallen more than expected, so we are now seeing a decline in profits. As I mentioned earlier, we will work to recover profits from Q2 onward, centering on the Angry Birds 2 update.
Yijia Zhai: Yes, I understand very well. That is all from me.
Makoto Takahashi: Thank you.
Operator: Thank you. Now, Sakaguchi of Daiwa Securities, please begin.
Kazuki Sakaguchi: I am Sakaguchi from Daiwa Securities. Thank you for calling me. I would like to ask two questions. Firstly, regarding the two M&A gaming companies, I understand that you are still examining the situation, but if possible, I would appreciate an update on the current non-consolidated performance of each of these companies.
Makoto Takahashi: First of all, for the results up to last year, GAN is as announced, and sales were USD130 million. The consolidated operating income was a negative USD3.6 million, and the net income was a negative USD7.9 million. GAN was also negative until December of last year. Stakelogic is also currently in negative territory, with sales of approximately EUR21 million, operating income of EUR6 million euros, and net income of EUR700 million. Since April, we have added them to the Group and are now starting PMI. Especially for GAN, we are in the process of switching from an old system to a new system, especially in the area of systems, and although BtoB business is currently declining, BtoC business, mainly Coolbet, is doing very well. While supporting these areas, the gaming group as a whole will continue to make progress in accordance with our omni-channel strategy, although it may take some time to make changes based on the strategy that we have already announced. That is all.
Kazuki Sakaguchi: Thank you very much. The second question is about the situation at that SEGA Store. I know it hasn't been that long since the store opened, but I would like to know how the number of customers has been compared to expectations, and if there is a plan to expand this kind of in-house merchandising in the future.
Nobuaki Yoshii: It has been less than a month since the SEGA Store was opened, but it is doing very well and has been quite busy, including inbound sales, so I think we are in a very good situation. Our goal is not to make money from the store, but rather to strengthen the touchpoints for the firm dissemination of IP, so we will consider this in the future while looking at the effects of these measures.
Makoto Takahashi: As you will see when you go there, there are many companies on that floor of Parco in Shibuya, and they are developing various IP. I believe that the fact that SEGA's IP has been able to develop in such a context has left a great impact on the content that represents Japan, and the customers are really doing well, so I hope that everyone listening to this message will come and visit us.
Kazuki Sakaguchi: Thank you very much. That is all from me.
Operator: Thank you. Now, Fukuda of Tokai Tokyo Intelligence Laboratory, please begin.
Nobuaki Yoshii: Yes, that's right. I still think that the 3.0 Plus was probably the best rated of all the products that were introduced simultaneously on July 7. However, we are still in the process of analyzing what was critically effective in enhancing the evaluation, but I think there is a good chance that the specs you pointed out and other aspects you mentioned stuck in the right places. Sorry, that's not much of an answer.
Makoto Takahashi: Sega Sammy has always been a company with a strong gambling zone. In this sense, I think we were able to differentiate our products to a certain extent from those in the gambling zone. Also, in launching Tokyo Revengers, we spent a lot of time focusing on the development of the mainstay models, which has paid off in a big way. I think that this is a very good result. We have an in-house branch system called “Parlor Sammy,” and I think that the fact that we were able to do this while conducting proper verification in such areas is what led to the high utilization this time.
Soichiro Fukuda: Thank you very much. Secondly, as we have just seen, Lucky Trigger 3.0 was introduced in July, and while the focus of the parlors is now on slots and smart slots, how far will Lucky Trigger 3.0 Plus be able to make a dent in the market? In short, I would like to ask you to comment on the positioning of these machines with Lucky Triggers in the parlors, and whether they can regain the leading role in the parlors to some extent.
Makoto Takahashi: I understand that the market is currently dominated by Lucky Trigger 3.0 machines, and that most of the high-operating machines are Lucky Trigger machines, so in the current overall spec environment, these machines are the mainstay. The Pachinko industry has been in a bit of a difficult situation, but we are hoping that this will be the beginning of an upsurge in the Pachinko industry itself, and the industry itself is also looking forward to this. On the other hand, the installation rate of smart slots has already exceeded 40%, but the installation of smart Pachinko has been slow for a long time, and I think it will be very good for us and for the industry if smart Pachinko spreads with this new standard machine. That is all.
Soichiro Fukuda: Thank you very much. And third, I would like to ask you about the future development of the Persona IP. Recently, you announced the revival of Persona 4 and the mobile version of P5, and I think you have been developing various titles. Of course, you have the new Persona series in mind, as well as the media strategy, but I would like to ask you how you plan to develop and strengthen this IP. Thank you.
Makoto Takahashi: Yes, the Persona series has been doing very well, and Atlus Co., Ltd.’s studio as a whole has been able to record a greater number of new releases than we had expected for the new Raidou series, which has made Persona and Atlus’ studio very strong as IP. As I mentioned earlier, we will continue to cultivate this popularity outside of games, for example, by developing Persona goods in stores, as I mentioned earlier, and by expanding Persona licensing to include music licensing and various other licensing activities. As I mentioned earlier, license income has been increasing. We will strengthen this IP as a follow-up to Sonic as part of our transmedia strategy.
Soichiro Fukuda: How should we look at animation here?
Makoto Takahashi: We do not have anything to announce at this time with regard to animation.
Soichiro Fukuda: Okay. Thank you very much.
Operator: Thank you. Now, Nakamura of Jefferies Securities, please begin.
Masahiro Nakanomyo: Hello. I would like to ask two questions. First of all, you mentioned earlier that the response to the opening of SEGA Store Tokyo has been very positive. Since you last opened, what, if any, situations have you encountered that were unexpected even with this positive? Also, I believe that it is expected to function as a showcase for expanding out-licensing, but could you tell us a little more about the current progress of out-licensing as a whole, what kind of products you are receiving many inquiries about, and your expectations for the future potential of out-licensing?
Makoto Takahashi: Yes, that's right. Regarding store operations, we have heard that sales themselves are exceeding our expectations. As for the number of visitors, it is still very difficult to get in, and we have just opened, so we have to wait and see a little more, but things are going very well right now. In this sense, there has been nothing unexpectedly bad, and I believe that things have continued to be very good. As we develop various IPs, we will naturally license IPs for various goods, and we will also license animation as part of our transmedia activities. I have heard that discussions are underway with various partners to expand in various segments, and I have high expectations that we will expand in the future. That is all.
Nobuaki Yoshii: We are also working on a new Sonic plushie brand, so please stay tuned for developments in that area as well.
Masahiro Nakanomyo: I see. Thank you. One more question: Sonic Racing, which will be released in September, overlaps with Mario Kart, the launch title for Switch 2, in terms of genre. I think the timing may have some negative impact on the current term, but how are you trying to differentiate yourself? I would appreciate it if you could tell me about the aim of the title or the strategy for selling it. Thank you.
Nobuaki Yoshii: Yes, that's right. The fact that the game will be released in September is something to look forward to, but I think one of the biggest differences is that it will be released on multiple platforms. It also incorporates the essence of the team that originally developed the racing game, but we have taken a slightly different approach to the previous racing game. We are also announcing more and more collaborations with various IPs from outside the company, so please look forward to seeing what we have in store for you in this area.
Masahiro Nakanomyo: I understand. Thank you.
Operator: Thank you. We continue to welcome your questions. If you have any questions, please press the “raise your hand” button. Well then, Fukuyama of MIRARTH Asset Management, please begin.
Fukuyama: I am Fukuyama from MIRARTH. I would like to ask just one question, just about the plan regarding Pachislot and Pachinko machines. I wonder if your plan is a little conservative in terms of the growth rate of profits relative to the increase in revenues when comparing the current fiscal year with the last fiscal year. I believe that you plan to increase major expenses and capital investment by about JPY4.5 billion YoY, but since I think that revenue will increase by about JPY40 billion, I think that a little more margin should be generated. Please tell us again why your plan is to increase margins by only a little more than 1%. Also, I believe that a repeat of the Revengers is in the works, so I would appreciate an update on the feel of this area to see if you can make progress from Q2 onward with a lot of leeway. That's all from me.
Makoto Takahashi: Thank you. As you pointed out, we are looking at slightly higher expenses this fiscal year. One point is that advertising and publicity expenses are included in the budget, as well as expenses related to parts and materials. In terms of the impact on sales and earnings, the price of the new Pachislot machines has been factored into the plan to a certain extent because of the so-called new Pachislot machine cabinet. As for the cost price, we have factored in a slightly higher cost price ratio in the plan because the machines are still treated as new machines before they are replaced. As for the price, we will consider this while consulting with customers about the market and other factors, but structurally, another new cabinet is this second or third turn, which means that profitability will increase each time the so-called cabinet part is replaced. As for this fiscal year, I hope you can see it in the image of this trust in Pachinko. In addition, the cost ratio of Pachinko machines is high because the ratio of the main body is high, and the cost ratio is high because the frame portion is slightly higher.
Nobuaki Yoshii: Currently, there are no individual titles that have fallen short of the plan, and I think the bottleneck will be in the area of permits, so if we can get a solid permit approval, I think we can go into this fiscal year with confidence.
Fukuyama: Thank you very much.
Operator: Thank you. Since there are no other questions, we will conclude the question-and-answer session. This concludes the presentation of the financial results for Q1 of the fiscal year ending March 31, 2026, of Sega Sammy. Thank you very much for your participation today.
Makoto Takahashi: Thank you very much. [END]