Fiscal 2015 Business Results

In fiscal 2015, the year ended March 31, 2015, SEGA SAMMY HOLDINGS INC. recorded lower revenues and earnings and moved into the red due to the recognition of one-time expenses arising from restructuring. The Group posted year-on-year declines of 6% in net sales, to ¥354.9 billion, and 54% in operating income, to ¥17.6 billion, and incurred a net loss of ¥11.2 billion, compared with the previous fiscal year's net income of ¥30.7 billion. For the third consecutive year, the Group did not meet initial targets. Also, no business segment reached its initial targets. These are disappointing results, and I would like to apologize sincerely to shareholders and investors. Below I will provide details on restructuring aimed at getting us back on a growth track.

Net Sales

The main reason for lower net sales was a significant decrease in revenues from the Pachislot and Pachinko Machine Business segment. In this segment, the pachinko machine business grew revenues thanks to the steady performances of multiple mainstay titles. However, the pachislot machine business posted lower revenues because it introduced fewer new titles due to a revision of sales schedules. This revision stemmed from a change in the model-testing operation methods of the Security Communications Association, which tests pachinko and pachislot machine models. As a result, the net sales of the Pachislot and Pachinko Machine Business segment were down 18% year on year. As for the Amusement Machine Sales Business segment, revenues increased 3% year on year. In the Amusement Center Operations segment, solid sales at existing amusement centers were unable to completely offset the effect of a consumption tax rate increase, and revenues decreased 4% year on year. Meanwhile, the Consumer Business segment grew revenues 11% year on year as growth in the digital game area compen-sated for lackluster revenues from the packaged game software and toy sales areas.

Operating Income (Loss)

The Pachislot and Pachinko Machine Business segment's operating income was down 43% from the previous fiscal year. The Amusement Machine Sales Business segment recognized operating loss of ¥2.5 billion, reflecting sluggish sales of new titles. Also, the Amusement Center Operations segment recorded operating loss of ¥0.9 billion. Mainly due to higher revenues from digital games, the Consumer Business segment grew operating income 100% year on year. The operating margin decreased 5.2 percentage points year on year, to 5.0%.

Net Income (Loss)

The Group incurred extraordinary loss of ¥15.9 billion, which included impairment loss, provision for dismantling of fixed assets, loss on discontinuance of independent film production, and early extra retirement payments. Furthermore, the Group recognized a reversal of a portion of deferred tax assets in income taxes-deferred. This measure was taken after careful consideration of the recoverability of deferred tax assets in light of the effect of tax reform, fiscal 2015 business results, and the business results outlook. As a result, the Group posted a net loss of ¥11.2 billion.

R&D Expenses, Content Production Expenses, and Capital Expenditures

R&D expenses and content production expenses rose 14% year on year due to the Pachislot and Pachinko Machine Business segment's strengthening of product appeal and the Consumer Business segment's bolstering of digital game content. Capital expenditures were down 25%, reflecting the absence of the previous fiscal year's acquisition of land in Busan, South Korea. Depreciation and amortization rose 9% year on year due to higher investment in molds, which accompanied the Pachislot and Pachinko Machine Business segment's introduction of dedicated machine cabinets. Advertising expenses were up 19% year on year as a result of the strengthening of digital game content in the Consumer Business segment.

Cash Flows

The Group recorded negative free cash flows of ¥0.7 billion, as net cash provided by operating activities of ¥37.0 billion did not completely offset net cash used in investing activities of ¥37.7 billion.

Cash Dividends

For fiscal 2015, the Group paid interim cash dividends of ¥20.00 per share and year-end cash dividends of ¥20.00 per share, giving full-year cash dividends of ¥40.00 per share, the same amount as paid for the previous fiscal year.