Fiscal 2016 Performance Report

Lower Revenues, Higher Earnings

In fiscal 2016, the year ended March 31, 2016, the SEGA SAMMY Group recorded lower revenues and higher operating income. While net sales declined 5% year on year, to ¥347.9 billion, operating income rose 1%, to ¥17.6 billion. Also, we posted profit attributable to owners of parent of ¥5.3 billion, compared with the previous fiscal year's loss attributable to owners of parent of ¥11.3 billion.

Net Sales

Lower revenues from the Pachislot and Pachinko Machine Business segment affected net sales. The pachislot machine business saw steady revenues from pachislot machines in well-established series. However, sales of non-mainstay titles flagged due to a change in the model-testing operation methods of the Security Communications Association, which tests pachinko and pachislot machine models. Consequently, revenues from the pachislot machine business declined 17% year on year. As for the pachinko machine business, the temporary effect of restructuring and the absence of titles that grew unit sales in the previous fiscal year caused a 9% year on year decrease in revenues. As a result, net sales of the Pachislot and Pachinko Machine Business were down 13%. In the Entertainment Contents Business segment, net sales were approximately unchanged because higher revenues in the amusement machine sales area, the amusement center operations area, the animation area, and the toy sales area compensated for lower sales in the digital game area and the packaged game software area. Regarding the Resort Business segment, net sales were up 9% year on year.

Operating Income

In the Pachislot and Pachinko Machine Business segment, operating income decreased 16% due to lower unit sales. However, the Entertainment Contents Business segment realized a significant year-on-year increase in operating income to ¥3.6 billion. Although the segment's digital game area recorded an operating loss of ¥0.9 billion due to a review of the asset value of certain titles and higher advertising expenses, profitability improved in all other areas of the segment thanks to cost structure reform implemented in the previous fiscal year. In the Resort Business segment, which is at the advance investment stage, operating loss contracted. Further, the operating margin increased from the previous fiscal year's 4.8% to 5.1%.

Profit (Loss) Attributable to Owners of Parent and Cash Dividends^*1

Extraordinary loss of ¥5.6 billion, which included early extra retirement payments, counteracted extraordinary income of ¥1.2 billion. Profit attributable to owners of parent was ¥5.3 billion, compared with the previous fiscal year's loss attributable to owners of parent of ¥11.3 billion. Net income per share was ¥22.90, and 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.

Cash Flows

The Group recorded negative free cash flows of ¥18.3 billion because net cash provided by operating activities of ¥16.9 billion did not offset net cash used in investing activities of ¥35.2 billion, reflecting purchase of investment securities and purchase of property, plant and equipment. Mainly due to proceeds from long-term loans payable and proceeds from issuance of bonds, net cash provided by financing activities was ¥14.2 billion.

Fiscal 2017 Plan

In fiscal 2017, the year ending March 31, 2017, we expect net sales to increase 9%. In the Pachislot and Pachinko Machine Business segment, we plan to grow pachislot machine unit sales more than 60% year on year by marketing mainstay titles. Meanwhile, in the pachinko machine business, we expect temporary market instability stemming from a new agreement in relation to addiction countermeasures to lead to a 9% year-on-year decline in unit sales. The Entertainment Contents Business segment is targeting higher revenues through the introduction of new PC online games and the development of gaming platform businesses in Southeast Asia.

In addition, we expect operating income to increase 14%^*2 year on year as improved profitability in the Entertainment Contents Business segment—due to concentration on mainstay titles in the digital game area and reduction of advertising expenses and operating costs—counteracts a temporary dip in the Pachislot and Pachinko Machine Business segment's operating margin as a result of introducing new frames and components.

• *1 Certain line items that are classified as other income (expenses) in the consolidated statements of income and comprehensive income have been reclassified as extraordinary income or extraordinary loss in explanations.
• *2 After retroactive adjustment

• 
•