DETERMINATION Establishing an Unshakable Market Position Overview by Business Segment Pachinko and Pachislot Machine Business Composition of Net Sales The pachislot machine business will concentrate efforts on devel- ¥160.3 billion oping machines with gameplay that will revitalize the market. 41.7% In the pachinko machine business, we intend to heighten our presence by strengthening development capabilities and brand Pachislot Machine Business power even further. 13% ¥51.7 billion For details on market trends, please refer to the supplementary “INFORMATION” document. Pachinko Machine Business 27% ¥103.1 billion Basic Information Building A business platform that to development processes in order to further Other GENERATES stable earnings bolster development capabilities. Another 1% ¥5.5 billion Accounting for approximately 41% of consoli- distinctive feature of this business segment is dated net sales, the Pachinko and Pachislot its ability to cater to diversifying user needs Fiscal 2010 Business Results Overview Machine Business segment is the SEGA through a multi-brand strategy based on Net sales SAMMY Group’s earnings driver. The business Sammy, RODEO Co., Ltd., TAIYO ELEC Co., ¥160.3 billion ▶ segment’s core operating company, Sammy Ltd., and GINZA CORPORATION. Down year on year 0.8% Corporation, maintains a solid position as a In the pachinko and pachislot machine Operating income leader in the pachislot machine market. Re- market, earnings conditions are undergoing ¥29.5 billion leased in 2004, the pachislot machine Hokuto dramatic change due to regulatory revision. Up 103.1% year on year No Ken shipped 620,000 units, setting an in- Therefore, we aim to build an earnings struc- ▶ Pachislot machine unit sales dustry record for unit sales. Meanwhile, the ture durable enough to function amid such 162,000 units pachinko machine business has built brand change. To this end, we will establish a system Up 32.2% year on year power and rapidly carved out one of the largest in which the pachinko machine business and ▶ shares of the pachinko machine market. the pachislot machine business generate stable Pachinko machine unit sales Enabling these stable earnings, the hit products as well as enhance cost competi- 360,000 units ▶ strengths of this business segment are creativi- tiveness by reducing costs and shortening pro- Down 8.1% year on year ty and development capabilities that constantly duction lead times. Pachinko board sales ratio generate fresh types of entertainment. At pres- 69.1% ent, it is strengthening collaboration between Up 58.6 percentage points development divisions and marketing divisions ▶ as well as introducing rigorous quality checking 30 Net Sales Operating Income/Operating Margin Pachinko and Pachislot Machine Unit Sales Billions of yen Billions of yen % Thousands of units % 240 80 40 800 80 180 60 30 600 60 120 40 20 400 40 60 20 10 200 20 0 0 0 0 0 07 08 09 10 11 FY 07 08 09 10 11 FY 07 08 09 10 11 FY ■■ Net sales 160.3 200.0 ■■ Operating income (left) 29.5 35.0 ■■ Pachinko machines (left) 360 410 Plan ● Operating margin (right) 18.4 17.5 ● Pachinko board sales ratio (right) 69.1 30.4 Plan ■■ Pachislot machines (left) 160 210 Plan FY 2010 Overview Earnings rise significantly thanks to AN For 2009, the SEGA SAMMY Group accounted INCREASE in pachislot machine unit sales, for 10.8% of the pachinko machine market, down AN IMPROVEMENT IN PACHINKO BOARD SALES from 11.7% for the previous year, and 21.3% of the UP RATIO, and cost reduction pachislot machine market, up from 13.5% for the The pachinko machine business saw unit sales de- previous year. cline 8.1% year on year, to 360,000 units, which In earnings, multifaceted initiatives improved was partly attributable to the absence of the contri- the profit margin. These included reducing cost of bution to sales that the hit product Pachinko CR sales and operating expenses by withdrawing from Hokuto No Ken made in the previous fiscal year. the unprofitable pachinko and pachislot machine Consequently, the business recorded an 11.5% peripheral business, lowering part procurement year-on-year decrease in net sales, to ¥103.1 billion. costs centered on LCDs, and revising pricing strate- Nevertheless, sales of flagship titles remained solid. gies for pachinko machines and pachislot machines. Pachinko CR SOUTEN-NO-KEN Pachinko CR SOUTEN-NO-KEN sold 94,000 units, In particular, stepped-up sales efforts for pachinko © 2001 Buronson & Tetsuo Hara Approved No. SAG-309 while Pachinko CR Sengoku Ranbu Aoki Dokugan boards, which reduce the capital investment burden © Sammy shipped more than 50,000 units. Ongoing strength- on pachinko hall operators, contributed to improved ening of development capabilities is steadily raising profitability. As a percentage of pachinko machine the level of unit sales across a range of key titles. business unit sales, pachinko board sales rose from Regarding the pachislot machine business, the previous fiscal year’s 10.5% to 69.1%. Pachislot Psalms of Planets Eureka Seven, which Also, with our sights set on the current fiscal incorporates popular animation, recorded 56,000 year and onward, we strategically reorganized unit sales and helped reactivate a market that has businesses. For example, we merged with Sammy stagnated since the 2004 regulatory revision. Rental Services Co., Ltd., following the ending of Despite strategically postponing the release of rental plans for pachislot machines. And, GINZA certain major titles until the current fiscal year, the CORPORATION, responsible for one arm of business posted year-on-year increases of 32.2% our multibrand strategy, became a wholly owned in total unit sales, to 162,000 units, and 53.0% in subsidiary. net sales, to ¥51.7 billion. As a result of these efforts, although net sales edged down 0.8% year on year, to ¥160.3 billion, operating income was up 103.1% year on year, Pachislot Psalms of Planets Eureka Seven © 2005 BONES / Project EUREKA • MBS to ¥29.5 billion. The operating margin improved © Sammy 9.4 percentage points from the previous fiscal year, © 2009 NBGI to 18.4%. SEGA SAMMY HOLDINGS ANNUAL REPORT 2010 31 DETERMINATION Pachinko and Pachislot Machine Business FY 2011 Outlook and Strategy Target higher revenues and earnings business plans to introduce 12 titles, including SEGASAMMY by steadily building up unit sales and the major Sammy-brand title Pachinko CR Insight reducing costs Hokuto No Ken Raoh. As a result, the business The pachinko machine market is showing signs aims to grow unit sales 50,000 units, to Pachinko Machine Boards of slight deceleration. This is because casual 410,000 units, and achieve a 25.6% rise in Pachinko machines comprise two parts: frames players are leaving the market as installations net sales, to ¥129.5 billion. For the current fis- and boards. Controlling the paying out of of pachinko machines with a strong gambling cal year, although pachinko board sales as a pachinko balls, the frame has attached to it a element increase. At the same time, the growth percentage of pachinko machine business handle, a glass frame unit, and speakers. The of the “one yen pachinko” market, aimed at sales are likely to decline year on year due to board comprises LCDs, tulip-shaped devices, broadening customer bases, is reducing the introduction of new-model pachinko and numerous pins. The board incorporates pachinko halls earnings and thereby curbing frames from the launch of Pachinko CR Hokuto many electronic components, such as boards machine replacement. On the other hand, unit No Ken Raoh onward−in order to heighten and sensors that control gameplay, including sales per title and utilization rates indicate that quality and security−the business will maintain images and win chances presented by the the pachislot machine market has bottomed its profit margin by reducing part procurement pachinko machine’s LCDs, and payouts. The out. Following the 2004 regulatory revision, this costs and reusing parts rigorously. boards give pachinko machines their distinctive market slumped. However, products compliant The pachislot machine business is target- characteristics. Because frames can be used with the current regulations and popular ing a 47,000-unit increase in unit sales, to continuously for certain periods, pachinko hall among customers are entering the market. In 210,000 units, and a 22.8% rise in net sales, operators can purchase pachinko boards and at- light of these market trends, for fiscal 2011 the to ¥63.5 billion. For fiscal 2011, the business tach them to frames installed at pachinko halls. Pachinko and Pachislot Machine Business seg- has slated 13 titles for marketing, including the The price of a pachinko board is less than the ment is targeting year-on-year increases of mainstay Sammy-brand title Pachislot SOUTEN- price of an entire machine. This arrangement 24.8% in net sales, to ¥200.0 billion, and NO-KEN. In conjunction with these efforts, we meets the needs of pachinko hall operators 18.6% in operating income, to ¥35 billion. intend to enhance the profit margin by reusing looking to hold down capital expenditures. For Looking at individual businesses and strat- parts, particularly those related to LCDs, which manufacturers, sales of pachinko boards not egies, in fiscal 2011 the pachinko machine account for a large proportion of costs. only offer higher profit margins than sales of machines, but also help maintain the manufac- turer’s share of machine installations. This is an efficient business model for both pachinko hall operators and pachinko machine manufacturers. Boards Pachislot SOUTEN-NO-KEN Pachinko CR Hokuto No Ken Raoh © 2001 Buronson & Tetsuo Hara © Buronson & Tetsuo Hara/NSP 1983 Frame Approved No. SAH-310 © NSP 2006 © Sammy Approved No. SAF-308 © Sammy 32 DETERMINATION Leading Market Revitalization Overview by Business Segment Amusement Machine Sales Business BORDER BREAK © SEGA Composition of Net Sales We are committed to developing products that increase investment ¥45.1 billion efficiency for amusement center operators, providing stable long-term 11.7% earnings for the Group, and broadening user-base in the market.