For Tomorrow Establishing a Dominating Position Operational Review Pachislot & Pachinko Machine Business Aiming to stake out the leading share not only of the pachislot machine market but also the pachinko machine market, this business segment will advance a multibrand strategy based on Sammy Corporation, TAIYO ELEC Co., Ltd., RODEO Co., Ltd., and GINZA CORPORATION. For details on market trends, please see the supplementary “Today” document. ELEC Co., Ltd., RODEO Co., Ltd., and GINZA Composition of Net Sales Basic Information CORPORATION. The Group aims to mitigate the risk of ¥212.0 billion Driving the Group’s Growth by Generating significant changes in earnings conditions due 53.5% Stable Earnings to regulatory revision while winning out in a Other Accounting for approximately 53% of net sales, pachinko and pachislot machine market in 1.5% ¥3.2 billion Pachislot Machine Business the Pachislot and Pachinko Machine Business which increasingly it is only the fittest compa- 44.8% ¥94.9 billion segment is the Group’s earnings driver. nies that are surviving. To this end, the Group As the business segment’s core operating is building a system that is able to create com- company, Sammy Corporation has more often petitive titles in the pachinko and the pachislot than not held the largest share of the pachislot machine business while moving forward deci- machine market by continuing to break new sively with multifaceted efforts to strengthen ground in the market. The industry record of cost competitiveness. Pachinko Machine Business 53.7% ¥113.9 billion 620,000 unit sales that the pachislot Hokuto No Ken set in 2004 is still unsurpassed. From fiscal 2008, the business segment trans- Fiscal 2011 Business Results Overview ferred to a new development system and Net sales ¥212.0 billion honed its comprehensive capabilities, which include development, manufacturing, and % ▲ 32.2 sales. In addition to further extending our lead- Operating income ¥64.2 billion ing share of the pachislot machine market, 117.9% this initiative significantly enhanced the appeal ▲ of our products and brand in the pachinko Pachislot machine unit sales 302,000 units machine market and entrenched our position among the leading companies. 85.5% ▲ In order to cater to diverse market demand, Pachinko machine unit sales 343,000 units the business segment pursues a multibrand Pachinko CR Hokuto No Ken Kenshiro © Bronson & Tetsuo Hara / NSP1983, ▼ 4.7% strategy through Sammy Corporation, TAIYO © NSP 2007 Approved No. YKN-101 © Sammy 34 pachislot machines generated, and cost FY 2011 Overview reductions through the reuse of parts. In the pachinko machine business, we Earnings Up Significantly on Higher are actively promoting sales of pachinko Pachislot Machine Unit Sales and boards, which provide us with high margins Cost Reduction while lightening the investment burden of Deftly identifying and capturing the recovery pachinko hall operators. In fiscal 2011, in demand for pachislot machines, the reflecting the introduction of our new-model pachislot machine business saw unit sales pachinko frames, the percentage of pachinko rise a steep 85.5% year on year, to 300,000 machine unit sales that pachinko boards units. As a result, net sales of the business accounted for was down from the previous were up 83.6% year on year, to ¥94.9 billion. fiscal year’s 69.1% to 28.5%. Pachislot SOUTEN-NO-KEN shipped 92,000 Because certain pachislot machines Oreno Sora ~Spirit of Young Justice~ © Hiroshi Motomiya / SHUEISHA / FIELDS units, while Pachislot Shin Onimusha, launched in fiscal 2011 were operating at © Sammy © RODEO released under the RODEO brand in the abnormally high payout rates, we offered previous fiscal year, posted solid sales. free replacement machines to pachinko hall In the pachinko machine business, operators no longer wishing to have these mainstay title Pachinko CR Hokuto No Ken machines while providing compensation for Net Sales sold more than 200,000 units. Meanwhile, operational losses. As a result of this, the Billions of yen overall unit sales declined 4.7% year on year, segment recognized an extraordinary loss of 250 to approximately 340,000 units, because ¥5.2 billion. We are strengthening our quality 200 we strategically postponed the marketing of control system to prevent recurrence. 150 certain titles until the current fiscal year. 100 We embarked upon fresh initiatives, such 50 as introducing the Dejiten series, which 0 FY 2012 Outlook and Strategy ’08 ’09 ’10 ’11 ’12 (plan) FY* incorporates innovative gameplay features. ■■ Net sales 212.0 235.0 Thanks partly to flexible pricing strategies Aiming to Advance Dramatically based upon enhanced brand power, the through Integrated Strengthening of Operating Income/Operating Margin Billions of yen % business recorded a 10.5% year-on-year the Group’s Competitiveness 80 40 increase in net sales, to ¥113.9 billion. Fiscal 2012 is likely to see an increasingly 60 30 In fiscal 2010, the Group’s pachinko marked division between winners and machines accounted for 11.8% of the mar- losers in competition among manufacturers 40 20 ket, up from the previous fiscal year’s as well as a continuing shift in demand 20 10 10.8%, while pachislot machines claimed from pachinko machines toward pachislot 0 0 ’08 ’09 ’10 ’11 ’12 (plan) FY* 30.9% of the market, compared with 21.3% machines. ■■ Operating income (left) 64.2 59.0 for the previous fiscal year. Amid these conditions, for the Pachislot Operating margin (right) 30.3 25.1 Consequently, the Pachislot and Pachinko and Pachinko Machine Business segment in Machine Business segment grew net sales the current fiscal year we expect a 10.8% Pachislot and Pachinko Machine Unit Sales 32.2% year on year, to ¥212.0 billion. year-on-year increase in net sales, to ¥235.0 Thousands of units % 500 100 Operating income was up 117.9%, to billion, and an 8.1% year-on-year decline in 400 80 ¥64.2 billion, and its operating margin operating income, to ¥59.0 billion. Our 300 60 improved significantly, up from the previous assumption is that the increase in revenues 200 40 fiscal year’s 18.4% to 30.3%. will come from higher unit sales in the 100 20 Underpinning the increase in operating pachinko machine business. We are project- 0 0 income and improved operating margin were ing lower earnings mainly due to concerns ’08 ’09 ’10 ’11 ’12 (plan) FY* the effect of higher volumes, an increase in over a rise in the cost of procuring core parts ■■ Pachinko machines (left) 343 455 Pachinko board sales ratio (right) 28.5 60.8 the proportion of sales that high-margin for which supply is unstable as a result of ■■ Pachislot machines (left) 302 290 * Years ended March 31 SEGA SAMMY HOLDINGS ANNUAL REPORT 2011 35 the earthquake. Because parts procurement is not likely to stabilize until the fall, we expect sales will be much brisker in the second half, particularly for Product Portfolio As of July 31, 2011 the pachislot machine business. Sammy’s Product Lineup – Powerful Brand Appeal By business, the pachislot machine business is HOKUTO NO KEN SERIES projecting decreases of 12,000 units in unit sales, Pachinko Machine to 290,000 units, and down 3.3% in net sales, to Cumulative unit sales ¥91.8 billion. The business is targeting 42,000 units thousand for the first half and 248,000 units for the second 680 units (3 series) half. We aim to meet this target by bringing main- stay titles to market in the second half, when part Pachislot Machine procurement has stabilized. Cumulative unit sales thousand As for the pachinko machine business, we aim 1,110 units to achieve increases of 111,0 0 0 units, to 455,000 Pachinko CR Hokuto No Ken Raoh Pachislot Hokuto No Ken (3 series) © Bronson & Tetsuo Hara / NSP1983, © Bronson & Tetsuo Hara units, and 21.7% in net sales, to ¥138.6 billion, by © NSP 2007 Approved No. SAF-308 © Sammy © Sammy releasing 15 titles including several mainstay titles. JUOH SERIES Also, we expect pachinko board sales as a percent- Pachinko Machine age of net sales will rise to 60.8%. Cumulative unit sales On August 1, 2011, TAIYO ELEC Co., Ltd., thousand units became a wholly owned subsidiary of Sammy Corpo- 120 (2 series) ration. Going forward, Sammy and TAIYO ELEC will Pachislot Machine collaborate more closely. This will entail joint parts Cumulative unit sales procurement, reducing manufacturing cost by adopt- thousand ing common machine cabinets, exchanges of devel- 260 units Pachinko CR Juoh Pachislot Juoh (2 series) opment personnel, and joint product development. © Sammy © Sammy We will maintain and grow the dominant market SOUTEN-NO-KEN SERIES share that the pachislot machine business enjoys Pachinko Machine by building a robust system for advancing our Cumulative unit sales multibrand strategy. At the same time, we will thousand elevate the position of the pachinko machine busi- 110 units (1 series) ness among market-leading companies. Pachislot Machine Cumulative unit sales thousand 90 units Pachinko SOUTEN-NO-KEN Pachislot SOUTEN-NO-KEN (1 series) © 2001 Bronson & Tetsuo Hara, © 2001 Bronson & Tetsuo Hara, Approved No.SAH-309 © Sammy Approved No.SAH-310 © Sammy ALADDIN SERIES Pachinko Machine Cumulative unit sales thousand 70 units (2 series) Pachislot Machine Cumulative unit sales thousand 420 Pachinko CR ALADDIN NEO Pachislot ALADDIN Evolution (5 series) Pachislot Shin Onimusha The Capital of Little Princess and Evil Spirit © Sammy © CAPCOM CO., LTD. ALL RIGHTS RESERVED. © Sammy © Sammy © RODEO 36 For Tomorrow Leading a Long-Term Market Development Operational Review Amusement Machine Sales Business This business segment aims to increase investment efficiency for amusement center operators in Japan and acquire stable long-term earnings for the Company. At the same time, it will step up initiatives to acquire new earnings sources overseas.