FIELDS CORPORATION held a financial presentation for the Q3 of the FY2017 at the E-Space Tower (Shibuya-ku, Tokyo) on February 8, 2018 (Thursday) at 11:30 am.
This page provides our explanation (summary) at the financial presentation.
1. Summary of consolidated financial results for the Q3 of the FY2017
⇒Page 2 of Financial Presentation
A summary of results for the Q3 of the FY2017 is set forth in the materials.
In the PS market, model certification test applications under the former regulation increased sharply with the February 1, 2018 amendment of the Act Regulating Adult Entertainment Businesses Enforcement Regulations. As a result, the situation is such that testing cannot be performed because of a lottery for accepted applications or testing will be performed but the testing period will be extended. In our PS business platform, we submitted applications for multiple PS machines to secure machines in the Q4 and the subsequent periods, but there were effects from some of the testing being delayed.
In the cross-media business platform, visual development of titles that we began acquiring several years ago has started, and we are simultaneously undertaking various measures including game, PS, and merchandising development.
⇒Page 3 of Financial Presentation
The table shows the consolidated P/L.
During the first three quarters (April to December), net sales rose by 2.6 billion yen to 45.2 billion yen and operating loss improved by 3.7 billion yen to 3.6 billion yen. These results were generally in line with plans.
In the Q3 (October to December), 2 titles of PS machines were sold, and cumulative sales were 146,000 units, up 16,000 units YoY.
⇒Page 4 of Financial Presentation
IP business net sales and gross profit by platform are as shown in the diagram.
In the first three quarters, the PS business platform increased its composition ratio of net sales and gross profit in the overall breakdown, as was the case during the same period of the previous year.
In the breakdown of net sales, the PS business platform accounted for 78.7% and the cross-media business platform accounted for 13.9%. In breakdown of gross profit, the PS business platform accounted for 78.9% and the cross-media business platform accounted for 15.8%.
⇒Page 5 of Financial Presentation
Changes in SG&A expenses are as shown in the graph.
During the first three quarters, SG&A expenses decreased 3.1 billion yen YoY to 14.3 billion yen as a result of progress in improving management efficiency and other factors.
We made necessary investments in advertising expenses, but the amount decreased by 1.6 billion yen YoY to 1.5 billion yen. We expect SG&A expenses to decline next term as we develop a structure that is able to generate profits more easily.
⇒Page 6 of Financial Presentation
The ordinary profit (loss) base YoY comparison is as shown in the diagram.
During the first three quarters, ordinary loss improved by 4.0 billion yen YoY to 3.8 billion yen.
In the PS business platform, gross profit increased by 600 million yen as a result of increased sales volume and contributions by the development subsidiaries.
In the cross-media business platform, gross profit declined because of delays releasing games and discontinuation of services, but the overall decrease in gross profit was limited to 100 million yen as a result of contributions by the visual production subsidiaries and other factors.
IP investment in the cross-media business platform breakdown is basically depreciation expense and includes IP investment expenses relating to PS.
⇒Page 7 of Financial Presentation
Consolidated B/S and C/F are as shown in the chart.
We steadily sold idle assets and other assets and stabilized cash flows.
2. Consolidated performance forecast for the FY2017
⇒Page 8 of Financial Presentation
The consolidated performance forecast for the year is as indicated in the table.
There are no changes to the outlook for the fiscal year, but in the PS business platform, some titles planned to be sold this year are undergoing model certification testing. If any changes are made to the sales plan in the future, we will release an updated performance forecast.
3. Progress of the Medium-term Management Plan
⇒Page 9 of Financial Presentation
Measures to achieve the three-year Medium-term Management Plan are as follows.
Overall, progress is being made in accordance with the plan. In the PS business platform, we are stabilizing the product lineup with partner manufacturers, developing a business structure that is not adversely affected by changes in the market environment, and implanting various measures for the provision of solutions other than sale of PS machines. In the cross-media business platform, we are reinforcing the IP lineup and generating profits from IP in which we invested while taking action on future acquisitions. With regard to overall management creation of an integrated system that incorporates processes from information gathering the product provision is progressing steadily for the reconstruction of our business value chain.
⇒Page 10 of Financial Presentation
The IP lineup in the FY2017 is as shown in the diagram.
Through the Q3, we implemented visual adaptations of 6 IP.
With regard to “DARLING in the FRANXX,” “KILLING BITES,” and “BEATLESS,” we are recovering the production costs by distribution in Japan and overseas, and aiming to generate further revenue by overseas game development.
⇒Page 11 of Financial Presentation
The status of ROI for main IP is as shown in the diagram.
The investment sections are as follows: IP with investment of less than 100 million yen is “Ⅰ”; investment of 100 million yen to less than 500 million yen is “Ⅱ”; investment of 500 million yen to less than 1 billion yen is “Ⅲ”; and investment of 1 billion yen or more is “Ⅳ.”
Through the Q3, the IP-ROI for “BERSERK” was 207%. The IP-ROI for “GANTZ” is currently about 100%, but with the deployment of PS machines in the 4Q and later, ROI is expected to substantially exceed 100%.
Going forward, we are aiming for overall IP-ROI of at least 130%.
4. Topics for the Q3 of the FY2017
◊ FIELDS related IP × Visual business platform 1
⇒Page 12 of Financial Presentation
Measures regarding FIELDS related IP × Visual business platform are as indicated in the materials.
As explained earlier, we expect to recover production costs for the 3 titles indicated through domestic and international distribution and so on.
With regard to “DARLING in the FRANXX,” the Company is the contact for game development rights and PS machine development rights. We are currently looking into whether we will license out the game rights or conduct joint business development. We have already received offers from multiple companies for PS machines, and we believe that deployment several years in the future will be beneficial.
“KILLING BITES” is a serial work that runs in the HERO’S Monthly published by the FIELDS Group company, and we own the rights to the original work. Sales of individual books have already nearly doubled, and we are considering game and other development.
“BEATLESS” is jointly owned by KADOKAWA CORPORATION and FIELDS. It has been extremely well received in China, and we plan to increase profits through game development and other means in China and globally.
◊ FIELDS related IP × Visual business platform 2
⇒Page 13 of Financial Presentation
Planned future measures regarding FIELDS related IP × Visual business platform are as indicated in the materials.
“SWORDGAI The Animation” is a serial work that runs in the HERO’S Monthly. Simultaneous global distribution on Netflix is scheduled to begin in March 2018. We will endeavor to recover production costs through distribution while expanding profits through development of PS machines and other means.
“UTLRAMAN” is a serial work that runs in the HERO’S Monthly. Full 3D CG animation is planned for 2019. Next year, we will implement a variety of measures to generate revenue in tandem with visual development.
The rights to the original work of “SSSS. GRIDMAN” are owned by Tsuburaya Productions Co., Ltd., a FIELDS Group company, and it is a joint project with Trigger Inc. It is accumulating profits through product commercialization in Japan and overseas.
◊ AKB48 × Game business platform
⇒Page 14 of Financial Presentation
Measures regarding AKB48 × Game business platform are as set forth in the materials.
Distribution of “AKB48 StageFighter2” began in October 2017, and pre-registration of “AKB48 DICE CARAVAN” began in December 2017. AKB48 related games remain positive with regard to profits.
We are investigating game development using these game engines for IP other the “AKB48” in the future.
◊ Ultraman Series × Visuals and live business platform
⇒Page 15 of Financial Presentation
Measures regarding Ultraman Series × Visuals and live business platform are as set forth in the materials.
Tsuburaya Productions Co., Ltd. which owns the “Ultraman Series,” has steadily improved and expanded profits since it participated in the FIELDS Group. The television series and live events indicated in the materials exceeded results from the previous year.
Tsuburaya Productions has been developing a new medium-term plan since Takayuki Tsukagoshi became president in August 2017, but there are no changes to its fundamental direction, and its policy remains to develop the “Ultraman Series” into a major IP through invigoration of domestic business and development of global business.
◊ Product lineup Q1-Q3
⇒Page 16 of Financial Presentation
The FIELDS product lineup through the Q3 is as shown in the materials.
In the first three quarters, sales of one pachinko machine title were 69,000 units and sales of 16 pachislot machine titles were 77,000 units. The sales periods of some titles were delayed because they are undergoing model certification testing, but despite this, sales of PS machines previously launched were generally in line with plans.
◊ Trends in PS market (PS machines sales market)
⇒Page 17 of Financial Presentation
Trends in PS machine market are as shown in the graph.
From January to December 2017, according to FIELDS investigations, sales of pachinko machines decreased by 14.8% YoY to 1,440,000 units and sales of pachislot machines decreased by 11.9% YoY to 740,000 units.
The sales market forecast for 2018 is that sales of pachinko machines will remain flat or decrease slightly from 2017. Demand for pachislot machines is expected to be about 700,000 units in light of the number of pachinko halls and the number of machines installed, but the sales status of regulation 6.0 machines and high-stakes machines is uncertain, making it difficult to make a definite statement at this time.
◊ Trend in PS market (status of model certification test)
⇒Page 18 of Financial Presentation
The states of model certification test by Security Communications Association is as set forth in the graph.
As a result of an increase in the number of applications in conjunction with regulation changes, the number received in 2017 reached record highs for both pachinko and pachislot machines. In addition, the passing test ratio was down sharply, and the testing period has become longer including situations where it can take two months or even longer for release of results.
◊ Reference: States of the pachislot 5.9 machines market
⇒Page 19 of Financial Presentation
Trends in the regulation 5.9 pachislot machines market are as shown in the materials.
With regard to compared to the regulation 5.9 machine ART type, we believe that we have responded adequately. In particular, sales of the “PACHISLOT BLACK LAGOON3,” which was released in the Q3, exceeded 7,000 units, and among regulation 5.9 machine, it is especially contributing to operations. We believe that this title has reached the level that sales as a series machine should be planned.
◊ Recent trend of regulations
⇒Page 20 of Financial Presentation
Recent regulatory trends are as shown in the table.
A particularly noteworthy matter in conjunction with 2018 regulatory amendments is a change in pachislot internal regulation.
Compared to regulation 5.9 machine, regulation 6.0 machines have lower ball output ratios, and game aspects and methods of expression have greatly expanded as a result of changes of internal regulation. Based on a historical perspective of the change from regulation 4.0 machines to regulation 5.0 machines, however, it will likely take some time for regulation 6.0 machines to be well received in the market. Consequently, we plan to respond adequately to Regulation 5.9 machines while proceeding with preparations for regulation 6.0 machines.
◊ Future objectives
⇒Page 21 of Financial Presentation
Our future plans are as described in the materials.
Sales of PS machines including machines that are currently in operation are generally in lines with plans. Some machines that we planned to sell this year are undergoing model certification test, but if it becomes possible to sell these machines, we expect the sales numbers to increase.
It is difficult to make a specific announcement regarding the PS solution at this time, but we are currently taking action in preparation for next year. We are planning several businesses with gross profit of 1 billion yen or more, and we hope to make an announcement at the next briefing.
Going forward, we will continue to acquire leading IP, make proposals for good product plans to manufacturers, and sell large volumes of products while striving to provide a variety of products that will please pachinko halls.
*PS: pachinko and pachislot