Earnings Presentation for the First Quarter of the Year Ending March 31, 2017: Company Briefing (Summary)

FIELDS CORPORATION held a financial presentation for the first quarter of the year ending March 31, 2017 in OTEMACHI 1st SQUARE CONFERENCE (Chiyoda-ku, Tokyo) on August 1, 2016 (Monday) at 11:30 am.
This page provides an overview of our explanation (summary) at the financial presentation.

Tetsuya Shigematsu, President & COO

1. Overview

President and COO Tetsuya Shigematsu

⇒Page 2 of Financial Presentation

Regarding our financial results for the first quarter, we achieved net sales of ¥15.2 billion and an ordinary loss of ¥3.2 billion. These results were in line with our projections.
Our cost reduction plan is progressing well, and we expect to see the benefits in the fiscal years ending March 31, 2018 and 2019.
In July, we decided to dissolve and liquidate NEXT ENTERTAINMENT CO., LTD. in order to raise the efficiency of Group management.

2. Summary of Results for the First Quarter of the Year Ending March 31, 2017 (Consolidated)

Consolidated P/L

⇒Page 4 of Financial Presentation

The table shows the consolidated P/L statement for the first quarter of the year ending March 31, 2017.
Our full-year forecast is unchanged from the original forecast made at the start of the fiscal year. We forecast full-year net sales of ¥115.0 billion and ordinary income of ¥2.0 billion.

Lineup of Main Pachinko and Pachislot Machines

⇒Page 5 of Financial Presentation

This chart shows our lineup of machines that have already been announced.
In the first quarter, we released 2 new pachinko titles and 3 new pachislot titles, with total quarterly sales of 36,000 units.
The third quarter marks the limit for removal and callback of pachinko machines with performance variance from testing machines, and this will be a major issue for us this fiscal year. In conjunction with this, our product sales will be concentrated in the second half of the year.

Consolidated B/S

⇒Page 6 of Financial Presentation

The table shows the consolidated B/S.
There was a decrease in notes and accounts receivable-trade associated with sales of pachinko/pachislot machines, as well as notes and accounts payable-trade. Aside from that, there are no points particularly worthy of note.

Consolidated cash flow

⇒Page 7 of Financial Presentation

The table shows the consolidated cash flow.
These results are in line with projections made at the start of the fiscal year, and there are no areas that exceeded our projections.

3. Current initiatives

Initiatives in year ending March 31, 2017

⇒Pages 9 of Financial Presentation

The mid- to long-term strategy is:
(1) Acquire and create leading IP, (2) Expand IP platforms to maximize value, and (3) Expand our market coverage and promote global business.
In the current fiscal year, we are concentrating our investments in IP that we expect to become major products in the comic, visual, live, game and license fields in the future. We are also collaborating with partners in and outside Japan to accelerate global business development.
In the pachinko and pachislot field, we continue to leverage our IP to create machines with superior gaming and entertainment elements.

Total IP and number of media development

⇒Pages 10 of Financial Presentation

This graph shows the total number of IP and number of media development.
Our total IP and number of media development continue to increase, and we also expect a steady increase in the number in the fiscal year ending March 31, 2018.

Progress on each business platform

⇒Page 11 of Financial Presentation

This shows our progress on each business platform.
For the comic field, we are expanding the HERO'S IP based on the “HERO'S Monthly” comic. In conjunction with this strategy, we are accelerating the number of titles available on e-book platforms in overseas markets.
In the visual field, we are collaborating with SVOD (Subscription Video On Demand) operators to focus on films with global potential. We are currently making progress on the development of “Ultraman Series,” “BERZERK,” and “GANTZ:O.”
For the live entertainment field, we are actively expanding live entertainment shows in Japan, mostly around Ultraman, and using that as a springboard for the development of shows overseas, mainly in Southeast Asia.
For the game field, we are ending service for games without the potential for profitability improvement and refocusing management resources on titles with profit potential.
For the license field, we are establishing new license business while also actively licensing out current IP both in and outside Japan.
In the pachinko and pachislot field, we are strengthening our product appeal, expanding services as a distributor, and promoting measures to increase fans.

Initiatives in the comic field

⇒Page 13 of Financial Presentation

In July, we issued the 8th volume of “ULTRAMAN,” published in our “HERO'S Monthly” series, with cumulative sales of the ULTRAMAN comic topping 2.2 million copies. In addition to comic development, we are preparing cross-media development, including visual development.
“Infini-T Force” (worked by Tatsunoko Production) and “ATOM THE BEGINNING” will become animated films in 2017.
In the e-book area, we have expanded distribution to 42 online bookstores in Japan, while we started distribution in China through China Mobile in March and through Kidstone in July. By expanding e-book distribution to new regions, we can attract new fans we haven't been able to reach in the past.

Initiative in visual field

⇒Pages 14 of Financial Presentation

“BERSERK” began TV broadcasts in Japan in July. Koei Tecmo will release “BERSERK MUSOU” in October. For both titles, we will continue cross-media development both in and outside of Japan.
“GANTZ:O” will debut in movie theaters in Japan in October. As with “BERSERK,” we are also making progress on cross-media development with this title.

Initiatives with Tsuburaya Productions

⇒Page 15 of Financial Presentation

The latest installment in the Ultraman series is “Ultraman ORB” broadcast from July. The broadcast slot has also changed to 9:00 am on Saturday, and this seems to have helped improve the recognition and popularity of Ultraman among 3-6 year-old viewers. We will continue to collaborate with partners to strengthen promotion. Crunchyroll is distributing films globally, while 4 companies, including iQIYI, are distributing in China. Overall, pageviews have increased over the same period of last year.
Besides “Ultraman ORB,” we have completed contracts with SVOD operators to create visuals of IP owned by Tsuburaya Productions. We are also expanding collaboration on games. We are licensing out Ultraman for “MONSTER STRIKE” and other native apps as part of initiatives to raise recognition of Ultraman.

Initiatives in the game/license field

⇒Pages 16 of Financial Presentation

For the game field, social network game “the TOWER of PRINCESS” has more than 1.5 million cumulative downloads. We launched TV commercials from July 22, and in the initial week the number of installs surged by about 20 times. “the SOUL of SEVENS” has achieved cumulative downloads of 500,000. The depreciation of R&D expenses will end this year, which will help improve profitability. We've also decided to license out the game to an Indian company.
For the license field, we are promoting “A MAN of ULTRA” as our conceptual brand. In recognition of its success, “A MAN of ULTRA” won the grand prize for the Japan Brand License Award 2016. Moving ahead, we'll promote the brand both in and outside Japan.

(Senior Managing Director Yoshida)

Initiatives in the pachinko/pachislot field (market environment)

Corporate Officer; Division Manager, Pachinko/Pachislot Business Management Division Ei Yoshida

⇒Page 17 of Financial Presentation

In the pachinko market, the end of this December is the deadline for removal and callback of machines with possible performance variance from test machines. As of the end of July, this applies to about 590,000 units.
Regarding new standard pachinko machines, their operating share and gross margin share are much higher than their installed share, reflecting their strong market reputation. Although machine sales for the January-June period declined 30% year-on-year to 690,000 units (based on Fields research), the new standard pachinko machines are contributing to hall operations, and therefore halls are positive about adopting more of the machines in the future.
In the pachislot market, the new standard pachislot machines are generating smaller contributions to operating share and gross margin share, and sales are sluggish. For pachislot machines, the gaming aspect is important, and it generally takes about a year to get support from users. Right now, it appears that the product appeal of game machines is catching up to user needs, both for us and game machine manufacturers.
Ahead of the transition to the new standard (version 5.9 machines) scheduled for September 2017, we are currently making preparations to transition to 5.9 machines in tandem with allied manufacturers.

Initiatives in the pachinko/pachislot field (future sales strategy)

⇒Page 18 of Financial Presentation

This slide shows our product lineup for the second and third quarters.
Sales of “CR TEKKEN 2 Toushin ver” and “DEVIL MAY CRY X,” which will be released in the second quarter, are exceeding our original plan. We are now conducting sales of pachislot machine “LOAD of VERMILLION” to be released in the third quarter. Regarding the removal and callback by the end of December, we are making preparations to prepare an ideal lineup at an optimal timing.