Fields Corporation (2767)
Transcription
Fields Corporation (2767)
SR Research Report 2015/4/30 Fields Corporation (2767) Shared Research Inc. has produced this report by request from the company discussed in the report. The aim is to provide an “owner’s manual” to investors. We at Shared Research Inc. make every effort to provide an accurate, objective, and neutral analysis. In order to highlight any biases, we clearly attribute our data and findings. We will always present opinions from company management as such. Our views are ours where stated. We do not try to convince or influence, only inform. We appreciate your suggestions and feedback. Write to us at [email protected] or find us on Bloomberg. Fields Corporation (2767) SR Research Report 2015/4/30 Contents Recent updates ......................................................................................................... 4 Highlights .............................................................................................................. 4 Trends and outlook ................................................................................................ 5 Business ................................................................................................................. 14 Summary ............................................................................................................ 14 Business description ............................................................................................. 14 Market and value chain ........................................................................................ 23 Strategy .............................................................................................................. 26 Historical financial statements .................................................................................. 27 Summary ............................................................................................................ 27 Income statement ................................................................................................ 32 Balance sheet ...................................................................................................... 34 Cash flow statement ............................................................................................ 35 Other information .................................................................................................... 36 History ................................................................................................................ 36 News and topics .................................................................................................. 37 Top management ................................................................................................. 39 Employees ........................................................................................................... 39 Major shareholders .............................................................................................. 40 Shareholder returns ............................................................................................. 41 Investor relations ................................................................................................. 41 By the way ............................................................................................................. 41 Company profile................................................................................................... 42 http://www.sharedresearch.jp/ Copyright (C) 2013 Shared Research Inc. All Rights Reserved 2/43 Fields Corporation (2767) SR Research Report 2015/4/30 Income Statement (JPYmn) Sales YoY FY03/08 FY03/09 FY03/10 Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Est. 101,818 73,035 66,342 103,593 92,195 108,141 114,904 99,554 120,000 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 19.3% -28.3% -9.2% 56.1% -11.0% 17.3% 6.3% -13.4% 20.5% Gross Profit 34,544 24,024 26,889 35,129 31,330 33,279 33,812 28,468 - GPM 33.9% 32.9% 40.5% 33.9% 34.0% 30.8% 29.4% 28.6% - 21,385 22,063 18,764 21,993 22,803 22,964 24,020 23,724 - 13,158 1,960 8,124 13,136 8,527 10,314 9,791 4,743 6,000 YoY 47.1% -85.1% 314.5% 61.7% -35.1% 21.0% -5.1% -51.6% 26.5% OPM 12.9% 2.7% 12.2% 12.7% 9.2% 9.5% 8.5% 4.8% 5.0% 11,705 991 7,761 13,684 8,661 10,268 9,765 5,491 6,500 YoY 27.2% -91.5% 683.1% 76.3% -36.7% 18.6% -4.9% -43.8% 18.4% RPM 11.5% 1.4% 11.7% 13.2% 9.4% 9.5% 8.5% 5.5% 5.4% 5,296 -1,481 3,289 7,520 5,991 4,720 5,370 3,018 3,500 42.7% - - 128.6% -20.3% -21.2% 13.8% -43.8% 16.0% 347 216.7 1,408.5 50.0 347 172.7 1,539.0 50.0 34,700 142.3 1,644.2 50.0 34,700 161.8 1,756.3 50.0 34,700 91.0 1,792.8 60.0 SG&A Operating Profit Recurring Profit Net Income YoY Per Share Data (JPY, Thousand Shares, After Stock Split Adjustments) 347 15,262.2 128,201.5 4,500.0 347 -42.7 1,173.3 45.0 347 94.8 1,236.5 45.0 Cash & Securities 12,841 11,181 15,916 15,873 18,344 23,314 29,583 15,823 Accounts Receivable 12,354 4,324 33,088 27,948 34,402 42,017 29,155 45,888 4,013 963 1,519 1,357 3,134 2,343 3,133 1,736 Total Current Assets 39,559 25,135 56,694 51,051 62,811 72,709 66,921 71,014 Total Assets Number of Shares FY End EPS Book Value Per Share Dividend Per Share 105.5 50.0 Balance Sheet (JPYmn) Inventory 69,168 52,064 81,329 78,971 93,601 106,628 104,869 110,316 Accounts Payable 5,954 1,981 26,610 17,939 29,100 36,604 33,105 33,850 Interest-Bearing Debt 5,006 3,011 2,230 1,834 1,507 1,052 742 4,064 Total Liabilities 22,836 12,568 40,141 31,949 42,046 51,529 46,116 50,070 Shareholders' Equity 44,795 40,420 41,741 47,601 51,895 54,957 58,670 60,171 Net Debt -7,835 -8,170 -13,686 -14,039 -16,837 -22,262 -28,841 -11,759 Working Capital 10,413 3,306 7,997 11,366 8,436 7,756 -817 13,774 Cash Flow Statement (JPYmn) Operating Cash Flow 11,127 4,147 8,429 8,005 10,015 13,570 16,322 -9,086 Investment Cash Flow -14,604 -6,182 -1,011 -4,356 -4,798 -6,263 -8,018 -6,297 -1,384 602 -2,687 -3,915 -2,565 -2,277 -2,018 1,624 Financial Cash Flow Financial Ratios ROA 17.3% 1.6% 11.6% 17.1% 10.0% 10.3% 9.2% 5.1% ROE 11.9% -3.5% 8.2% 17.1% 12.2% 8.9% 9.5% 5.1% Equity Ratio 64.8% 77.6% 51.3% 60.3% 55.4% 51.5% 55.9% 54.5% Source: Company data Figures may differ from company materials due to differences in rounding methods. http://www.sharedresearch.jp/ Copyright (C) 2013 Shared Research Inc. All Rights Reserved 3/43 Fields Corporation (2767) SR Research Report 2015/4/30 Recent updates Highlights On April 30, 2015, Fields Corporation announced full-year earnings results for FY03/15; see the results section for details. On the same day, the company announced a revision to its dividend forecast (a special dividend commemorating the company’s listing on the First Section of the Tokyo Stock Exchange). On April 14, 2015, the company moved to the First Section of the TSE. It now plans to issue a special year-end dividend of JPY10 per share commemorating this event. Together with an ordinary dividend of JPY25, the total year-end dividend will be JPY35, meaning the company is forecasting a full-year dividend per share of JPY60. On April 7, 2015,the company announced its listing on the First Section of the Tokyo Stock Exchange. The Tokyo Stock Exchange has granted the company approval to change its listing. On April 14, 2015, Fields will move from TSE JASDAQ (Standard) to the First Section of the Tokyo Stock Exchange. On March 4, 2015, the company updated the report after interviewing management; see the results section for details. On February 3, 2015, the company announced that nationwide sales have begun for Pachinko Ultra Battle Retsuden, a new pachinko machine manufactured by OK Co., Ltd. The new machine is scheduled to be installed in pachinko halls beginning in March 2015. For corporate releases and developments more than three months old, please refer to the News and topics section. http://www.sharedresearch.jp/ Copyright (C) 2013 Shared Research Inc. All Rights Reserved 4/43 Fields Corporation (2767) SR Research Report 2015/4/30 Trends and outlook Quarterly trends and results Quarterly Performance (cml) (JPYmn) Sales YoY Gross Profit YoY GPM SG&A Expenses YoY SG&A / Sales Operating Profit YoY OPM Recurring Profit YoY RPM Net Income YoY NPM Quarterly Performance (JPYmn) Sales YoY Gross Profit YoY GPM SG&A Expenses YoY SG&A / Sales Operating Profit YoY OPM Recurring Profit YoY RPM Net Income YoY NPM Q1 5,748 -72.8% 2,027 -63.6% 35.3% 5,856 10.9% 101.9% -3,829 -3,759 -2,290 Q1 5,748 -72.8% 2,027 -63.6% 35.3% 5,856 10.9% 101.9% -3,829 -3,759 -2,290 - FY03/14 Q2 Q3 36,385 54,204 25.0% 13.5% 13,648 19,357 54.7% 28.5% 37.5% 35.7% 11,471 17,320 7.4% 6.8% 31.5% 32.0% 2,176 2,036 6.0% 3.8% 2,144 2,066 5.9% 3.8% 1,434 1,227 3.9% 2.3% FY03/14 Q2 Q3 30,637 17,819 284.3% -4.3% 11,621 5,709 256.7% -8.5% 37.9% 32.0% 5,615 5,849 3.9% 5.7% 18.3% 32.8% 6,005 -140 19.6% 5,903 -78 19.3% 3,724 -207 12.2% - Q4 114,904 6.3% 33,812 1.6% 29.4% 24,020 4.6% 20.9% 9,791 -5.1% 8.5% 9,765 -4.9% 8.5% 5,370 13.8% 4.7% Q1 7,459 29.8% 2,790 37.6% 37.4% 5,300 -9.5% 71.1% -2,509 -2,254 -1,502 - Q4 60,700 0.5% 14,455 -20.6% 23.8% 6,700 -0.7% 11.0% 7,755 -32.4% 12.8% 7,699 -31.5% 12.7% 4,143 -23.2% 6.8% Q1 7,459 29.8% 2,790 37.6% 37.4% 5,300 -9.5% 71.1% -2,509 -2,254 -1,502 - FY03/15 Q2 Q3 20,341 29,317 -44.1% -45.9% 6,920 10,513 -49.3% -45.7% 34.0% 35.9% 10,998 17,113 -4.1% -1.2% 54.1% 58.4% -4,077 -6,599 -4,072 -5,633 -2,509 -3,215 FY03/15 Q2 Q3 12,882 8,976 -58.0% -49.6% 4,130 3,593 -64.5% -37.1% 32.1% 40.0% 5,698 6,115 1.5% 4.5% 44.2% 68.1% -1,568 -2,522 -1,818 -1,561 -1,007 -706 - Q4 99,554 -13.4% 28,468 -15.8% 28.6% 23,724 -1.2% 23.8% 4,743 -51.6% 4.8% 5,491 -43.8% 5.5% 3,018 -43.8% 3.0% FY03/15 % of FY FY Est. 99.6% 100,000 -13.0% 94.9% 5,000 -48.9% 109.8% 5,000 -48.8% 120.7% 2,500 -53.4% Q4 70,237 15.7% 17,955 24.2% 25.6% 6,611 -1.3% 9.4% 11,342 46.3% 16.1% 11,124 44.5% 15.8% 6,233 50.4% 8.9% Source: Company data Figures may differ from company materials due to differences in rounding methods Company estimates are the most recent released figures. http://www.sharedresearch.jp/ Copyright (C) 2013 Shared Research Inc. All Rights Reserved 5/43 Fields Corporation (2767) SR Research Report 2015/4/30 Pachinko/pachislot machine sales Pachinko/pachislot machine sales (cml) FY03/14 (units) Q1 Pachinko/pachislot machines 18,502 YoY 171,905 -71.4% Total pachinko machines 12,842 YoY YoY 231,636 35.6% 139,004 135.5% 5,560 61,529 -87.3% Titles Q3 70.0% 110,276 -38.6% Total pachislot machines FY03/15 Q2 76.7% 92,532 13.4% 0.4% Q4 392,982 19.8% 162,879 62.9% 230,003 0.8% Q1 44,197 Q2 102,119 138.9% 38,540 200.1% 5,657 1.7% -40.6% 73,910 -33.0% 28,209 -54.2% Q3 -33.7% 118,134 -15.0% 35,381 -61.8% 1 5 7 13 1 2 3 Pachinko 1 3 4 6 1 1 2 Pachislot - 2 3 7 - 1 1 Pachinko/pachislot machine sales (quarterly) FY03/14 (units) Q1 Pachinko/pachislot machines 18,502 YoY -71.4% Total pachinko machines 322.4% 12,842 YoY 97,434 -38.6% Total pachislot machines 276.3% 5,560 YoY 55,969 -87.3% Titles FY03/15 Q2 153,403 437.2% Q4 153,515 Q3 59,731 -14.3% 28,728 -9.7% 31,003 -18.2% Q4 161,346 2.6% 23,875 11.8% 137,471 1.1% Q1 44,197 138.9% 38,540 200.1% 5,657 1.7% Q2 57,922 -62.2% 35,370 -63.7% 22,552 -59.7% Q3 Q4 51,396 -14.0% 44,224 53.9% 7,172 -76.9% 1 4 2 6 1 1 1 Pachinko 1 2 1 2 1 - 1 Pachislot - 2 1 4 - 1 - Source: supplementary company data on earnings Pachinko/pachislot market trends FY03/14 Market trends (cml.) (units) FY03/15 Q1 Q2 Q3 Q4 Q1 Q2 Q3 86.0 181.9 286.1 366.4 82.7 176.0 267.7 -21.9% -12.5% -9.8% -9.6% -3.8% -3.2% -6.4% 51.0 114.1 180.8 225.8 51.1 111.4 178.9 YoY -30.0% -19.6% -13.5% -15.2% 0.2% -2.4% -1.1% 35.0 67.8 105.3 140.6 31.6 64.6 88.8 YoY -5.9% 2.9% -2.8% 1.4% -9.7% -4.7% -15.7% Total pachinko/pachislot machines YoY Pachinko Pachislot FY03/14 Market trends (quarterly) (units) FY03/15 Q1 Q2 Q3 Q4 Q1 Q2 Q3 86.0 95.9 104.2 80.3 82.7 93.3 91.7 -21.9% -1.8% -4.8% -8.5% -3.8% -2.7% -12.0% 51.0 63.1 66.7 45.0 51.1 60.3 67.5 YoY -30.0% -8.6% -0.6% -21.6% 0.2% -4.4% 1.2% 35.0 32.8 37.5 35.3 31.6 33.0 24.2 YoY -5.9% 14.3% -11.6% 16.1% -9.7% 0.6% -35.5% Total pachinko/pachislot machines YoY Pachinko Pachislot Q4 Q4 Source: Fields earnings briefing session materials ("Market conditions of pachislot sales" and "Market conditions of pachinko sales.") FY03/15 results Sales: Operating profit: Recurring profit: Net profit: JPY99.6bn (-13.4% YoY) JPY4.7bn (-51.6% YoY) JPY5.5bn (-43.8% YoY) JPY3.0bn (-43.8% YoY). In the amusement machine sales business, Fields pursued a range of sales strategies as it looked to grow sales of pachinko machines featuring leading intellectual property (IP). As a result, the company sold http://www.sharedresearch.jp/ Copyright (C) 2013 Shared Research Inc. All Rights Reserved 6/43 Fields Corporation (2767) SR Research Report 2015/4/30 302,000 pachinko machines (+139,000 YoY), backed by contributions from a variety of different types of machine, including CR Evangelion 9. Sales of three new pachislot slot machines, including Pachislot BERSERK, also all outperformed targets. The launches of five new pachislot machines scheduled for this year, however, were delayed until FY03/16 owing to new testing protocols introduced in September 2014. As a result, the company sold 97,000 pachislot machines (-132,000 YoY). Overall, the company sold 399,000 amusement machines during the year (+6,000 YoY). Developments in Fields’ IP are as follows: The company continued focusing on creating IP via the comic Heroes Monthly, and developing visual content for the IP in this comic. It also decided to go ahead with the use of IP in video games, and pachinko and pachislot machines. The Ultraman series generated stable revenues as the company deployed this IP across a range of media. It continued broadcasting a TV series and premiered a new movie, while growing sales of TV and movie tie-in products. In addition, overseas, the company sold existing movie products and planned new movie products, while also holding events at complex facilities. The company also planned, produced, and premiered a new live action show based on the Ultraman series that allows that audience to experience the action. It plans to expand this production overseas. In social games, Fields made its operation and development framework more efficient, and focused on improving the quality of its titles. In particular, it added new content and used real-life events to enhance titles featuring the AKB48 brand. The company also steadily released new smartphone game apps with exciting gameplay and appealing characters. Q3 FY03/15 results Sales: Operating loss: Recurring loss: Net loss: JPY29.3bn (-45.9% YoY) JPY6.6bn (operating profit of JPY2.0bn in Q3 FY03/14) JPY5.6bn (recurring profit of JPY2.1bn in Q3 FY03/14) JPY3.2bn (net profit of JPY1.2bn in Q3 FY03/14) During Q3 FY03/15, Fields booked sales of 118,134 pachinko machines (-20,870 YoY) and 35,381 pachislot machines (-57,251 YoY), demonstrating lower total unit sales year-on-year. Due to changes to its initial sales schedule, Fields sold one type of pachinko machine during the October-December quarter, CR ayumi hamasaki 2. (During the same period of the previous year, the company sold one type of pachinko machine and one type of pachislot machine.) During cumulative Q3 (April-December), the company sold two types of pachinko machines, compared to four types during cumulative Q3 FY03/14. In pachislot machines, the company sold one type of machine, as opposed to three types during the April-December period in 2014. During Q4 (January-March 2015), Fields is scheduled to sell three types of pachinko machines and two types of pachislot machines. In pachinko, the company plans to offer CR Evangelion 9, CR Batman, and Pachinko Ultra Battle Retsuden. CR Evangelion 9, which was introduced in December 2014, has sold over 100,000 units; the company will book these sales in Q4. Pachinko Ultra Battle Retsuden is the successor to a machine that sold around 80,000 units. Fields expects to sell even more of this new version, due to its favorable reception at pachinko halls and positive sales timing. In pachislot, sales are planned to include Salaryman Kintaro: Shusse Kaido-hen, which was launched in January 2015, and Pachislot BERSERK. Fields’ initial plan was to sell four types of pachinko machines and eight types of pachislot machines during the full year of FY03/15, but its currently anticipated number of pachislot machines is down due to a September 2014 change to its testing methodology. During the full year, the company now expects sales of five types of pachinko machines and three types of pachislot http://www.sharedresearch.jp/ Copyright (C) 2013 Shared Research Inc. All Rights Reserved 7/43 Fields Corporation (2767) SR Research Report 2015/4/30 machines, with sales of around 40,000 units for Salaryman Kintaro: Shusse Kaido-hen, as well as a few tens of thousands of units for Pachislot BERSERK. However, sales results exceeded initial company forecasts during cumulative Q3, owing to effective sales activities. Variety in machine types is also planned to be higher than planned in the future. As a result, although there have been changes to the sales schedule and product lineup, Fields has not changed its full-year earnings forecasts. Developments in the company’s IP are as follows: Heroes Monthly—which is intended as a springboard for new IP—has entered its fourth year of publication, and has published 49 different works. Of these, seven have begun to develop visual content, and cross-media initiatives to span games, movies, pachinko, and pachislot are in progress. At Tsurubaya Productions, the company moved to expand its fan base for the Ultraman series by connecting with fans both domestically and abroad, as part of measures to develop and increase profitability of IP. In Japan, Fields attempted to capture the family market by continuous airing of a television series, in addition to the scheduled release of a feature film in March 2015. The stage production Ultra Heroes THE LIVE: Acrobattle Chronicle is planned to begin performances in March 2015, and Fields also plans to launch this performance overseas._The company is aggressively promoting the Ultraman series overseas, and Fields expects Tsurubaya Productions to deliver total sales increases from FY03/16 onward. In social games, the company launched new content and held fan events to leverage the AKB48 title. In September 2014, Fields also launched KOTOKOTO—The World of Words, which uses the company’s IP. The social game got off to a solid start, being downloaded more than 1 million times in the first three months post-launch, but the company plans to reinforce its billing mechanisms for revenue generation. The October-December quarter also saw the launch of one new game title, which makes use of new animated content. 1H FY03/15 results Sales: Operating loss: Recurring loss: Net loss: JPY20.3bn (-44.1% YoY) JPY4.1bn (operating profit of JPY2.2bn in 1H FY03/14) JPY4.1bn (recurring profit of JPY2.1bn in 1H FY03/14) JPY2.5bn (net profit of JPY1.4bn in 1H FY03/14) Fields sold fewer pachinko and pachislot machines year-on-year: in 1H FY03/15, it booked sales of 73,910 pachinko machines (-36,366 YoY) and 28,209 pachislot machines (-33,420). This was due in part to the company offering fewer titles compared to the previous year. Only one pachinko machine title was sold during 1H FY03/15, compared to the previous year, when the company introduced three titles (including the introduction of Evangelion 8, manufactured by Bisty Co.). Similarly, the company sold one pachislot title (Pachislot Sengoku BASARA 3, manufactured by Enterrise Co.) in 1H—compared to the two types sold the previous year—because sales of the Salaryman Kintaro: Shusse Kaido-hen machine type were rescheduled from 1H to 2H FY03/15. Sales by product in pachinko machines included about 29,000 units sold of Pachinko Onimusha: Dawn of Dreams (manufactured by OK Co., Ltd. and on sale since Q4 FY03/14) and 20,000 units sold of CR Evangelion 8 Extreme Battle (manufactured by Bisty Co. and on sale since July 2014). In pachislot machines, Pachislot Sengoku BASARA 3 (manufactured by Enterrise Co. and on sale since August 2014) sold about 19,000 units. http://www.sharedresearch.jp/ Copyright (C) 2013 Shared Research Inc. All Rights Reserved 8/43 Fields Corporation (2767) SR Research Report 2015/4/30 The total number of units sold in the pachinko industry between the months of April and September 2014 was 1.1mn units (-2.4% YoY), and the number of pachislot units sold was 0.6mn units (-4.6%), for a total of 1.8mn units (-3.2%) of amusement devices sold (source: company data). According to the company, growth in the amusement device market is flat year-on-year. Although sales and profits are down year-on-year for amusement devices, progress toward targets is steady in interactive media (such as social games) and consumer products. Changes in operating profit were influenced by the factors below: Sales and profits were down in amusement machines due to lower sales volume. The company focused on product R&D in cooperation with subsidiaries to secure a solid future product lineup. In consumer products, Fields established a stable revenue structure at Tsuburaya Productions, which manages the Ultraman IP. Results were in line with the previous year, which marked the 50th anniversary of the Ultraman franchise. In interactive media, existing social games produced robust results, matching performance set during 1H FY03/14. The company released an app using original IP Kotokoto—Rasetsu to Kotodama no Kuni in September 2014. The game outperformed expectations; it hit the ground running with over 500,000 downloads within the first three weeks of its release. On an operational level, Fields is working to concentrate resources on profitable titles while discontinuing titles that are not producing desired results in an effort to achieve higher profitability. The company continued to devote significant resources to comic, animation, and movie/television productions featuring characters and stories based on its IP portfolio, which is currently a driver for growth. Five of the comic series from the Hero’s Monthly comic magazine are being prepared for theaters and television beginning in FY03/16. Besides creating the script for the SOUL ReVIVER television series for Hollywood (US) in July 2014, the company also began developing a cartoon based on the comic, “Sword Guy Katana.” The company is also developing many multi-media IPs based on television series and novels other than those from Hero’s Monthly. For example, “Appleseed Alpha,” a cartoon created with a US partner firm, continued to run in North America, and a premium screening took place at the Tokyo International film festival in October, 2014. It will be available in domestic theaters in January 2015. Q1 FY03/15 results Sales: Operating loss: Recurring loss: Net loss: JPY7.5bn (+29.8% YoY) JPY2.5bn (operating loss of JPY3.8bn in Q1 FY03/14) JPY2.3bn (recurring loss of JPY3.8bn in Q1 FY03/14) JPY1.5bn (net loss of JPY2.3bn in Q1 FY03/14). Fields booked sales of new pachinko machine Pachinko Onimusha: Dawn of Dreams, launched in Q4 FY03/14. There were no new pachislot launches, and instead sales were centered on machines that were part of a series, such as CR TEKKEN LIGHT VERSION and Pachinko Onimusha: Dawn of Dreams Light Version. Total machines sold were 44,197 (+25,695 YoY), broken down as follows: Pachinko: approximately 38,540 units (+25,698) Pachislot: approximately 5,657 units (-3). Pachinko Onimusha: Dawn of Dreams also contributed to total machines sold, with sales of about 29,000 units (bringing the cumulative figure up to 33,000). http://www.sharedresearch.jp/ Copyright (C) 2013 Shared Research Inc. All Rights Reserved 9/43 Fields Corporation (2767) SR Research Report 2015/4/30 Total pachinko and pachislot machines sold across the market between April and June 2014 were about 827,000 units (-3.8% YoY), broken down as follows (source: company data): Pachinko: 511,000 units (+0.2%) Pachislot: 316,000 units (-9.7%). According to the company, the pachislot and pachinko machine market was mostly flat year-on-year. Fields is aiming for sustainable long term growth by focusing on intellectual property (IP), including characters. This means maximizing the value of IP that it has acquired or created. The company is taking full advantage of its expertise in IP development and its creative and business networks to cultivate IP and create a profitable business around its partnerships. The company is accelerating its plans to use IP in animated cartoons and movies, as part of its cross media development. For example, it is working toward animated cartoons and movies for five brands created in the comic Hero’s Monthly, including Ultraman. The SOUL ReVIVER series created by Tooru Fujisawa—known for his work on the GTO comic—and Manabu Akishige looks likely to expand overseas, with a script being developed together with the US movie production company Bedford Falls Productions. In terms of television and movies, the company continued broadcasting the new television series of Ultraman, which began in FY03/14, and launched the Ultraman Ginga S series in July 2014. The company also developed across different media with various IP owned by Tsuburaya Productions. Merchandizing generates earnings from IP. The company aims to improve earnings from social games by cutting the number of titles. In May 2014, the company released AKB48 Music Game. The game got off to a good start, with one million downloads in two months. The company aims to generate earnings from a variety of merchandize as soon as possible; it acquired the merchandizing rights to Uglydoll—a popular character in the US—and developed a range of products together with top-tier companies. In July 2014, the company launched Pachislot Sengoku BASARA 3, which sold well and contributed to sales of pachinko and pachislot machines. The company aims to continue releasing products based around its IP. For details on previous quarterly and annual results, please refer to the Historical financial statements section. http://www.sharedresearch.jp/ Copyright (C) 2013 Shared Research Inc. All Rights Reserved 10/43 Fields Corporation (2767) SR Research Report 2015/4/30 FY03/16 outlook FY03/16 Company Estimates (JPYmn) Sales YoY CoGS Gross Profit YoY GPM SG&A Expenses SG&A/Sales Operating Profit YoY OPM Recurring Profit YoY RPM Net Income YoY 1H Act. 20,341 -44.1% 13,420 6,920 FY03/15 2H Act. 79,213 FY Act. 99,554 FY03/16 FY Est. 120,000 0.9% -13.4% 20.5% 57,666 21,548 71,086 28,468 -49.3% 6.9% -15.8% 34.0% 27.2% 28.6% 10,998 12,726 23,724 54.1% 16.1% 23.8% 4,743 6,000 - 15.8% -51.6% 26.5% - 11.1% -4,077 -4,072 8,820 4.8% 5.0% 9,563 5,491 6,500 - 25.5% -43.8% 18.4% - 12.1% 5,527 5.5% 3,018 3,500 - 40.4% -43.8% 16.0% -2,509 5.4% Source: Company data Figures may differ from company materials due to differences in rounding methods. Fields’ full-year earnings forecasts for FY03/16 are as follows: Sales: JPY120.0bn (+20.5% YoY) Operating profit: JPY6.0bn (+26.5% YoY) Recurring profit: JPY6.5bn (+18.4% YoY) Net income: JPY3.5bn (+15.9% YoY). In the pachinko and pachislot machine business, Fields plans to begin selling products from two new client manufacturers. It also aims to take a greater share of the market in terms of machines sold. In the social games business, it plans to improve gameplay in existing titles and steadily release highly novel new titles. Long-term outlook Fields aims to maximize the value of its intellectual property via a “growth-oriented business model” (benefiting from seamless synergy between comics, animation, movie/TV, and merchandizing segments). Over the medium term, the company will focus on stable profit growth in pachinko and pachislot machines, and cultivating in-house and acquired content. When considering Field’s growth strategy and vision for its future across different types of content, Shared Research will be paying close attention to whether the company can make its new business model a reality. In particular, Shared Research will focus on whether the company can maximize the value of intellectual property created in-house and start a virtuous cycle across business operations. In our view, pachinko/pachislot machines will continue to be the main driver of profits, and we expect the expanded range of these products for FY03/17 will significantly contribute to medium term earnings. Shared Research also thinks growth at Tsuburaya Productions will contribute to consolidated earnings. Expanding the pachinko/pachislot product range Since 2001—when Fields made an exclusive third-party sales agreement with Rodeo Corp. for pachislot http://www.sharedresearch.jp/ Copyright (C) 2013 Shared Research Inc. All Rights Reserved 11/43 Fields Corporation (2767) SR Research Report 2015/4/30 machines—the company has gradually increased the number of partner firms. In FY03/14, Fields retailed 13 different types of pachinko/pachislot machines. In FY03/15, the number of different machines will temporarily fall to eight (five pachinko and three pachislot), as the company moves to end its agreement with Rodeo Corp. and due to changes in pachislot machine testing procedures. However, the company plans to sell nine types of pachinko machines and six–nine types of pachislot machines by FY03/16. Types of pachinko/pachislot machine sold per manufacturer (sales base) Manufacturer Type FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 Target Revised target Rodeo Pachislot 3 3 2 2 1 1 Bisty Pachinko 2 2 1 3 2 2 Pachislot 2 2 3 3 1 - OK Pachinko - - 1 2 1 1 Pachislot - - - - - - Enterrise Mizuho Pachislot 1 1 1 2 3 1 Pachinko - - - - - 1 (including Macy) Pachislot - - - 1 1 - D-light Pachinko - - - - - - Pachislot - - - - 1 - Pachinko - - - - - - Pachislot - - - - 1 1 NANASHOW Total (pachinko) 2 2 2 5 3 4 Total (pachislot) 6 6 6 8 8 3 Total 8 8 8 13 11 7 Source: Company data Note: The new pachinko machine manufactured by OK Co., Ltd in FY03/14 will be booked in FY03/15. From FY03/17, Fields will no longer sell pachinko/pachislot machines manufactured by Rodeo Corp., with whom the company is moving to end its partnership. However, the company plans to increase the range of machines from other partner firms. Also, in May 2014 the company agreed on partnerships with D-light Co., Ltd. and NANASHOW Corporation, both of whose machines will be added. According to the company, the increase in product range also encompasses intellectual property rights to Hero’s Monthly and new content rights. The company is aiming for average sales of about 30,000 units per machine. Fields also plans focus on its organization, growing branch offices from 26 to 37, and sales staff from 300 to 400 from FY03/15. The company aims to decrease the number of pachinko halls assigned to each salesperson and travel time to halls, thus boosting sales support for partner manufacturers. Merchandising based on own IP portfolio Fields explains that converting its IP portfolio into merchandising revenue typically takes between three to five years for books and theatrical releases. For instance, the company expects several series releases and a merchandising rollout based on Hero’s Monthly (a comic magazine launched in November 2011) between FY03/16 and FY03/17. As of February 2015, seven screening projects are underway based on the Hero’s Monthly IP, including SOUL ReVIVER and Sword Guy Katana. http://www.sharedresearch.jp/ Copyright (C) 2013 Shared Research Inc. All Rights Reserved 12/43 Fields Corporation (2767) SR Research Report 2015/4/30 Growth at Tsuburaya Productions Tsuburaya Productions owns the influential Ultraman series, and produces movies and TV programs in addition to conducting licensing operations. Profits fell and the financial situation worsened at Tsuburaya Productions from the late 1990s onward, as the cost of producing new content rose, leading Tsuburaya Productions to restructure its finances in the early 2000s. Fields acquired a 51.0% stake in Tsuburaya Productions in April 2010, making it a consolidated subsidiary. Tsuburaya Productions’ earnings began to recover in FY03/13. It achieved growth in both sales and profits in FY03/14, partly due to special events to commemorate 50 years since founding (sales: JPY3.3bn [+11.2% YoY], JPY670mn [+71.8%]). According to the company, heading toward FY03/17, Tsuburaya Productions will focus on domestic marketing and overseas expansion. The company is targeting operating profit of JPY2.0bn at Tsuburaya Productions by FY03/17. http://www.sharedresearch.jp/ Copyright (C) 2013 Shared Research Inc. All Rights Reserved 13/43 Fields Corporation (2767) SR Research Report 2015/4/30 Business Summary The company has two main businesses: the planning, development, and distribution of pachinko/pachislot machines; and the planning, development, and distribution of intellectual property (IP). Up until FY03/12, the company had four reportable segments: Pachinko/Pachislot (PS) Field, Mobile Field, Sports Entertainment Field, and Other Field. However, the company has announced its decision to shift away from its traditional business model focusing on the PS Field and move into a new model underpinned by IP. In line with that decision, the company aims to grow further by rebuilding strategies based on the “growth-oriented business model” (seamlessly synergistic business development involving Comics, Animation, Movie/TV, and Merchandising). Accordingly, in FY03/13, the company consolidated the previous four segments to form a single segment centered on IP. Business description Fields operates a “circular” business, based on four categories of product that interact with each other. Comics Comics are the source of the company’s IP. Through the Comics business, the company creates and acquires original work, stories, and characters. HERO’S Inc., a joint venture with Shogakukan Creative Inc., publishes the comic Heroes Monthly. http://www.sharedresearch.jp/ Copyright (C) 2013 Shared Research Inc. All Rights Reserved 14/43 Fields Corporation (2767) SR Research Report 2015/4/30 First launched on November 1, 2011, the company distributes Heros Monthly through pachinko halls and convenience stores run by Seven-Eleven Japan Co., Ltd., a subsidiary of Seven & i Holdings Co., Ltd. (TSE1: 3382). The company is adding several products to its IP portfolio based on the Hero’s Monthly comic magazine. Notably, in July 2014 the company began creating the script for the SOUL ReVIVER television series for Hollywood (US). Animation In this business, the company makes animation films based on popular works in comics and other media. One example is the BERSERK animation film series based on the popular BERSERK manga series. Fields is trying to maximize the value of its BESERK IP portfolio through development across multiple media, including social games, pachinko and pachislot machines, and merchandise. Fields subsidiary Lucent Pictures Entertainment, Inc. produces the film series by employing the latest animation technologies. Set in a medieval Europe-inspired fantasy world, the story centers on an orphaned mercenary who handles a huge sword and travels to get his revenge. A comic magazine serialized the manga in 1989, and a total of over 35mn copies of the manga series have been sold worldwide as of 2013. The company intends to diversify BERSERK-related IP use, such as for social games, pachinko/pachislot machines, and licensed goods, and thereby maximize the IP value. Movie/TV Through movies and TV series, the company increases the market recognition for related works and maximizes their values. For example, movie production subsidiary Tsuburaya Productions Co., Ltd. produces movies and TV programs for the Ultraman series while spreading the use of Ultraman characters in many forms of media. The company aims to grow Ultraman a global-scale character, and to this end it plans to cooperate with powerful business partners. Merchandizing across media—the lateral development of IP Fields generates revenue from IP by merchandizing it in interactive media such as games, mobile content, social network services, in addition to consumer products and pachinko and pachislot machines. Interactive Media The company promotes such pachinko/pachislot-related contents as “NanaPachi” (online pachinko/pachislot games) and “Fields Mobile” (website for feature phones). Also, the company grants the use of its non-pachinko/pachislot-related contents (i.e., IP) in social games while offering “Shameji” (photo application for mobile phones) and other communication services. In December 2010, the company established IP Bros. Inc. jointly with NHN Japan Corporation (operator of online game portal Hangame). IP Bros. helps the company provide its and partners’ IP for a variety of gaming platforms. Consumer Products The company plans, develops, and sells IP-based goods through its own store network while promoting IP merchandising on pachinko/pachislot machines. Subsidiary Total Workout Premium Management Inc. runs a fitness club business, provides media-related management services to professional athletes, and offers special fitness support services for particularly health-conscious members. http://www.sharedresearch.jp/ Copyright (C) 2013 Shared Research Inc. All Rights Reserved 15/43 Fields Corporation (2767) SR Research Report 2015/4/30 Planning, Development, and Distribution of Pachinko/Pachislot Machines This is the stable cash-flow source in the company’s Merchandising business. As a fabless entity, the company creates contents or acquires merchandising rights to promising contents in Japan and overseas. It then adds value through product planning, outsources development and manufacture to partners, and sells finished pachinko/pachislot machines as the sales agent or distributor. Although it does sell machines made by non-partners, most machines are made by partners. Fields’ added value comes from its ability to obtain and combine proprietary content to plan and develop pachinko/pachislot machines. Because the company is the largest independent distributor with a national sales network, its customers enjoy the benefit of purchasing titles from several different manufacturers through a single sales contact. Its sales force has compiled a database about market trends and best practices. The company shares this accumulated knowledge with pachinko halls, fostering customer loyalty. Pachinko/pachislot machines require roughly two to three years from content search, study, and acquisition to finished product delivery. Manufacturing, development, and distribution flow Source: Company data The company sells pachinko/pachislot machines in two ways. In distribution sales, the company sells directly to pachinko halls via its regional and branch offices. It uses this sales method for most of the pachislot machines and some of pachinko machines it sells. In the agency sales method used for pachinko machines, the company serves as sales broker. http://www.sharedresearch.jp/ Copyright (C) 2013 Shared Research Inc. All Rights Reserved 16/43 Fields Corporation (2767) SR Research Report 2015/4/30 Sales and profit reporting Source: Company data In distribution sales the company purchases machines from machine makers and sells them to pachinko halls. In agency sales, acting as a sales broker for machine makers, the company creates transaction agreements between machine makers and pachinko halls, collects payments from pachinko halls, prepares for pachinko hall openings, and provides after-sales services. By doing so, the company receives commissions from machine makers. Sales are booked differently in the two methods. This means that the company’s sales are a function of the composition of distribution and agency sales. Distribution sales: Machine sales to pachinko halls are booked as sales in the month of sales. Payments for machines purchased are booked as CoGS. Agency sales: Commissions received from machine makers upon machine sales are booked as sales in the following month of sales. As of March 31, 2014, the company had more than 300 sales staff at seven regional offices and 26 branch offices nationwide. The company’s salespeople cover approximately 40 accounts each. Salespeople employ a “consulting sales” approach where they contribute to efficient pachinko hall management. The company has machine showrooms in all of its branch offices. Fields utilizes two distribution channels. The first is a direct channel (selling directly to hall operators); around 70% of machines are sold using the direct channel. The second is sales through resellers; this channel is lower margin than the direct channel, but sometimes makes economic sense due to the small size or geographic location of end customers. The company has been expanding its distribution channels since FY03/13. From FY03/15, Fields aims to establish seven regional and 37 branch offices nationwide while expanding its sales team (400 staff in total). The number of pachinko and pachislot halls under a salesperson’s coverage will be reduced, and access time to such hall operators shortened. The company aims to strengthen its sale support to affiliated pachinko and pachislot machine manufacturers. Machine volumes are the main swing-factor for earnings (see chart below). http://www.sharedresearch.jp/ Copyright (C) 2013 Shared Research Inc. All Rights Reserved 17/43 Fields Corporation (2767) SR Research Report 2015/4/30 Operating profit versus machines sold (JPYmn) 14,000 ('000) 700 12,000 600 10,000 500 8,000 400 6,000 300 4,000 200 2,000 100 0 FY03/06 FY03/07 FY03/08 Operating profit FY03/09 FY03/10 Pachislot: machines sold (right axis) FY03/11 FY03/12 FY03/13 FY03/14 0 Pachinko: machines sold (right axis) Source: Company data Strategic partnerships The company partners with key machine manufacturers to jointly promote wide-ranging machine brands. For these manufacturers, the company acts as the sole distribution agent. Rodeo Corp.: Subsidiary of Sammy Inc. under Sega Sammy Holdings Inc. (TSE1: 6460), equity-method affiliate of Fields (Sammy: 65.0%; Fields: 35.0%). Pachislot focus. Following its exclusive third-party sales agreement for pachislot machines in 2001, the company bought a stake in Rodeo Corp. in 2002. Owns hit titles such as SALARYMAN KINTARO and Onimusha: Dawn of Dreams. Bisty Co., Ltd.: Subsidiary of SANKYO Co., Ltd. (TSE1: 6417), Fields’ partner pachinko/pachislot machine manufacturer. Since its tie-up in 2003, Bisty has developed a variety of titles including the Evangelion series. OK Co., Ltd.: Tie-up with KYORAKU SANGYO (unlisted) in February 2008. Fields and KYORAKU SANGYO jointly launched new brand “OK” to create a new pachinko market and expand the pachinko fan base. A new-generation pachinko machine GHOST IN THE SHELL STAND ALONE COMPLEX was introduced in October 2012. Enterrise Co.: Subsidiary of Capcom Co., Ltd. (TSE1: 9697), a leading video game company, Fields’ partner. Fields began sales of Enterrise pachislot machines in 2010, as the exclusive retailer. Hit titles include the Sengoku BASARA series and Biohazard 5 series. Mizuho Corp.: Fields and signed a joint business agreement with Universal Entertainment Corp. (JASDAQ: 6425) and Mizuho in 2011. Fields acquired a 49.8% stake in Mizuho in 2012, and will begin retailing Mizuho pachislot machines in 2014. D-light Co., Ltd.: Founded in 2000 as a second brand for Daiichi Shokai Co., Ltd. (unlisted). Business alliance agreed upon with Fields in 2014. NANASHOW Corp.: Established in 2009. Fields bought a stake in NANASHOW in 2014 (38.9%). Business alliance agreed upon with Fields in 2014. http://www.sharedresearch.jp/ Copyright (C) 2013 Shared Research Inc. All Rights Reserved 18/43 Fields Corporation (2767) SR Research Report 2015/4/30 Sales by Brand FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 (Units) Sammy Group YoY SANKYO GROUP YoY 41,536 28,762 121,691 81,820 104,549 26,505 -67.5% -30.8% 323.1% -32.8% 27.8% -74.6% 262,087 363,056 306,585 263,530 114,092 173,630 -20.6% 38.5% -15.6% -14.0% -56.7% 52.2% - 2,498 16,119 7,264 47,889 72,085 - - 545.3% -54.9% 559.3% 50.5% - - - - 32,437 28,790 Enterrise YoY OK YoY - - - - - -11.2% Mizuho - - - - - 54,127 YoY - - - - - - Others 27,582 55,564 35,878 59,776 29,143 37,845 YoY Total YoY 2.5% 101.5% -35.4% 66.6% -51.2% 29.9% 331,205 449,880 480,273 412,390 328,110 392,982 -31.6% 35.8% 6.8% -14.1% -20.4% 19.8% Source: Company data Figures may differ from company materials due to differences in rounding methods. Major hit titles, such as the Evangelion series developed jointly with SANKYO subsidiary Bisty, are significant earnings drivers for Fields. Evangelion is a hit animation franchise that has gained further popularity since the release of a four-part movie series, Rebuild of Evangelion in 2007. The series rose to popularity in 1995-1996 when 26 episodes of the show were broadcast on TV Tokyo. As of February 2015, the first three series have been produced and released. The company has sold more than 1.8mn machines based on Evangelion-related IP by the end of FY03/13. Business model Based on the “growth-oriented business model,” Fields is pushing efforts to maximize the value of its IP portfolio. The “growth-oriented business model” will have the following cornerstones. Through synergies of these cornerstones, the company aims to maximize the value of its IP portfolio and realize continuous, organic business expansion. Comics: Acquire/create content (original titles, stories, characters, etc.) Animation: Raise the added value of content through CG and other leading-edge technologies Movies/TV series: Spread animated content in the market and expand fan base Merchandising/commercialization (games, media, SNS, consumer products, pachinko/pachislot): Use IP effectively in each sector to improve profitability Some examples of how the company is working to acquire and generate IP include Heroes Monthly, “BERSERK” and “Ultraman.” The company intends to use such IP assets in various media to accelerate its fan base growth from FY03/13 onward. For instance, the business model for Heros Monthly is to target profits by first starting with comics and from there move to animation, television series and movies, and ultimately to merchandising, SNS, consumer products, and new pachinko/pachislot titles. The company hopes to increase the number of fans in all of these fields, raise the value of its IP, generate profit, and then again pour these results back into comics. Group companies Fields Group companies operate in a variety of areas, such as comics, animation, mobile, and pachinko/pachislot machines. As of March 2014, the company had 15 subsidiaries, nine equity-method affiliates, and one related company. Main group companies are listed below (when joined the group; Fields’ stake). http://www.sharedresearch.jp/ Copyright (C) 2013 Shared Research Inc. All Rights Reserved 19/43 Fields Corporation (2767) SR Research Report 2015/4/30 Comics HERO’S Inc. (April 2010; 49.0%): Plans, produces, and manages comic magazines and character contents Kadokawa Haruki Corp. (March 2005; 30.0%): Plans, produces, edits, publishes, and sells books and magazines Animation Lucent Pictures Entertainment, Inc. (October 2007; 100.0%): Plans and produces animation films Digital Frontier Inc. (April 2010; 86.9%): Plans and produces computer graphics Movie/TV SPO Inc. (March 2008; 31.8%): Plans, produces, and distributes movies Merchandising Interactive Media IP Bros. Inc. (December 2010; 85.0%): Runs IP-based digital content business. Develops and manages websites dedicated to pachinko/pachislot machines Future Scope Corp. (October 2006; 87.7%): Provides mobile content-related and online shopping services. Consumer Products Tsuburaya Productions Co. Ltd. (April 2010; 51.0%): Plans and produces movies and TV shows. Plans, produces, and sells character merchandise Total Workout Premium Management Inc. (May 2011; 95.0%): Runs fitness clubs Pachinko/Pachislot Machines Fields Jr. Corp. (March 2002; 100.0%): Provides maintenance services Shin-Nichi Technology Co. (January 2008; 100.0%): Develops machines Microcabin Corp. (January 2011; 100.0%): Plans and develops software Nex Entertainment Co. (November 2011; 69.8%): Plans, produces, develops, and sells software BOOOM Corp. (May 2009; 51.0%): Plans and develops machines Rodeo Corp. (March 2002; 35.0%): Develops and manufactures machines G&E Corp. (May 2005; 33.3%): Runs comprehensive entertainment business school NANASHOW Corp. (January 2014, 38.9%): Develops and manufacturers pachinko/pachislot machines http://www.sharedresearch.jp/ Copyright (C) 2013 Shared Research Inc. All Rights Reserved 20/43 Fields Corporation (2767) SR Research Report 2015/4/30 Profitability snapshot and financial ratios Profit Margin GP Margin FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 Cons. Cons. Cons. Cons. Cons. Cons. Cons. FY03/15 Cons. 33.9% 32.9% 40.5% 33.9% 34.0% 30.8% 29.4% 28.6% OP Margin 12.9% 2.7% 12.2% 12.7% 9.2% 9.5% 8.5% 4.8% RP Margin 11.5% 1.4% 11.7% 13.2% 9.4% 9.5% 8.5% 5.5% NP Margin Financial Ratios 5.2% -2.0% 5.0% 7.3% 6.5% 4.4% 4.7% 3.0% FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. ROA 17.3% 1.6% 11.6% 17.1% 10.0% 10.3% 9.2% 5.1% ROE 11.9% -3.5% 8.2% 17.1% 12.2% 8.9% 9.5% 5.1% 1.47 1.40 0.82 1.31 0.98 1.01 1.10 0.90 57.3 Total Asset Turnover Inventory Turnover 25.4 75.8 43.7 76.3 29.4 46.2 36.7 Days of Inventory 14.4 4.8 8.4 4.8 12.4 7.9 10.0 6.4 Quick Ratio 130.4% 205.4% 136.8% 158.8% 139.1% 137.9% 140.8% 134.8% Current Ratio 204.7% 333.0% 158.2% 185.1% 165.6% 153.5% 160.4% 155.1% 64.8% 77.6% 51.3% 60.3% 55.4% 51.5% 55.9% 54.5% -17.5% -20.2% -32.8% -29.5% -32.4% -40.5% -49.2% -19.5% Equity Ratio Net Debt / Equity OCF / Current Liabilities 0.58 0.55 0.24 0.29 0.26 0.29 0.39 -0.20 OCF / Total Liabilities 0.49 0.33 0.21 0.25 0.24 0.26 0.35 -0.18 Source: Company data Figures may differ from company materials due to differences in rounding methods. While true peer analysis is not possible due to the company’s unique business model, one could say ROE trends show high profitability. Recent years saw operating profit in the 10-14 bn range. The “growth-oriented business model” can be viewed as the company’s attempt to further raise profitability. http://www.sharedresearch.jp/ Copyright (C) 2013 Shared Research Inc. All Rights Reserved 21/43 Fields Corporation (2767) SR Research Report 2015/4/30 Strengths and weaknesses Strengths Sales power: Manufacturers use Fields to take advantage of the company’s large and skilled sales force, enabling them to extend their geographic reach and accelerate their speed to market. Brand creativity: The ability to create new, distinct brands gives the company's partners more bandwidth to sell product while defraying their marketing costs. (Operators tend to allocate hall-space per brand; distinct labels enable manufacturers to “backdoor” additional machines into one venue.) Alliances with top manufacturers possessing high level of technology and development skills Weaknesses: High dependency on hit titles Lack of manufacturing capability limits profit sources to distribution margins Historically, uneven execution among group companies Main facilities Fields Corporation’s operational backbone is based on its national sales network. This includes 26 branch offices (as of FY03/14) located in Hokkaido-Tohoku (3), North Kanto (3), Tokyo (6), Nagoya (4), Osaka (3), Chugoku-Shikoku (3) and Kyushu (4). http://www.sharedresearch.jp/ Copyright (C) 2013 Shared Research Inc. All Rights Reserved 22/43 Fields Corporation (2767) SR Research Report 2015/4/30 Market and value chain This section focuses on the pachinko/pachislot machine market. Market overview The Japan Productivity Center estimated the total domestic leisure market at JPY65.2tn in fiscal year 2013 (source: White Paper on Leisure 2014). Pachinko/pachislot was estimated at JPY18.8tn, or around 29% of the leisure market. Of that amount, JPY16.2tn was returned to players in payouts or “winnings.” Operators reinvested about JPY1.1tn of the remaining JPY2.8tn into new machine purchases (company estimate). Market Trends 2000 (Million Yen) Pachinko Market Size 568,300 Machines Sold (Thousand) 3,360 Average Price Per Machine (Yen) 169,137 Pachislot Market Size 314,500 Machines Sold (Thousand) 1,130 Average Price Per Machine (Yen) 278,319 2007 2008 2009 2010 2011 2012 868,600 921,300 985,200 3,170 3,330 3,330 274,006 276,667 295,856 886,900 2,900 305,828 826,700 2,600 317,962 772,900 2,490 310,402 502,500 247,800 225,800 1,740 910 760 288,793 272,308 297,105 286,700 970 295,567 375,000 1,250 300,000 429,900 1,320 325,682 Source: Company data, SR Inc. Research Figures may differ from company materials due to differences in rounding methods. Industry data shows that the market remains stagnant. The player population fell to 9.7mn in 2013, compared with 23.1mn in 1997 (roughly one in seven Japanese were pachinko and pachislot players). The number of pachinko halls declined to 11,893 in 2013 from 18,224 in 1995 (source: National Police Agency). A decrease in the amount of cash flow available for new investments has forced some smaller operators to sell or shut operations. At the same time, hall sizes have become larger increasing to an average of 388 installed machines per hall in 2013 from 261 machines in 1995. Larger chains also appear to be gaining scale highlighting continued polarization of the market. Order trends for Fields are tied to the financial health of its pachinko hall customers. Logically, the higher the cash flows of pachinko halls, the more funds they can spend on new equipment. Industry new machine investment is broadly defined by the average number of times halls “turn” their machine line-up per year. In 2013, turnover for pachinko was 0.68 times and for pachislot 0.87 times (source: Yano Research Institute, National Police Agency). In terms of the machine market, pachinko machine sales rose from 3.7mn machines in 1995 to a peak of 4mn machines in 2005. But since then, pachinko machine sales have been declining. On the other hand, pachislot machine sales expanded five-fold to 1.8mn in 2005 off a low base of 350,000 machines in 1995. Following the introduction of stricter regulation in 2007, demand for lower gambling nature pachislot machines fell before recovering from the second half of 2009. As the size of the market has changed so competition between manufacturers has intensified. Well-known franchises have a tendency to generate repeat sales, yet breaking into the top ranks has not been easy for smaller players. Today, while top-selling blockbusters may still garner over 200,000 machines in sales, less popular titles may not even sell 10,000 machines. The chart below illustrates market share per manufacturer on a machine basis (source: Yano Research Institute, Trends of Pachinko Related Manufacturers and Market Share 2012). Pachinko appears less concentrated compared with pachislot. http://www.sharedresearch.jp/ Copyright (C) 2013 Shared Research Inc. All Rights Reserved 23/43 Fields Corporation (2767) SR Research Report 2015/4/30 Across both segments, Shared Research believes the success of the company is partly due to its ability to partner with key players at the development stage. Manufacturers, in turn, have reason to partner with Fields as it enables the creation of secondary brands and higher penetration per account resulting in a higher market share. Pachinko Market Share Installed Base (Fiscal 2013) Pachislot Market Share Installed Base (Fiscal 2013) 17.0% 21.7% 33.9% 38.5% 15.4% 15.5% 9.6% 14.3% 7.3% 9.8% Kyoraku Sangyo Sanyo Bussan SANKYO Sammy Heiwa, Olympia Others Sammy Heiwa, Olympia Daito Giken 8.6% 8.4% Universal SANKYO Others Source: Yano Research Institute, Trends of Pachinko Related Manufacturers and Market Share For pachinko machines, SANKYO includes Bisty. Sammy includes Ginza and Taiyo Elec. For pachislot machines, Sammy includes Rodeo, IGT, TRIVY, and Taiyo Elec. SANKYO includes Bisty. Universal includes Eleco, Mizuho, and Macy. Olympia includes machines sold by Heiwa; data is for the total of all Olympia and Heiwa brands. The company believes a recent move away from dependency on high gambling nature machines towards healthier and more entertainment-orientated machines should resume growth for the pachinko industry in the near future. While it is difficult to provide solid proof of this view, consumers’ average leisure time has been increasing and the company believes the evolution and growth of the pachinko industry into one of the choices of entertainment to fill this increased leisure time is a likely scenario. In addition, the pachinko market appears to be relatively impervious to the economic cycle. The company thinks that the decline of the playing population is related more to the peculiarities of the pachinko and pachislot markets themselves. Market growth potential and cyclicality The market is mature and arguably in secular decline due to Japan's declining population and emerging forms of passive entertainment. However, industry innovation could reverse or slow what has been a gradual decline. The key cyclical drivers are government regulation and the industry's growth as a distinct type of popular entertainment. The industry is regulated by the National Public Safety Commission. Rules on the approval and certification of machines are set in accordance with the Entertainment Business Control Law per each prefecture. Historically, regulators have tended to change the technical specifications regarding gambling nature limits every several years. The goal has been to prevent excessive gambling and trends in high-gambling nature machines have been easing. For instance, a change in regulations in 2004 led to a de-emphasis in the gambling aspect of pachislot machines, and to a big wave of replacement sales in 2007. Pachislot machine sales then declined as some players gravitated to pachinko. However, as manufacturers compete to develop machines compliant with the newest regulations and increase the entertainment aspect of new machines there has been an acceleration in both hardware and software innovation. http://www.sharedresearch.jp/ Copyright (C) 2013 Shared Research Inc. All Rights Reserved 24/43 Fields Corporation (2767) SR Research Report 2015/4/30 According to Fields, the gambling aspect has an influence on players and thus potentially on market growth. Since FY03/11, many manufacturers have focused on so-called "max-type" machines where average spend per player tends to be higher when compared with other types of machines, but the expected return is also likely to be higher (which can be appealing to serious players). This means on average a player loses money faster on these types of machines. Although max-type machines could mean higher cash flow for pachinko halls in the short run, Fields was concerned this trend might alienate casual players and could be an unhealthy trend for the overall market. However, from FY03/12, such trend has shown a turnaround: pachinko halls have increasingly installed machines with low gambling nature (e.g., light-middle and middle types) because these machines could push up machine utilization. Classification of pachinko specifications (i.e., jackpot-probabilities) is based on explanations from the company. Probabilities: max-type is 1/370-1/399; middle-high is 1/320-1/369; middle-low is 1/280-1/319; light-middle is 1/150-1/279; “amadeji” class is between 1/40 and 1/149+. SR Inc. thinks Fields could be a long-term beneficiary from the rise and fall in popularity of different machines. Regulatory revisions can upstage market leaders and give manufacturers a short window when they need to scramble for new innovative products. The company helps manufacturers plan and develop new product lines to sell to halls that could be otherwise reluctant to increase dependence on a particular maker. Customers Pachinko halls are the company’s clients. Pachinko halls could buy directly from manufacturers, but the benefits of using Fields include a single supplier relationship (i.e., they can buy titles of different manufacturers from Fields) and market knowledge that the company can share (such as which machines are popular nationwide). Suppliers Field’s main suppliers are pachinko/pachislot machine manufacturers. This is the core relationship defining the company’s business model. The relationship is mutually beneficial—manufacturers provide the company with products to sell, and in return receive content rights, design ideas and benefit from the sales channel. Barriers to entry Barriers to entry are high; the industry has a number of sophisticated and well capitalized players, while products require substantial development costs, and carry high failure rates. The company’s business model is unique and would be difficult to replicate. It possesses an extensive expert sales network and has long-term relationships both with top manufacturers and thousands of pachinko halls. With roughly 300 salespeople in daily discussions with pachinko hall operators, the customer relationship base is sticky and it has extensive information about customers. Moreover, pachinko tends to be a personality-driven industry reliant on trust. Incumbents with existing relationships therefore have a natural advantage. Finally, the pachinko hall operator market is fragmented and a newcomer would need significant time to gather a critical mass of customers to become profitable. http://www.sharedresearch.jp/ Copyright (C) 2013 Shared Research Inc. All Rights Reserved 25/43 Fields Corporation (2767) SR Research Report 2015/4/30 Competition The company estimates there are approximately 1,000 distribution companies in the pachinko/pachislot market. However, no other company has a business model or a nationwide sales network that rivals Fields’. The company's products though do in fact compete with those of its partner and non-partner manufacturers. Listed manufacturers include SANKYO Co., Sega Sammy Holdings Inc., Heiwa Corp. (TSE1: 6412), and Universal Entertainment Corp. Substitutes Casinos: As of May 31, 2014, casinos were officially banned in Japan. However, there was an ongoing debate regarding potential legalization. SR Inc. thinks even if casinos were legalized, only a limited number would be licensed to operate. As such, the substitution effect would negligible on the larger network of nearly 11,893 pachinko/pachislot halls in local neighborhoods across Japan (2013 data). Strategy Based on the “growth-oriented business model,” the company is pushing efforts to maximize the value of its intellectual property (IP) portfolio. Fields sees its core strength as its ability to find and leverage content for its pachinko and pachislot clients. However, the company’s longer-term ambition is to extend its capabilities beyond the pachinko/pachislot business. Fields has not been able to develop a large enough or profitable enough business outside of pachinko/pachislot for the past several years, but its profitability has been recovering, and the company may be back on a growth track. While pachinko and pachislot will likely remain the main earnings drivers for the time being, SR Inc. estimates that Tsuburaya Productions could determine Fields’ future success. Also, HERO’S Inc. is responsible for creating content and on top of contributing toward the pachinko and pachislot business, it is expected to be involved in other entertainment ventures, such as digital comics. http://www.sharedresearch.jp/ Copyright (C) 2013 Shared Research Inc. All Rights Reserved 26/43 Fields Corporation (2767) SR Research Report 2015/4/30 Historical financial statements Summary Earnings results discussion for the year preceding current fiscal year FY03/14 Results (announced on April 30, 2014) In the pachinko/pachislot business, the company launched four pachinko titles (three new titles in the previous year) and seven pachislot titles (six in the previous year). The new pachinko titles included a new model of the Evangelion series and the pachislot titles newly included Mizuho Corp.’s machines. Total sales of pachinko/pachislot machines increased to 392,982 units (+64,872 YoY), including 162,879 pachinko machines (+62,886 YoY) and 230,103 pachislot machines (+1,986). Higher unit sales of pachinko machines were partly due to The Evangelion 8 machine—manufactured by Bisty Co.—which saw sales of 75,000 units. Pachislot Monster Hunter by Enterrise Co. and Another God Hades by Mizuho Corp. both contributed to increased unit sales of pachislot machines, with sales of about 45,000 and 54,000 units respectively. According to the company, utilization rates fell in the pachinko/pachislot market, but unit sales—which fluctuate with popular machine introductions—were mostly unchanged. Total market sales of pachinko/pachislot machines between April 2013 and March 2014 were 3.7mn units (-9.5% YoY), including 2.3mn pachinko machines (-15.2%) and 1.4mn pachislot machines (+1.3%) (source: company materials). Profits were up for pachinko/pachislot machines and consumer products, but fell for social games in interactive media. Factors that affected operating profit are as follows: In the pachinko/pachislot business, profit increased YoY thanks to steady selling activities though the company spent more to strengthen the sales structure and expand sales promotion activities. The company strengthened development of new machines in cooperation with its subsidiaries in a bid to broaden its product line-up for the medium and long term. In the consumer products business, movie production subsidiary Tsuburaya Productions Co., Ltd., the founder and holder of the “Ultraman” series, is building up a structure to obtain stable income. The license business performed well as Tsuburaya Productions held events to mark its 50th anniversary and produced a new TV series. Tsuburaya Productions reported sales of JPY3.3bn (+11.2% YoY) and operating profit of JPY670mn (+71.8%). In interactive media, sales of ongoing popular content were robust. Meanwhile, the company promoted reform of the income structure, such as narrowing down the lineup of games and implementing more efficient operations and development, to cope with a transition from Web applications to native applications in the social game market. As a result, there was a temporary fall in profitability in FY03/14. In the comics, animation and movie/TV businesses, the company continued to spend management resources for creating and fostering intellectual property, such as characters and stories, as the sources of growth. Particularly, it made efforts to make animations from comics that were created in the company’s media and strengthened sales promotion for them. Operating profit saw a 5.1% YoY fall as a result of measures and advance investments toward growth for the medium and long term. http://www.sharedresearch.jp/ Copyright (C) 2013 Shared Research Inc. All Rights Reserved 27/43 Fields Corporation (2767) SR Research Report 2015/4/30 FY03/13 Results (announced on May 7, 2013) Sales were JPY108.1 bn (+17.3% YoY), operating profit was JPY10.3 bn (+21.0% YoY) recurring profit was JPY10.3 bn (+18.6% YoY), and net profit was JPY4.7 bn (-21.2% YoY). The main factor behind this earnings fluctuation was the increase in the number of pachislot machines sold compared with the previous year as a result of the launch of strong products in the pachislot market. A few subsidiaries recorded extraordinary losses that caused net income to decline YoY. The company pursues business activities with an emphasis on maximizing the value of its characters and other intellectual property (IP) based on the “growth-oriented business model” (seamlessly synergistic business development involving Comics, Animation, Movie/TV, and Merchandising) announced in May 2012. Fields made the following comments on its initiatives in main businesses: IP Acquisition, Creation, and Development; Comics; Animation; Movie/TV In the comics segment, the comic Heros Monthly marked the first anniversary in November 2012 since launch, as well as favorable publication of the “Heroes Mix” comic since its launch in September 2012. Volumes one and two of the “Ultraman” comic series sere published, selling over 400,000 issues. In the animation and movie/TV segment, the company plans to bring its comic stories to the screen. The animation “Ginga Kikotai: Majestic Prince” began broadcasting on television in April 2013. The company released three series of the animated movie “BERSERK.” This movie was selected for the Special Achievement Award in the animation division at the Agency of Cultural Affairs’ 16th Japan Media Arts Festival. The movie was also nominated for an award at the Festival International du Film d’Animation d’ Annecy in France. Given the success of its animation, the company is expanding into new media. Fields pursued plans to raise its name recognition for a number of IP by expanding them into the merchandising segment. Merchandising In the merchandising segment, the company is enhancing its services and products for a broad range of media and platforms, by expanding its stories and characters created and promoted from its comics, animation, and movies/TV segments, to increase the value of its intellectual properties and maximize profits. In interactive media, Fields was focusing on the high-growth social media field and advancing activities to increase profitability in this segment. In the social game segment, the company focused on planning and developing new game titles to enhance its competitive advantage over its competitors. In the pachinko/pachislot sales business, the company is implementing a number of measures to increase support from existing fans, as well as capturing new pachinko and pachislot players. The company became the overall sales agent for a new pachinko machine brand, “OK” for a major pachinko machine maker in FY03/13. The company received rave reviews for its “Biohazard 5” pachislot machine from its fans. In FY03/13, the company sold 228,000 pachislot machines (up 49,000 units YoY), a record high. However, it sold 100,000 pachinko machines (down 133,000 units YoY), mainly affected by the absence of major model releases during the period. As a result, total unit sales of pachinko and pachislot machines fell in FY03/13 over the previous year. FY03/12 Results (announced on May 9, 2012) The company downwardly revised its FY03/12 forecast on March 16, 2012. Actual results were largely in line with the revised forecast. Sales were down 11.0% YoY at JPY92.1 bn with operating profit tumbling 35.1% to 8.5 billion. Net income fell 20.3% YoY to JPY5.9 bn due to the recognition of a deferred tax asset from the dissolution/liquidation of its Japan Sports Marketing Inc. subsidiary and a lower corporate http://www.sharedresearch.jp/ Copyright (C) 2013 Shared Research Inc. All Rights Reserved 28/43 Fields Corporation (2767) SR Research Report 2015/4/30 tax burden. The company posted YoY declines in sales and profitability. However, this was because the company released a number of blockbuster Pachinko and Pachislot machine titles in Q4 giving consideration to component supply shortage due to March 2011’s earthquake, and some sales related to a pachislot machine released in Q4 are now to be booked in FY03/13. The company has continued investing in the entertainment field based on a vision of maximizing Intellectual Property (IP) value through the use of various forms of media, including pachinko/pachislot machines, from the viewpoint of building a business centered on IP. These efforts can be seen in such projects as its comic Heros Monthly and the movie “BERSERK.” Performance by segment: PS Field: Sales of JPY83.9 bn (-10.8% YoY); Operating profit of JPY8.6 bn (-32.7% YoY) Industry Situation: Pachinko and pachislot machine manufacturers had changed their sales schedules with a focus on 2H FY03/12 activity (October 2011 to March 2012), as component makers, such as semiconductor firms, began recovering from March 2011’s earthquake going into summer 2011. Consequently, 1H sales were sluggish industry-wide on a YoY basis as machine sales were focused on those units where components had been procured pre-quake. However, the supply chain has recovered faster than initially expected and for Q3 machine makers released numerous new titles, with a number of them becoming hit machines. Pachinko hall operators have also been actively replacing models with new machines. Specifically, 2H saw the increased replacement with major titles (each selling more than 50,000 units). Regarding the impact of the November 2011 floods in Thailand there have been limited issues with component procurement, however, the industry wide effect was not perceived to be particularly severe. According to the company’s analysis, the number of pachinko machine titles sold during 1H declined by 29 to 92, while the number of pachislot machine titles offered decreased by 8 to 53. In 2H, during which time supply chains damaged by the earthquake disaster were restored, the number of pachinko machine titles sold increased by 14 to 106, while the number of pachislot machine titles sold declined by 8 to 48. This trend is indicative of the pachinko/pachislot market where there tends to be a focus on major titles in the second half, especially among pachislot machine makers. For the full year, the number of pachinko machine titles sold declined 15 to 198 and the number of pachislot machine titles sold decreased by 16 to 101. So the number of titles fell for both types of machines, a result probably due in large part to impacts from the March 2011 Great East Japan Earthquake. Company Situation: Given the above situation of most makers choosing to release titles in Q3, as a distributor to halls Fields Corporation decided to go for Q4 releases of its titles to attract players. As for Q4, the latest release in its hit Evangelion Pachinko machine series, “CR Evangelion 7,” was released in January 2012. This new title was well received. The ongoing recovery in the Pachislot segment continued, and the company launched “Evangelion—the Heartbeat of Life,” its second major title for the quarter, in February as well as a third major title in March 2012: the pachislot machine “Monster Hunter.” Some of the sales related to the pachislot title “Monster Hunter” are now to be booked in FY03/13 as component procurement had been disrupted by the November 2011 flooding in Thailand. In addition, the company delayed the release of a new Bisty Co., Ltd. title until FY03/13 to make the machine specifications compliant with the regulations revised after April 1, 2012. Unit sales performance was http://www.sharedresearch.jp/ Copyright (C) 2013 Shared Research Inc. All Rights Reserved 29/43 Fields Corporation (2767) SR Research Report 2015/4/30 179,167 pachislot machine units (down 38,492 units YoY) and 233,223 pachinko machine units (down 29,391 units YoY). Mobile field: Sales of JPY1.9 bn (-5.3% YoY); operating profit of JPY11 mn (-95.1% YoY). Operating profit declined, but this was due to the results for some mobile content operations being booked on a parent-only (PS Field) basis. As such, mobile-related results should not necessarily be viewed as sluggish. Sports entertainment field: Sales of JPY1.9 bn (-10.4% YoY); operating profit of JPY7 mn (operating loss of JPY290 mn YoY) Business reorganization helped to bring about a return to profitability. Other field: Sales of JPY5.4 bn (-7.2% YoY); operating loss of JPY139 mn (operating profit of JPY315 mn YoY) The operating loss was due to continued investment in the acquisition and creation of IP such as the comic Heros Monthly and the production and distribution of the movie “BERSERK.” The first issue of the comic Heroes Monthly, a joint venture with Shogakukan Creative Inc., debuted in November 2011 and the eighth issue was released on June 1, 2012. Subsidiary Lucent Pictures Entertainment Inc. on February 4, 2012 released the anime film BERSERK I THE HIGH KING'S EGG in theaters nationwide. There are plans to release the second installment in this series, BERSERK II THE BATTLE OF DOLDREY, in June 2012. Tsuburaya Productions released the latest Ultraman movie “Ultraman Saga” nationwide in March 2012. Pachinko/Pachislot Market Trends (May 2012 press briefing) The company provided the following information about recent developments for the pachinko and pachislot markets. Installation Shares by Pachinko Machine Type Looking at pachinko hall installation shares by machine types, the share held by “ama-deji” type machines (offer the best chance of winning, but payouts are smaller) have held steady, while shares held by the “MAX” and “middle-high” type machines have continued shrinking. Meanwhile, shares have been increasing for “middle-low” type machines such as “CR Evangelion 7” and “light-middle” machines. Looking at these trends, the company thinks needs of pachinko fans are shifting, from machines with strong gambling nature to those with somewhat weaker gambling nature but appealing content for relatively casual entertainment. Fields uses the following terms to classify pachinko machine specifications (odds of hitting a big payout). MAX: odds 1/370-1/399, middle-high: 1/320-1/369, middle-low: 1/280-1/319, light-middle: 1/150-1/279 and ama-deji: at least 1/149. Pachinko machine utilization Pachinko machine utilization levels remained high between 2007 and 2008 (approximately 25,000 balls/day per unit). Utilization levels then continued declining from 2009 to 2011 due in part to the emergence of the MAX-type machines with higher gambling elements. However, as the middle-low and light-middle machines became more common from 2011, utilization has remained at a stable level http://www.sharedresearch.jp/ Copyright (C) 2013 Shared Research Inc. All Rights Reserved 30/43 Fields Corporation (2767) SR Research Report 2015/4/30 (approximately 20,000 balls/day per unit), suggesting the earlier decline had bottomed. Pachislot machine utilization Utilization levels declined sharply following the complete mandatory shift to the machines compliant with Regulation 5 in October 2007 (approximately 9,000 coins/day per unit). However, from 2010 there was a recovery mainly for ART (Assist Replay Time) and similar pachislot machines, and recently utilization levels have been growing (approximately 11,000 coins/day per unit). The current utilization levels are on par with those during the later stage of Regulation 4. FY03/12 (April-March) top selling machine titles During FY03/12 the pachinko market had 15 top-selling machine titles defined as having sales of more than 40,000 units. Fields produced two of these titles: “CR The Story of Ayumi Hamasaki—the prologue” and “CR Evangelion 7.” The pachislot market had 17 top-selling machine titles defined as having sales of more than 15,000 units. Fields produced three of these titles: “Kaze no Youjinbou—Memory of Butterflies,” “Evangelion—the Heartbeat of Life” and “Monster Hunter.” Big hits for the pachislot industry were concentrated in the second half of the year. Pachinko/pachislot new titles sales The company estimated that the number of new pachinko machines sold market-wide remained at roughly the same level as during FY03/11, while sales of pachislot machines were estimated to have surged compared to FY03/11 and topped the one million unit mark. New management policy (summary based on FY03/12 financial report) Since its listing, the company had followed a business model focusing on the PS Field. This changed several years ago: the company has worked to shift its focus to intellectual property (IP) in a bid to achieve long-term growth. Approaching the 10th listing anniversary and the 25th founding anniversary, the company is eyeing the establishment of a “growth-oriented business model” for the next 25 years. With a new business model, the company aims for further corporate growth. http://www.sharedresearch.jp/ Copyright (C) 2013 Shared Research Inc. All Rights Reserved 31/43 Fields Corporation (2767) SR Research Report 2015/4/30 Income statement Income Statement (JPYmn) Sales YoY FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. 101,818 73,035 66,342 103,593 92,195 108,141 114,904 99,554 -13.4% 19.3% CoGS Gross Profit SG&A Operating Profit YoY Non-Operating Income Non-Operating Expenses Recurring Profit YoY Extraordinary Gains Extraordinary Losses Pretax Profit Tax Charges Minorities etc. Net Income YoY FY03/15 -28.3% -9.2% 56.1% -11.0% 17.3% 6.3% 67,274 49,010 39,452 68,464 60,865 74,862 81,092 71,086 34,544 24,024 26,889 35,129 31,330 33,279 33,812 28,468 23,724 21,385 22,063 18,764 21,993 22,803 22,964 24,020 13,158 1,960 8,124 13,136 8,527 10,314 9,791 4,743 47.1% -85.1% 314.5% 61.7% -35.1% 21.0% -5.1% -51.6% 1,213 313 528 484 1,136 574 738 1,313 1,766 1,497 846 588 440 784 1,339 465 11,705 991 7,761 13,684 8,661 10,268 9,765 5,491 27.2% -91.5% -43.8% 683.1% 76.3% -36.7% 18.6% -4.9% 97 269 53 215 8 10 29 479 1,292 3,840 597 488 404 1,276 207 215 10,509 -2,579 7,218 13,410 8,265 9,002 9,588 5,754 5,101 -126 3,900 5,883 2,099 4,224 4,143 2,430 111 -971 29 6 174 57 74 305 5,296 -1,481 3,289 7,520 5,991 4,720 5,370 3,018 - 128.6% -20.3% -21.2% 13.8% -43.8% 42.7% - Source: Company data Figures may differ from company materials due to differences in rounding methods. Performance overview Sales can be affected by the mix between pachinko/pachislot sales due to accounting treatment (pachinko revenues are a commission, pachislot revenues are for the full machine price). Field’s operating profit trends track the underlying market cycle. FY03/09 Results FY03/09 sales declined 28.3% YoY to JPY73.0 bn; OP declined 85.1% YoY to JPY1.96 bn. Reasons were a delay in release schedule of large scale pachinko title “CR Neon Genesis Evangelion—The Beginning and the End” combined with an operating loss of JPY1.3 bn in the Game Field business (sales JPY12.6 bn) due to underperformance of D3. D3 was subsequently sold to NAMCO BANDAI Games. FY03/08 Results Sales growth YoY was mainly driven by replacement demand for pachislot machines related to regulatory changes. FY03/07 Results Sales declined YoY as halls faced funding challenges for purchasing new pachislot machines (regulatory changes required machines to be replaced). Pachislot machine sales have higher profit margins than pachinko, resulting in declines in profit margins (see table above). FY03/06 Results Sales rose YoY due to strong demand for both pachinko and pachislot machines. “CR Neon Genesis Evangelion: Second Impact” was released during the year (selling 161,000 machines, 29.0% of total Fields Corporation machine sales). http://www.sharedresearch.jp/ Copyright (C) 2013 Shared Research Inc. All Rights Reserved 32/43 Fields Corporation (2767) SR Research Report 2015/4/30 FY03/05 Results Sales rose YoY due to the popularity of “CR Neon Genesis Evangelion” pachinko machine (selling approximately 125,000 machines, 26.0% of total Fields machine sales for the year) and +7.3% YoY growth in pachislot machines (191,944 machines vs. 178,906 in FY03/04). FY03/04 Results Sales rose YoY, but were affected by a change in revenue recognition for certain pachislot machine sales. Under the revised policy, sales began to be recognized when machines shipped from manufacturers vs. delivery and installation in halls. The accounting change resulted in an additional JPY6.0 bn of sales during the year. http://www.sharedresearch.jp/ Copyright (C) 2013 Shared Research Inc. All Rights Reserved 33/43 Fields Corporation (2767) SR Research Report 2015/4/30 Balance sheet Balance Sheet (JPYmn) Cash and Equivalents FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. 12,841 11,181 15,916 15,873 18,344 23,314 29,583 15,823 45,888 Securities Accounts Receivable Inventories Other Current Assets FY03/15 - - 48 - 12,354 4,324 33,088 27,948 34,402 42,017 29,155 4,013 963 1,519 1,357 3,134 2,343 3,133 1,736 10,351 8,667 6,171 5,873 6,931 5,035 5,050 7,567 39,559 25,135 56,694 51,051 62,811 72,709 66,921 71,014 Tangible Assets 8,093 10,898 9,721 10,089 10,980 11,151 12,104 12,197 Intangible Assets 3,937 2,761 2,333 5,070 4,372 4,540 4,365 4,490 17,578 13,268 12,578 12,760 15,437 18,226 21,477 22,614 Fixed Assets 29,608 26,929 24,634 27,920 30,790 33,918 37,948 39,302 Total Assets 69,168 52,064 81,329 78,971 93,601 106,628 104,869 110,316 Accounts Payable 5,954 1,981 26,610 17,939 29,100 36,604 33,105 33,850 Short-Term Debt 4,322 781 720 869 1,068 943 692 4,056 Other 9,046 4,785 8,515 8,779 7,757 9,818 7,933 7,867 Current Liabilities 19,322 7,547 35,845 27,587 37,925 47,365 41,730 45,773 Long-Term Debt 684 2,230 1,510 965 439 109 50 8 2,830 2,791 2,785 3,397 3,682 4,055 4,336 4,288 LT Investment Securities etc. Other Fixed Liabilities 3,514 5,021 4,295 4,362 4,121 4,164 4,386 4,296 Total Liabilities 22,836 12,568 40,141 31,949 42,046 51,529 46,116 50,070 Shareholders' Equity 44,795 40,420 41,741 47,601 51,895 54,957 58,670 60,171 -554 -821 -824 -398 -390 -679 242 483 539 473 753 Appraisal Gains / Losses etc. 1,536 -924 Minority Interests Net Assets 46,331 39,496 41,187 47,021 51,555 55,098 58,753 60,246 Total Liabilities & Net Assets 69,168 52,064 81,329 78,971 93,601 106,628 104,869 110,316 Working Capital 10,413 3,306 7,997 11,366 8,436 7,756 -817 13,774 5,006 3,011 2,230 1,834 1,507 1,052 742 4,064 -7,835 -8,170 -13,686 -14,039 -16,837 -22,262 -28,841 -11,759 Interest-Bearing Debt Net Debt Source: Company data Figures may differ from company materials due to differences in rounding methods. Increases in sales have tended to lead to higher accounts receivable, reflecting the company’s role as a distributor and its function as a trading partner. The company does not put pachinko machines on its balance sheet and therefore inventories are not significant. The net interest-bearing debt (interest-bearing debt minus cash and equivalents) has long been negative (practically debt-free). The equity ratio has ranged between 39.1% and 77.6% from FY03/03-FY03/13. http://www.sharedresearch.jp/ Copyright (C) 2013 Shared Research Inc. All Rights Reserved 34/43 Fields Corporation (2767) SR Research Report 2015/4/30 Cash flow statement Cash Flow Statement FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Operating Cash Flow (A) 11,127 4,147 8,429 8,005 10,015 13,570 16,322 -9,086 Investment Cash Flow (B) -14,604 -6,182 -1,011 -4,356 -4,798 -6,263 -8,018 -6,297 -3,477 -2,035 7,418 3,649 5,217 7,307 8,304 -15,383 (JPYmn) Free Cash Flow (A+B) FY03/15 -1,384 602 -2,687 -3,915 -2,565 -2,277 -2,018 1,624 Depreciation (A) 1,097 1,775 1,368 1,734 1,962 2,207 2,164 2,137 Capital Expenditures (B) 4,211 5,111 919 1,490 2,420 3,312 3,449 3,252 -1,988 -7,107 4,691 3,369 -2,930 -680 -8,573 14,591 4,170 2,290 -953 4,395 8,463 4,295 12,658 -12,688 Financing Cash Flow Working Capital Changes (C) Simple FCF (NI + A - B - C) Source: Company data Figures may differ from company materials due to differences in rounding methods. Fields’ operating cash flows (OCF) have been lumpy mainly due to working capital changes. Negative simple free cash flow was largely the result of cash used in working capital, driven by higher machine sales. http://www.sharedresearch.jp/ Copyright (C) 2013 Shared Research Inc. All Rights Reserved 35/43 Fields Corporation (2767) SR Research Report 2015/4/30 Other information History The company was established in Nagoya in 1988 by its founder and current Chairman/CEO, Hidetoshi Yamamoto. Yamamoto was exposed to the pachinko industry initially through his father whose Nagoya company was involved in management of pachinko halls. The younger Yamamoto proved a skilled advisor, adept at helping improve pachinko halls’ operating performance. During Fields’ first decade the business grew rapidly as the company augmented its sales pitch with pachinko hall space design and machine installation advice. After establishing itself in Kyushu and Tokyo in 1992, Fields Corporation rolled-out operations on a national scale by establishing branch offices in Tohoku, Chugoku, Shikoku and Kansai in 1995. The company realized halls wanted access to the best machines to attract fans, but industry practice at the time wedded a pachinko hall to one specific manufacturer. What was needed was a flexible system whereby halls could freely pick and choose popular titles. Positioning itself as an unaligned distributor, the company uncovered a profitable niche that it has since fortified. Important developments since 2000 include partnerships with several major pachinko/pachislot manufacturers. One important example of this was when the company started selling machines of Rodeo, a subsidiary of Sammy Corp. Fields took a 35% equity stake in Rodeo in 2002 and used its Rodeo relationship to demonstrate its ability to source publishing rights from third parties. In this case, it licensed rights from Toei Corp. (TSE1: 9605) for “Gamera” (a giant sea-turtle and rival to the Godzilla franchise), and the Gamera model sold a respectable 60,000 machines at the time of its release. The event also raised the company’s ability to price its services; specifically, revenue per machine effectively doubled when this approach was employed. Starting in the early 2000s, Fields set up several ventures outside of pachinko/pachislot planning, development and sales in order to create new content and realize multiple use of content. These included a sports gym operation, a sports management office for professional athletes, a game software company, a magazine publishing firm, and a mobile content company. In 2003, the company listed on the JASDAQ exchange, receiving the ticker code 2767. It then formed a business tie-up with Bisty of SANKYO Group. SANKYO Co. took a 15% stake in Fields in 2008. The company has also teamed up (in 2006) with Olympia Co. (unlisted) and formed an alliance in 2008 with KYORAKU SANGYO (unlisted). In 2007, Takashi Oya, a prominent games and IT securities analyst, joined the company as its new president and COO. With his arrival, the company focused on improving execution, and systemizing many of its planning and sales functions. At the same time, his appointment allowed Chairman Yamamoto the time and freedom to execute his vision. From 2008, Fields can be viewed as transitioning from a machine distributor to an IP business. http://www.sharedresearch.jp/ Copyright (C) 2013 Shared Research Inc. All Rights Reserved 36/43 Fields Corporation (2767) SR Research Report 2015/4/30 News and topics January 2015 On January 14, 2015, the company announced that Nanashow Corp. will conduct a nationwide launch of its pachislot machine BERSERK, part one. The new machine will be installed in pachinko halls in Japan beginning in March 2015. October 2014 On October 31, 2014, the company announced the domestic nationwide launch of pachislot machine Salaryman Kintaro: Shusse Kaidou-hen, manufactured by Rodeo Corporation. The new machine will be installed in pachinko halls beginning in January 2015. On October 15, 2014, the company announced the nationwide release of a new pachinko machine from Bisty Co., CR Evangelion 9. It is expected to be available at pachinko halls from December 2014. August 2014 On August 29, 2014, Shared Research updated comments on the company’s earnings results for Q1 FY03/15 after interviewing management; see the results section for details. On August 8, 2014, the company announced the nationwide release of a new pachinko machine from Bisty Co., CR ayumi hamasaki 2. It is expected to be available at pachinko halls from October 2014. July 2014 On July 15, 2014, the company announced the nationwide release of a new pachislot machine from Enterrise Co. “Sengoku BASARA 3”. It is expected to be available at pachinko halls from September 2014. May 2014 On May 7, 2014, the company announced earnings forecasts for FY03/15. FY03/15 earnings forecast: Sales: JPY100bn Operating profit: JPY5bn Recurring profit: JPY5bn Net income: JPY2.5bn Net income per share: JPY75.34 As a primary reason for the forecast, the company has entered new business partnerships with D-light Co., Ltd. and NANASHOW Corporation in pachinko/pachislot machine sales. Meanwhile, the company is http://www.sharedresearch.jp/ Copyright (C) 2013 Shared Research Inc. All Rights Reserved 37/43 Fields Corporation (2767) SR Research Report 2015/4/30 holding numerous conscientious discussions with Sammy Corporation and RODEO Co., Ltd. regarding the overall approach to their business affiliation. As a result, Fields is not including products produced by RODEO in its forecast with the exception of one title, production of which has been postponed from FY03/14 to FY03/15. On the same day, the company announced a business alliance with D-light Co., Ltd., a member of the Daiichi Shokai Co., Ltd Group. Daiichi Shokai and the company agreed on the use of Fields’ intellectual property and nationwide logistics network to support the creation and development of new pachinko/pachislot machines with a high degree of novelty, leading to the business alliance for conducting joint business with D-light. On the same day, the company announced a business alliance with NANASHOW Corporation. According to the company, NANASHOW is a pachinko/pachislot machine manufacturer that joined the Japan Amusement Machine Industry Association in 2013. Fields holds 210 shares of NANASHOW’s common stock with a stake of 38.9%. March 2014 On March 18, 2014, the company announced a revision to its FY03/14 earnings forecast. Revised FY03/14 earnings forecast: Sales: JPY114bn (previous forecast: JPY120bn) Operating profit: JPY9.6bn (JPY12.5bn) Recurring profit: JPY10.3bn (JPY12.5bn) Net income: JPY5.2bn (JPY6.3bn) The pachislot business held steady from efforts by the company to strengthen and enhance its product lineup. However, the company modified the release date of a new machine to FY03/15, and this required a revision to its FY03/14 earnings forecast. In interactive media, Fields moved to concentrate its efforts on select social game titles in order to increase intellectual property value and maximize revenue. As a result, the company stated that number of titles released in FY03/14 decreased. January 2014 On January 28, 2014, the company announced the release of a new pachislot machine from Enterrise Co., Ltd., “Pachislot Monster Hunter: Gekka Raimei.” It was expected to be available at pachinko halls from March 2014. On the same date, the company announced the release of a new pachinko machine from OK Co., Ltd., “Pachinko Onimusha: Dawn of Dreams.” On January 7, 2014, the company announced the release of a new pachislot machine from Bisty Co, Ltd. “Evangelion-Ketsui no Toki”. It was expected to be available at pachinko halls from February 2014. http://www.sharedresearch.jp/ Copyright (C) 2013 Shared Research Inc. All Rights Reserved 38/43 Fields Corporation (2767) SR Research Report 2015/4/30 July 2013 On July 31, 2013, the company announced the release of a new pachislot machine from Bisty Co, Ltd. “Ultraman Wars”. It was expected to be available at pachinko halls from October 2013. On July 29, 2013, the company announced the release of a new pachislot machine from Enterrise Co, Ltd. “Devil May Cry 4”. It was expected to be available at pachinko halls from September 2013. On July 17, 2013, the company announced the release of a new pachislot machine “Kaiji Act 3”. It was expected to be available at pachinko halls from September 2013. On July 9, 2013, the company announced the release of a new pachinko machine from OK Co., Ltd., “New-century Pachinko BERSERK” It was expected to be available at pachinko halls from August 2013. On June 5, 2013, the company announced the release of a new pachinko machine from Bisty Co., Ltd. “CR Evangelion 8". It was expected to be available at pachinko halls from July 2013. Top management Hidetoshi Yamamoto Founded Fields in 1988. Chairman with responsibility for executing Company’s long-term vision. Takashi Oya President Kiyoharu Akiyama Vice President Tetsuya Shigematsu Senior Managing Director Masakazu Kurihara Managing Director Akira Fujii Managing Director Kenichi Ozawa Managing Director Hiroyuki Yamanaka Director and Planning and Administration Division Manager Hideo Ito Director, Corporate Division Manager Teruo Fujishima Director and Pachinko/Pachislot Business Management Division Manager Nobuyuki Kikuchi Director and Media Relations Business Division Manager Shigesato Itoi Outside Director Employees Fields employed 770 employees at the parent company (1,588 total employees on a consolidated group basis). Average age was 35.8, average salary was JPY6.67mn (both parent company)—data as of March 31, 2014. http://www.sharedresearch.jp/ Copyright (C) 2013 Shared Research Inc. All Rights Reserved 39/43 Fields Corporation (2767) SR Research Report 2015/4/30 Major shareholders As of the end of March 2014, the shareholder breakdown was as follows: individuals/other 57.29%, foreign institutions 19.26%, financial institutions 2.26%. Top Shareholders Amount Held Hidetoshi Yamamoto SANKYO CO., LTD. Takeshi Yamamoto Mint Co. Northern Trust Company (AVFC) RE NV 101 25.00% 15.00% 10.41% 4.61% 2.87% JP Morgan Chase Bank 385632 1.60% Takashi Oya Northern Trust Company (AVFC) Re 15 PCT Treaty Account Northern Trust Company (AVFC) Account Non Treaty The Bank of New York Mellon (International) Limited 131800 1.30% 1.13% 1.01% 0.93% Source: Company data, SR Inc. Research http://www.sharedresearch.jp/ Copyright (C) 2013 Shared Research Inc. All Rights Reserved 40/43 Fields Corporation (2767) SR Research Report 2015/4/30 Shareholder returns The company adheres to the policy of paying dividends in line with its earnings levels. Specifically, Fields determines dividend amounts based on cash flow status with a yardstick of the 20%+ consolidated payout ratio. Investor relations The company hosts quarterly analyst meetings following earnings announcements. In July 2012, the company improved the content of its English IR website, adding “Top Message” (message from chairman and president) “Financials” (description of the company’s business results, financial statements, segment data, etc.), “CSR” (message from COO, etc.), and other information. (Click here to visit the English IR website.) By the way Chosen by Daiwa Investor Relations Co., Ltd. as “2013 Company of Excellence” for its website. Chosen by Nikko Investor Relations, Co., Ltd. for the “Best Corporate Website” award in 2013. http://www.sharedresearch.jp/ Copyright (C) 2013 Shared Research Inc. All Rights Reserved 41/43 Fields Corporation (2767) SR Research Report 2015/4/30 Company profile Company Name Head Office Fields Corporation Shibuya Garden Tower 16-17 Nampeidai-cho Shibuya-ku Tokyo, Japan 150-0036 Phone Listed On +81-3-5784-2111 Tokyo Stock Exchange 1st Section Established Exchange Listing June 10, 1988 March 19, 2003 Website Fiscal Year-End http://www.fields.biz/ir/j/ March IR Contact IR Web XXX Watanabe http://www.fields.biz/ir/e/ IR Mail IR Phone [email protected] +81-3-5784-2111 http://www.sharedresearch.jp/ Copyright (C) 2013 Shared Research Inc. All Rights Reserved 42/43 Fields Corporation (2767) SR Research Report 2015/4/30 About Shared Research Inc. We offer corporate clients comprehensive report coverage, a service that allows them to better inform investors and other stakeholders by presenting a continuously updated third-party view of business fundamentals, independent of investment biases. Shared Research can be found on the web at http://www.sharedresearch.jp. Current Client Coverage of Shared Research Inc.: Accretive Co., Ltd. GCA Savvian Corporation NTT Urban Development Corporation AEON DELIGHT Co. Grandy House Corp. Pigeon Corp. Ai Holdings Corp. Gulliver International Co., Ltd. Resorttrust, Inc. AnGes MG Inc. Hakuto Co., Ltd. Round One Corp. Anicom Holdings, Inc. Happinet Corporation Ryohin Keikaku Co., Ltd. Anritsu Corporation Harmonic Drive Systems Inc. Sanix Incorporated Apamanshop Holdings Co., Ltd. Hearts United Group Co., Ltd. Sanrio Co., Ltd. ArtSpark Holdings Inc. Infomart Corp. SATO Holdings Corp. AS ONE Corporation Intelligent Wave Inc. SBS Holdings, Inc. Axell Corporation Itochu Enex Co., Ltd. Ship Healthcare Holdings Inc. Azbil Corporation ITO EN, Ltd. SMS Co., Ltd. Bell-Park Co., Ltd. J Trust Co., Ltd SOURCENEXT Corporation Benefit One Inc. Japan Best Rescue Co., Ltd. Star Mica Co., Ltd. Canon Marketing Japan Inc. JIN Co., Ltd. SymBio Pharmaceuticals Limited Chiyoda Co., Ltd. Kenedix, Inc. Takashimaya Co., Ltd. Comsys Holdings Corporation KLab Inc. Takihyo Co., Ltd. Creek & River Co., Ltd. LAC Co., Ltd. Tamagawa Holdings Co., Ltd Daiseki Corp. Lasertec Corp. 3-D Matrix, Ltd. DIC Corporation MAC-HOUSE Co. TOKAI Holdings Corp. Digital Garage Inc. Matsui Securities co., Ltd. Verite Co., Ltd. Don Qijote Holdings Co., Ltd. Medinet Co., Ltd. WirelessGate, Inc. Dream Incubator Inc. MIRAIT Holdings Corp. Yellow Hat Ltd. Elecom Co. NAGASE & CO., LTD Yumeshin Holdings EMERGENCY ASSISTANCE JAPAN Co. NAIGAI TRANS LINE LTD. VOYAGE GROUP, Inc. en-Japan Inc. NanoCarrier Ltd. ZAPPALLAS, INC. FerroTec Corp. Nippon Parking Development Co., Ltd. ZIGExN Co., Ltd. Fields Corp. Onward Holdings Co., Inc. FreeBit Co., Ltd. Paris Miki Holdings Inc. Gamecard-Joyco Holdings, Inc. NS Tool Co. A ttention: If y ou w ould like to see firms y ou inv est in on this list, ask them to become our client, or sponsor a report y ourself. Disclaimer This document is provided for informational purposes only. No investment opinion or advice is provided, intended, or solicited. Shared Research Inc. offers no warranty, either expressed or implied, regarding the veracity of data or interpretations of data included in this report. Shared Research Inc. shall not be held responsible for any damage caused by the use of this report. The copyright of this report and the rights regarding the creation and exploitation of the derivative work of this and other Shared Research Reports belong to Shared Research Inc. This report may be reproduced or modified for personal use; distribution, transfer, or other uses of this report are strictly prohibited and a violation of the copyright of this report. SR Inc. officers and employees may currently, or in the future, have a position in securities of the companies mentioned in this report, which may affect this report’s objectivity. The Chief Executive Officer of SR Inc. is an outside director of Bell Park Co., Ltd. This will not influence or impact, directly or indirectly, any opinions render in current or future reports. Japanese Financial Instruments and Exchange Law (FIEL) Disclaimer The report has been prepared by Shared Research Inc. (“SR”) under a contract with the company described in this report (“the Company”). Opinions and views presented are SR’s where so stated. Such opinions and views attributed to the Company are interpretations made by SR. SR represents that if this report is deemed to include an opinion by SR that could influence investment decisions in the Company, such opinion may be in exchange for consideration or promise of consideration from the Company to SR. Contact Details http://www.sharedresearch.jp Email: [email protected] http://www.sharedresearch.jp/ 3-31-12 Sendagi Bunkyo-ku Tokyo, Japan Phone: +81 (0)3 5834-8787 Copyright (C) 2013 Shared Research Inc. All Rights Reserved 43/43
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