Avex Inc. (7860) Earnings Call Transcript & Summary

Hello, everyone. My name is Seiichi Hatamoto. I'm in charge of IR. Today, I will present our financial results for fiscal 2021, the fiscal year ended March 31, 2022, as well as our financial forecast for fiscal 2022. First, the highlights of our financial results. Some of the impact of the COVID-19 pandemic had on our fiscal 2020 results continued in fiscal 2021. That said, despite factors, including declaration of a state of emergency by the Japanese government and some restrictions on attendance in our live events business, we recorded an increase in both net sales and operating income, which can be attributed to the restart of more business activities compared to last year. Net sales were JPY 98.4 billion, up JPY 16.9 billion year-on-year. Operating income was JPY 2.5 billion, a turnaround from an operating loss of JPY 6.2 billion last year. Net income attributable to owners of the parent was JPY 0.9 billion. Next, sales by segment. Sales in the music business increased significantly, mainly in the live and music package subsegments. In addition, sales in the digital platform business and other businesses both increased. As a result, overall net sales increased substantially. Moving to operating income or loss by segment. In the music business and anime and visual content business, both of which posted a loss last year, increased sales and improved profit margin enabled the return to profitability. As a result, overall operating income improved substantially. Despite this improvement, net income attributable to owners of the parent decreased absent extraordinary income from the sale of fixed assets recorded last year due to income attributable to the sale of our headquarters building. That concludes our financial highlights. Next is our consolidated statements of income. As I just mentioned, net sales increased year-on-year, mainly on strong performance in the music business. Gross profit also increased substantially due to increased sales and a significant improvement in the gross profit margin. Overall, personnel expenses, which come under selling, general and administrative expenses decreased following the introduction of a voluntary retirement initiative in fiscal 2020 and the ensuing reduction in personnel costs associated with employees that retired. Sales promotion and advertising expenses increased due to a rise in execution costs in the music business where a number of business activities resumed. General expenses also increased due in part to sales costs increasing in tandem with sales and increased costs relating to business activities. As a result of these factors, operating income improved. Further below operating income are our extraordinary gains and losses. While last year we benefited from the sale of fixed assets and recorded extraordinary losses as a result of the voluntary retirement initiative, there were no major events in fiscal 2021. Next, our results by segment, beginning with the music business. Sales in the music business grew due to increased sales in the live and music package subsegments as well as an improved gross profit margin. As a result, despite an increase in sales promotion and advertising expenses, segment operating income improved significantly. Now for the subsegments of our music business. With the restart of live events, including large-scale concerts featuring Avex artist, AAA, in particular, live sales improved substantially. Meanwhile, music package sales increased substantially due to increased sales of music titles, details of which are on Page 28 of the reference materials as well as an increase in income from publishing rights in other. Let us now look at the state of the live subsegment. Last year, no large-scale concerts were held due to the COVID-19 pandemic, and audience numbers fell significantly. In fiscal 2021, however, although there were restrictions on audience numbers at certain venues, the number of overall performances increased and audience numbers grew substantially as a result. In the music package subsegment, strong sales were accounted for by growth in albums, singles and DVDs with the number of albums sold making a particularly significant contribution. In the anime and visual content business, although sales decreased, gross profit increased due to an improved gross profit margin and the decrease in selling, general and administrative expenses. As a result, segment operating income increased. Moving on to the digital platform business. Sales increased due to growth in e-commerce while selling, general and administrative expenses decreased. As a result, segment operating income increased. In digital platform business subsegments, a drop in subscriber numbers had a negative impact on digital streaming and sales decreased as a result. In the fan club subsegment, changes in management at some of our fan clubs caused the number of members to fall, which in turn led to lower sales. In e-commerce, through which we sell packages and artist merchandise, sales grew due to an increase in the volume of packaged titles and live concert merchandise sold. As a result, the digital platform business benefited from higher sales overall. In other businesses, an increase in sales in new businesses, namely virtual artists and live streamers, ensure that segment sales improved. However, operating income decreased due in part to a rise in development costs associated with newly released games. That concludes our financial results for fiscal 2021. I will now cover the full year financial forecast for fiscal 2022. We forecast JPY 1.0 billion in operating income and JPY 0.4 billion in profit attributable to owners of the parent, both down from fiscal 2021. Although impact from the pandemic is gradually receding, including less adverse impact from restrictions on live events, our profit margin is set to fall due to changes in our business and artist portfolios. Furthermore, as announced in the new medium-term management plan, we also plan to make investments to generate hit IP. We arrived at this forecast on the basis of these factors. With regard to shareholder dividends, in line with our dividend policy, our plan is to pay an annual dividend of JPY 50 per share, which is on par with last year. The remaining pages of the materials have been provided for your reference. Thank you for listening.