Avex Inc. (7860) Earnings Call Transcript & Summary

Thank you for joining our overview of the cumulative results for the second quarter of the fiscal year ending March 31, 2026. First, an overview of the consolidated results. For the cumulative second quarter of the fiscal year ending March 31, 2026, net sales were JPY 64.0 billion. Operating profit was JPY 1.1 billion. And profit attributable to owners of the parent was JPY 0.8 billion. Operating profit returned to the black due to factors such as an increase in large-scale live performances in the Music business, strong performance in the Anime business and a decrease in SG&A expenses, particularly general expenses. As a result, both net sales and operating profit increased compared to the previous fiscal year. Profit attributable to owners of the parent declined year-over-year because an extraordinary gain was recorded last year due to the transfer of subsidiary shares. Next, let us look at the trends in consolidated net sales. As explained in the overview of consolidated results, net sales increased from last year and were roughly at the same level as 2 years ago. Moving on to the consolidated statements of income. The gross profit margin increased from the previous year, in line with the increase in net sales. Regarding SG&A expenses, general expenses decreased due to the absence of the allowance for doubtful accounts recorded in the previous year and proactive reviews of spending control. As a result, operating profit increased significantly compared to last year. These are the results by segment. As mentioned earlier, the Music business and Anime & Visual Content business performed well, resulting in higher sales and higher profits for each segment. Please allow me to go through each of the segments in more detail. First is the Music business. Net sales increased year-over-year due to growth in live concerts, driven by more large-scale performances, increases in related merchandising and management revenue and an increase in streams and subscription-based music distribution services. Regarding KPIs related to live performances, the number of stadium and arena shows increased, leading to growth in total attendance. The average ticket price also increased because the number of performances at large venues, which carry higher ticket prices rose. Turning to music package KPIs. The number of units sold increased year-over-year due to sales of major DVD and Blu-ray titles. As for the trend in net sales in the Music business, sales were slightly below those of 2 years ago, but increased compared to last year. In the Anime & Visual Content business, net sales increased, and operating profit rose significantly due to strong overseas program sales for anime titles and strong box office performance for anime films. Details on other businesses can be found on Page 10. This concludes the overview of the cumulative results for the second quarter of the fiscal year ending March 31, 2026. Next, we will move on to discussing business progress and outlook. First are the key topics for the second quarter. This section covers the progress of the global artists our group is promoting. Artists such as XG, ONE OR EIGHT and AiNA THE END are performing well globally and continue to show strong potential for expansion, both in Japan and overseas. Specific initiatives for each artist are listed on Page 11. Next is our global expansion of anime. The TV anime, Gachiakuta, is distributed through the globally operated streaming service, Crunchyroll, where it reached first place in viewership rankings. It continues to expand as a popular global title and contributed significantly to second quarter results. Other second quarter topics include the growth of a broad range of intellectual properties, works and talent, such as Avex's own music festivals, animated films and an actor appearance in NHK's morning drama series. Further expansion is expected. Next are the key topics from the third quarter onward. In October, Artist G-Dragon held a large-scale live concert and Snow Man released an album in November. XG's first full album is scheduled for release in January, and their second world tour will begin in February. The pipeline for the second half of the fiscal year, which includes the first half results and the key topics discussed is shown on Page 15. Major title releases and large-scale live performances are planned for the second half of the fiscal year. We are working toward hitting our targets for our full year earnings forecast. As part of our initiatives to develop anime IP, the new animation studio, STUDIO GRAPH77, has begun full-scale operations. With the global demand for anime continuing to grow, we will expand our production capabilities to help create globally successful anime titles. Lastly, regarding the earnings forecast, based on the cumulative second quarter results and the pipeline for the second half of the fiscal year described on Page 15, we will not revise the forecast at this time. We will continue working to achieve the earnings forecast and will also advance efforts already underway to optimize the business portfolio and expense execution. This concludes our overview of the second quarter results presentation for the fiscal year ending March 31, 2026. [Statements in English on this transcript were spoken by an interpreter present on the live call.]