Avex Inc. (7860) Earnings Call Transcript & Summary

Thank you for joining our overview of the full year results for the fiscal year ended March 31, 2026. This fiscal year marked a major recovery from the operating loss recorded in the previous year and results exceeded the earnings forecast announced at the beginning of the period. We believe this was a year in which our dual efforts of creating IP and improving our earnings structure, initiatives we have pursued for many years delivered tangible results. Hatamoto will go over the details of our financial results, and I will discuss our management policy.

Hello, and thank you. My name is Hatamoto. I oversee Investor Relations. Please allow me to go through our overview of the cumulative results for the fourth quarter of the fiscal year ended March 31, 2026. For the fiscal year ended March 31, 2026, both revenue and profit exceeded the previous year and results also surpassed the earnings forecast announced last May, making this a strong set of results. Let me walk you through the details. First, an overview of the consolidated results. In the fiscal year ended March 31, 2026, net sales increased approximately 11% year-on-year to JPY 146.5 billion. Operating profit improved significantly from the operating loss recorded in the previous year to JPY 4.0 billion. Profit attributable to owners of the parent increased to approximately 3x what was seen in the previous year, reaching JPY 3.5 billion. Revenue and operating profit both grew significantly, driven by higher live performance-related sales in the Music business, strong overseas sales of anime titles in the Anime & Visual Content business and lower SG&A expenses, resulting from the absence of the allowance for doubtful accounts recorded in the previous year and a review of spending controls. Profit attributable to owners of the parent also increased substantially year-on-year due to the recording of extraordinary gain from the sale of shares in an equity method affiliate. Results also significantly exceeded the full year forecast announced last May of JPY 3.0 billion in operating profit and JPY 1.2 billion in net profit. Next are the trends in consolidated net sales. Both the Music business and the Anime & Visual Content business recorded year-on-year revenue growth, achieving the highest net sales levels since the COVID-19 pandemic. In addition, SG&A expenses declined due to the absence of the allowance for doubtful accounts and tighter spending controls, leading to a significant increase in operating profit compared to last year. These are the results by segment. Led by the strong performance of the Music business, each segment achieved year-on-year growth in both revenue and operating profit. Please allow me to go through each of the segments in more detail. First is the Music business. Although music package sales declined year-on-year due to a decrease in total unit sales despite the release of major titles, the expansion of the live performance business drove growth in live performances, merchandising and management, while music streaming revenue also increased due to higher streaming volumes. Looking at KPIs related to live performances, although the number of stadium performances declined, the increase in arena performances kept total attendance roughly in line with the previous year. At the same time, the average ticket price increased as more premium seating was introduced at arena shows and other performances. For music package KPIs, sales declined because unit sales of singles and albums decreased despite higher sales of video titles compared with the previous year. Overall, net sales in the Music business grew year-on-year, primarily driven by live performances and streaming. In the Anime & Visual Content business, strong sales of major anime titles to streaming platforms, particularly in North America, drove significant growth in both revenue and operating profit. In other businesses, improved profitability in Asia contributed to year-on-year growth in both revenue and operating profit. That concludes the overview of the cumulative results for the fourth quarter of the fiscal year ended March 31, 2026. Next, I'd like to move on to our forecast for the fiscal year ending March 31, 2027. Looking at our full year outlook for the fiscal year ending March 31, 2027, we expect operating profit to increase approximately 47% year-on-year to JPY 6.0 billion. This will be driven by continued portfolio optimization, further improvements to our cost structure and ongoing business growth initiatives. We expect profit attributable to owners of the parent to come in at JPY 3.2 billion. In line with our dividend policy, we plan to maintain the annual dividend at JPY 50 per share, unchanged from the previous fiscal year. That concludes our earnings and dividend forecast for the fiscal year ending March 31, 2027. The slide shows the pipeline currently confirmed for the fiscal year ending March 31, 2027. At this stage, the lineup is weighted toward the first quarter, but we will continue announcing additional projects as they are finalized. Next, I'd like to touch on our capital allocation strategy. On shareholder returns, we maintained our minimum annual dividend of JPY 50 per share, in line with our dividend policy. And we also carried out a large-scale share buyback totaling JPY 4.3 billion 2 years ago. At the same time, we continue to actively invest in globally competitive IP, and that investment strategy will remain unchanged going forward. We have also completed M&A transactions involving overseas management companies and plan to continue pursuing large-scale catalog acquisitions in global markets as we work toward the most effective capital allocation possible. As part of our focus on capital efficiency and shareholder value, ROE improved significantly to 7%, bringing it to roughly the same level as our cost of capital. While our cost of capital remains largely unchanged from last year, we will continue strengthening balance sheet management and driving earnings growth with the goal of achieving ROE above our cost of capital. That concludes the overview of our full year results for the fiscal year ended March 31, 2026.

I'd now like to discuss our medium- to long-term management strategy. Let me begin by revisiting our business model. We discover and develop new talent, create stars and hit content, generate revenue through live performances, physical package releases and streaming and then accumulate those rights as IP. The earnings generated from that IP over the medium to long term are then reinvested into creating the next generation of IP. That cycle sits at the core of our business. And in recent years, we have focused heavily on developing next-generation artists and content suited to today's evolving market environment. Let me start by sharing some of the progress we have made. Last year, XG successfully completed its first world tour, performing in 35 cities worldwide and attracting a total audience of 400,000 people. Their first album also entered the Billboard Top 100 in the United States. Since February, the group has been on its second world tour, and it has clearly grown into an artist with even greater global potential ahead. ONE OR EIGHT, which debuted in 2024, also saw its lead track Tokyo Drift from its first mini album become a global hit, significantly expanding its international recognition. The group now has 1.75 million monthly listeners on Spotify. These hit songs are helping establish a clear fan base, which we aim to grow into a long-term fandom over time. At the same time, we are building a world-class creative network to support the continued growth of our IP. Through our U.S. operations, we have, for the first time in the company's history, signed exclusive music publishing agreements with more than 30 globally recognized songwriters, including Grammy Award winner, Kamal Wilson. We are already seeing successful collaborations through group synergies, including with BE:FIRST, and we plan to leverage this network to further accelerate the global expansion of our IP. As a result of these efforts, XG entered the monetization phase during the current fiscal year. ONE OR EIGHT is also beginning to show clear progress toward monetization. Once an artist reaches the monetization phase, the potential for accelerated growth increases significantly. At the same time, reaching that stage takes time. By applying the expertise we have accumulated through artist development, we aim to accelerate the growth of next-generation artists, shorten the investment period and strengthen our artist portfolio overall. Looking ahead, our new 5-member boy group, VIBY, will make its debut this June. VIBY will be the first artist launched under the Rii.MJ Project by Kim Mi Jeong. Kim Mi Jeong is a producer known for discovering talent for groups, including BTS, and we believe our experience will play a major role in creating future global hits. It was also a breakthrough year for many of our other artists. AiNA THE END, who officially joined Avex in April 2025, saw On The Way become a global hit and began her first-ever Asia tour this April. Da-iCE announced its first-ever solo dome concert, while Ayumi Hamasaki continues to expand her activities across Asia, including performances in Taipei, Hong Kong, Singapore and Beijing. Her Taipei show alone drew an audience of 26,000 fans. Artists working in partnership with us, including Snowman, BLACKPINK and BE:FIRST also expanded their activities significantly over the past year. As announced on May 3, Takuya Kimura of STARTO ENTERTAINMENT will also join a newly established private label within our group. We will continue supporting his activities, both in Japan and internationally as a group. Alongside the expansion of our artist activities, we are also strengthening initiatives aimed at maximizing earnings from our music catalog business, which provides recurring stock-based revenue. We have entered into a global music publishing partnership with Bruno Mars, under which Avex will exclusively manage worldwide music publishing rights for all future songs he creates. We have also launched a music catalog investment project totaling approximately JPY 15.0 billion. As the first step, we acquired the catalog of producer Infamous. In this way, we are steadily expanding initiatives designed to maximize the value of rights generated through artist activities. Let me now turn to our anime business. The anime market continues to see strong growth, driven largely by the expansion of overseas streaming platforms. Against this backdrop, we are proactively investing in titles designed for international distribution from the outset, allowing us to build a highly profitable portfolio. Gachiakuta began simultaneous worldwide streaming in July 2025, reached #1 on Crunchyroll's viewing rankings and has already been confirmed for a second season. Witch Hat Atelier based on the highly acclaimed Manga that has received numerous international awards also began global streaming distribution in April. By investing in titles with strong international revenue potential, we aim to maximize profitability going forward. We also see franchise development for major IP as an important driver of sustainable long-term growth. By continuing series such as KING OF PRISM, we are able to generate recurring revenue while also enhancing the value of our catalog by reintroducing past titles alongside new releases. Along with our efforts to create IP that drives future earnings growth, we also implemented a range of initiatives this fiscal year aimed at improving profitability. One major initiative was a more focused approach to portfolio management. During the fiscal year, we transferred 4 subsidiaries, including Virtual Avex and aNCHOR as well as 2 additional businesses, allowing us to concentrate management resources on priority areas. In addition, tighter spending controls and stronger monitoring improved our SG&A ratio by 3 percentage points. As a result of these efforts, gross profit per employee improved by more than 20%, leading to a significant increase in overall profitability. Going forward, we will continue optimizing our business and IP portfolio, redefining organizational roles and improving operational efficiency through AI and other technologies. Through these efforts, we aim to reallocate management resources effectively, optimize staffing and build an even stronger business portfolio. As a result, profitability improved significantly this fiscal year with operating profit reaching approximately JPY 4.0 billion. In the final year of our current medium-term management plan, the fiscal year ending March 31, 2027, we expect operating profit to increase 46.9% year-on-year to JPY 6.0 billion. Going forward, we will continue investing in future growth, creating new hits and driving substantial earnings growth so that this momentum can continue over the long term. We create IP and steadily accumulate the rights generated as that IP grows and succeeds. We then reinvest the earnings generated from those accumulated rights in the discovering and developing the next generation of talent. We believe this cycle is the very foundation of our IP business. To sustain and expand this cycle, it is essential that we create IP with lasting global appeal, not just onetime successes. To achieve this, we are building the infrastructure and networks needed to compete on a global scale while also deepening our understanding of local markets and cultures. By balancing both perspectives, we aim to continuously create IP with long-term global potential and deliver further growth. We sincerely appreciate your continued support and encouragement moving forward. [Statements in English on this transcript were spoken by an interpreter present on the live call.]