Universal Entertainment Corporation Q4 FY2025 earnings call

• Corporate Governance and Organizational Restructuring

  • After the new management team took office in September 2024, strengthening corporate governance was set as the top priority: the company redesigned its corporate philosophy, transitioned to a company with an audit committee, established nomination and remuneration committees, and shifted from centralized one-person management to a consensus-based system by regularly holding management meetings.
  • Established the Business Division Headquarters and implemented organizational changes to clarify accountability.
  • Revised the personnel evaluation system to improve employee engagement, and introduced a business evaluation meeting system to advance the consolidation of unprofitable businesses and the sale of idle assets.
  • Focused on defensive measures to improve business health, including resolving long-standing litigation issues. All these measures are positioned as foundational work for future growth.

• Impairment Loss on IR Assets

  • After a fundamental change in the business environment for the Philippines IR business (plunged Chinese tourist volume, structural changes to the VIP market caused by the ban on POGO licenses, intensifying competition in the Philippine market), the company conducted a zero-base re-evaluation of the profitability and cash flow forecast of Okada Manila, and recorded an impairment loss of 229.1 billion yen centered on the IR segment.
  • This impairment write-down is a one-time accounting adjustment that does not involve cash outflow, and it resets the company's financial position to align with current market conditions, allowing management to focus on improving profitability and cash generation going forward.

• Amusement Machine Segment 2025 Operational Progress

  • The company quickly adapted to new regulatory standards and launched compliant products early to the market, and achieved good market feedback with differentiated pachinko products that highlight unique game mechanics.
  • After facing challenges with low approval rates for AT pachislot machines in 2025, the company strengthened its internal system to improve approval accuracy, and the highly anticipated title "Smart Slot Million God - Trajectory of the Gods" has received regulatory approval and is ready for launch.

• IR Segment 2025/2026 Operational Initiatives

  • Abandoned large-scale recovery efforts for the structurally declining junket business, and shifted strategy to growing direct VIP customers independent of junkets. Under the leadership of the new CEO of Okada Manila's operating company TRLEI, the company has introduced tiered benefits for reward members and strengthened marketing in major Asian markets including Japan, with early results already appearing.
  • For the mass market, the company is improving game variety by rearranging gaming areas, and introducing targeted offers based on behavior prediction analysis centered on reward members to improve repeat customer rates, countering intensifying competition and customer shift to e-gaming.
  • For the non-gaming segment, the company is actively attracting MICE business and strengthening loyalty programs for retail tenants to drive more customer traffic from domestic and international sources. More than 50 mid-term initiatives are being implemented beyond listed plans, with management expecting to outperform market growth in fiscal 2026.

• Balance Sheet Impact of Impairment

  • On the consolidated balance sheet, fixed assets decreased from approximately 553.1 billion yen to approximately 279.5 billion yen, and total assets decreased by approximately 259.1 billion yen. Total net assets decreased from approximately 369.7 billion yen to approximately 129.6 billion yen. Interest-bearing debt remained almost unchanged, and cash and cash equivalents were not directly affected by the impairment, as it only represented an accounting adjustment on the income statement and balance sheet.

1. Amusement Machine Segment: Benefiting from the market activation driven by the spread of smart amusement machines, the segment launched 8 pachislot titles and 8 pachinko titles that comply with new industry standards to the market early. Total sales volume reached 115,000 units. While the overall result is not fully satisfactory, the segment achieved solid progress in quickly adapting to the new regulatory standards. Increased product launches compared to fiscal 2024 helped secure a certain level of profit. The company's launched product "Hanemono Family Stadium" received positive market feedback, demonstrating strong product development potential. The segment targets two consecutive years of revenue and profit growth in fiscal 2026. 2. Integrated Resort (IR) Segment: The segment faced structural headwinds from a sharp decline in junket business across the Philippine market in fiscal 2025, leading to a direct revenue decline from the VIP market. At Okada Manila, gross gaming revenue (GGR) decreased 20% year-over-year, with VIP GGR down 44%, mass table GGR down 10%, and gaming machine GGR down 8%, driven by a more than 50% year-over-year drop in junket volume. The mass market segment saw a year-over-year decline for the full year due to temporary headwinds from bad weather and political instability, but revenue remained resilient. Non-gaming areas including hotel, food and beverage, and entertainment have confirmed clear room for future growth.

• Consolidated full year fiscal 2026 (ending December 2026) guidance is set as: 140.0 billion yen in revenue, 16.0 billion yen in operating profit, 2.2 billion yen in ordinary profit, 2.0 billion yen in net income, and 29.0 billion yen in adjusted EBITDA.
• For the Amusement Machine Segment: Management targets 136,000 total unit sales in fiscal 2026, and aims to achieve two consecutive years of revenue and profit growth. For pachislot, the company will launch large flagship titles targeting peak selling seasons, maintain a constant pipeline of additional releases to eliminate sales gaps, and offer a full product lineup from AT machines to A-type machines targeting placement across all hall sections. For pachinko, the company will target hit products by introducing new IP-based models and unique products that expand pachinko's appeal, optimize product launch cycles to stabilize cash flow, and start selling third-party products leveraging existing sales capabilities to drive additional revenue growth. Mid-term, the segment targets retaking market leadership, including reclaiming the top position in the pachislot market.
• For the Integrated Resort Segment: Management will continue advancing the exit from junket dependence, focus on transitioning to a sustainable profit structure by growing direct VIPs, expanding the mass market, and strengthening non-gaming businesses. Management does not target short-term rapid growth, instead focusing on long-term stable growth, and expects to outperform overall Philippine gaming market growth in fiscal 2026. Mid-term, the segment targets becoming the number one integrated resort in the Philippines and contributing stable profit to the group long-term.
• Long-term, the company plans to launch a third core new business segment within fiscal 2026, combining the company's unique strengths: entertainment machine technology from its amusement machine business, and world-class integrated resort operation expertise from its IR business. This new business will enable the company to build a diversified growth portfolio that does not rely on any single market.

• Amusement Machine Segment: The total amusement machine player base has not recovered to pre-COVID levels, and the pachinko market overall is facing weak demand, with continued industry pressure from the conversion of pachinko floor space to pachislot across halls. The segment also faces ongoing regulatory risk related to machine approval rates, which challenged product planning in 2025.
• Integrated Resort Segment: The VIP market has structurally declined following the elimination of junket operators and the POGO license ban, with no near-term recovery expected. The segment faces intensifying competition for existing customers from new market entrants, rising customer acquisition costs that compress EBITDA margins, and continued customer shift to online e-gaming that suppresses land-based mass market revenue. China inbound tourism has not recovered, and overall Philippine tourist growth is expected to be low single-digit with no near-term catalyst for rapid growth.

No question and answer section is included in the provided transcript.