gree q4 financial results

7/31/2019 Gree Q4 Financial Results

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Copyright 2004-2007 GREE,Inc. All Rights Reserved.

Copyright GREE, Inc. All Rights Reserved.

GREE, Inc.Financial Results for the Fourth Quarter of the Fiscal Year Ended June 30, 2012

August 14, 2012


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FY2012 Fourth Quarter Business Results

Business Strategy for the Fiscal YearEnding June 30, 2013 (FY2013)

Contents


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FY2012 Fourth Quarter Business Results


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FY2012 Fourth Quarter Highlights

Launched GREE Platform globally, enabling

distribution of games in 169 countries (*1) Through Funzio acquisition, secured excellent

creative talent and development and operationalexpertise behind hit social games and top-rankingtitles on the U.S. App Store

Continued investing globally in hiring and other

areas. Expanded network of game studios to spanfive countriesJapan, U.S., China, South Korea andthe U.K.

Focused on global expansion and improvement ofuser environment, which resulted in a shortage ofmajor IP titles and new titles

Implemented measures to improve the GREE userenvironment, including anti-RMT measures (*2),setting of monthly purchase limits for underageusers, and discontinuation ofcomp-gachafunctions

Formed partnerships aimed at securing major IPtitles and strengthened game development pipelinetargeting launches in FY2013

Progress of globalexpansion

3

Expansion inJapan

Global launch of GREE Platform

(*1) As of July 31, 2012

(*2) Real money trading (RMT) indicates using usage rights of GREE services to make monetary or property exchanges, as well as allrelated advertising, announcing and soliciting.


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FY2012 Fourth Quarter and Full-Year Financial Results(Consolidated)

Millions of yen

4

FY2012

YoY change 4Q FY2012 YoY change 3Q FY2012 QoQ change

Net sales 158,231 +147% 40,080 +90% 46,189 -13%

Operating profit 82,729 +166% 18,996 +94% 24,549 -23%

Ordinary profit 81,935 +166% 18,439 +90% 24,505 -25%

Net profit 47,967 +163% 12,328 +117% 13,448 -8%

Net sales reached a record high of 158.231 billion (+147% YoY) FY2012 expenses increased significantly due to costs associated with global expansion,

including labor and rental charges. However, all profit lines rose sharply as growth in netsales outpaced growth in expenses, mainly on higher paid services revenue.


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Net Sales & Operating Profit (Consolidated)

Millions of yen

5

12,41014,302

16,372

21,093

30,432

41,529

46,189

40,080

6,221 6,9248,199

9,789

16,646

22,53524,549

18,996

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

20116 20126

Net sales Operating profit

FY2011 FY2012


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Sales by Business (Consolidated)

Millionsof yen Millionsof yen

Advertisement Sales

6

Steady growth in sales of partneradvertising and reward advertising.

Focused on global expansion of GREEPlatform and improving our userenvironment, resulting in a shortage of

major IP titles and new titles.

10,14711,938

13,906

18,387

27,503

38,290

42,882

36,444

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

20116 20126FY2011 FY2012

2,2622,363

2,466

2,706

2,928

3,238 3,306

3,636

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

20116 20126FY2012FY2011

Paid Services Sales


8/34Copyright GREE, Inc. All Rights Reserved.

FY2012 Fourth Quarter Operating Expenses(Consolidated)

7

Millions of yen

Rental charges: Increased in FY2012 due to higher user activity and increased number ofdata centers associated with global expansion

Advertising: Increased in FY2012, but ratio of advertising expenses to sales declined YoYdue to more effective advertising based on cost performance assessment

Labor costs: Increased in FY2012 due to smooth progress of global personnel plan

FY2012 YoY change 4Q FY2012 YoY change 3Q FY2012 QoQ change

Cost of sales: 13,099 +138% 4,571 +122% 3,678 +24%

Rental charges 5,963 +120% 1,606 +52% 2,099 -23%

Labor costs 4,289 +151% 1,709 +190% 979 +75%

Others 2,846 +160% 1,254 +206% 599 +109%

SG&A: 62,403 +127% 16,512 +79% 7,962 -8%

Advertising 18,516 +36% 4,489 +14% 5,246 -14%Paid-charge

commissions 18,809 +167% 4,958 +101% 5,501 -10%

Labor costs 7,043 +289% 2,300 +237% 1,968 +17%

Others 18,033 +255% 4,764 +121% 5,245 -9%



FY2012 Fourth Quarter Balance Sheet(Consolidated)

Millions of yen

8

End-4Q FY2012 End-4Q FY2011 YoY change End-3Q FY2012 QoQ change

Current assets 122,287 47,607 +157% 102,657 +19%

Cash and cashequivalents

72,759 22,254 +227% 51,662 +41%

Receivables 28,238 16,944 +67% 32,993 -14%

Others 21,288 8,407 +153% 18,001 +18%

Fixed assets 43,010 15,248 +182% 22,715 +89%

Assets 165,297 62,855 +163% 125,373 +32%

Current liabilities 68,512 25,202 +172% 53,914 +27%

Liabilities 81,311 25,393 +220% 54,102 +50%

Paid-in capital 2,179 2,135 +2% 2,172 +0%Capital reserves 2,177 2,133 +2% 2,169 +0%

Capital reserves 79,338 33,434 +137% 67,009 +18%

Others 291 - 241 - - 80 -

Shareholders equity 83,985 37,462 +124% 71,270 +18%



FY2012 Fourth Quarter Cash Flow Statement(Consolidated)

9

End-4Q FY2012 End-4Q FY2011 YoY change

Net cash provided by operating activities 59,578 15,678 +280%

Net cash provided by investment activities -24,488 -3,272 +648%

Net cash provided by financing activities 15,479 -1,090 -

Cash and cash equivalents at the end of the period 72,759 22,254 +227%

Millions of yen



Dividends

In FY2012, GREEs consolidated net sales rose 146.6% and net income rose163.0% YoY. We therefore plan to strengthen measures to return value toshareholders.

We recognize shareholder returns as an important aspect of our business and willpay dividends in line with our business performance and financial circumstances,

while also setting aside internal reserves to optimize and develop our business.

In line with our basic policy of tying dividend distributions to earnings results, wetarget a consolidated dividend yield of 20% over the long term

Based on a consideration of the 146.6% increase in consolidated net sales and

163.0% increase in consolidated net income, we forecast a dividend of 30 pershare (FY2011: 9 per share) and a consolidated dividend ratio of 14.5%.

.

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* FY2012 dividend distributions must be approved at the regular meeting of shareholders scheduled for September 25, 2012.

Year-end dividend forecast:30 per share



Clearguidance

Comp-

gacha

RMT

Guidelines forcomp-gacha

Guidelines for in-game notifications

Compilation of examples ofcomp-gacha

Guidelines on measures to prevent real money trading

Initiative Date announced

May 25

June 22

June 22

June 22

Protectionof youth

Guidelines

Userenvironment

Provision of an environment appropriate for young usersApril 23

Initiatives to Improve User Environment

Activities of the Social Game Platform Contact Conference

Improve transparency by providing appropriate notifications regarding gachafunction terms and content

In addition to providing examples ofcomp-gacha, also provided gamecompanies with examples of functions that could interfere with the independentand rational decision making of users and warn against their use.

Prohibition of RMT and prevention of fraud, deceitful practices, or other actionsthat have an adverse impact on the user environment

Provision of an appropriate environment that not only protects young users, butallows them to enjoy social games in the long term

Dissolution/reorganizationSystem

Formation of committee to guide the establishment of SocialGaming Environment Quality Council (tentative name) June 22

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Initiatives to Improve User Environment

Formation of committee to guide the establishment of the Social GamingEnvironment Quality Association (tentative name)

Social Game PlatformContact Conference

Dissolution and reorganization

Establishmentcommittee

Participants Academic experts Experts in the field Attorneys CESA Six member

corporations of SocialGame Platform ContactConference

Regular meetings started July 25

Social Gaming Environment Quality Association(tentative name)

Establishment dateOctober (tentative)

Purpose To promote the development of

a social gaming environmentthat people can use safely

Participants (current plan) Academic experts Experts in the field Consumer groups Game companies Platform companies

Main activities (current plan)

Self-imposed

regulations to enhanceuser environment

Educational activitiestargeting youth

Consumer help desk(management ofcounseling center)

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FY2012 Fourth Quarter Operational Review

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Revamped UI to create new worldwidemobile social gaming platform with unifiedEnglish- and Japanese-language design

App PortalEnglish App PortalJapanese

Launched GREE Platform globally inMay 2012

GREEs first exhibit at E3, the largest

game show in the world

GREEs booth featured playable demos

of 13 GREE titles and 12 GREE partnertitles.



Net sales from global (ex-Japan) market

Steady growth in net sales fromglobal market

14

Launched beta version of Japanesetitles globally. Planning to implement

beta promotions sequentially

Launched several in-house titles globally

0.0

0.5

1.0

1.5

2.0

20121-3 20124-6

Unit: Indexed with Jan.-Mar. 2012 net sales as 1

*Total ex-Japan net sales of GREE and Funzio


Jan.-Mar., 2012 Apr.-Jun., 2012




Secured major IP

Formed partnership with Namco BandaiGames with a view to developing businessglobally. In the first phase, launchedNARUTO Ninja Masters (feature phone)version on June 27th

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Masashi Kishimoto Scott/Shueisha Inc./TV Tokyo Holdings/PierrotCo., LtdGREE, Inc./A-Team. Inc

New game design

Launched new game Tomodachi Dogs(English title Puffy Puppy) as a smartphonenative app in April



Business Strategy for the Fiscal YearEnding June 30, 2013 (FY2013)



FY2013 earnings forecasts

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FY2013(forecast) (A)

FY2012(actual) (B)

(A)/(B)Change

Net sales 195,000205,000

158,231 +23.2%+29.6%

Operating income74,00084,000

82,729(10.6%)+1.5%

Ordinary income74,00084,000

81,935(9.7%)

+2.5%

Net income 46,00052,000

47,967 (4.1%)+8.4%

Millions of yen

Net sales Japan Europe,

North

America, Asia

Costs Japan Europe,

North

America, Asia

Net sales in Japan are expected to recover and enter into a gradualgrowth mode with the launch of major IP titles and new smartphone-compatible titlesLaunch in-house and co-branded games offered in Japan on the global

market. Net sales expected to grow with launch of new titles in genressuch as simulation games and card battle games

Maintain costs at an appropriate level by making cost-effectiveadvertising purchases and operating servers efficiently.Make aggressive investments, especially in human resources, to createsystems to support global growth.



FY2013 Business Strategy

Improve gameKPIs

Introduce hit

titles

Expand andimprove game

design

Other

Japan Europe, North America, Asia

Expand lineup of in-house and co-

branded games based on major IP

Develop and provide new gamedesign to succeed major card battlehits

Improve CSR activities and initiativesto improve user environment

Expand lineup of simulation games

Launch additional card battle games

Improve ARPDAU and other KPIsbased on understanding of themarket characteristics of each region

Improve KPIs through introduction ofnew game models, etc.

Expand area of coverage throughexpansion of languages supported

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FY2013 Business Strategy: Japan

Compliance withguidelines

GREEtitles/jointly

launched games

GREE partnergames

Discontinuation ofcomp-gacha

Completed by end-May

Completed by end-June

Discontinuation ofcomp-gacha-like

functions



Clear in-gameguidance

Began implementingsequentially in June

Completed by end-August

(For reference) Progress in compliance with guidelines

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Coin consumption recovering in August Company resources that had been

focused on global launch of GREEPlatform and on initiatives to improve theuser environment are now being freed tofocus on game development and

operation Developing new game models such asevent models

FY2013 Q1 progress

July-Aug. coin consumption during first five days of month

90

100

110

7 8

(Unit: Indexed so that 1 = coin consumption during first five days of July)

1.1

1.0

0.9July2012

August

2012




20

BLEACH Soul MastersTaito Kubo Shueisha Inc./TV Tokyo Holdings/Pierrot Co., Ltd

Started preregistration on 7/20. End-Aug. launch planned)

FY2013 Major IP titles planned (selected titles)

Numerous in-house and co-branded games planned based on major IP

Summon Night seriesNBGI

(Autumn launch planned)

Pacman seriesNBGI

(Winter launch planned)

Idolmaster seriesNBGI PROJECT iM@SI

(Winter launch planned)

many more game

launches also planned



Launched in July 2012

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FY2012 New games planned (selected titles)

Animal Days MONPLA SMASH Wacky Motors

MODE STYLE Soul Island

Expand lineup beyond card battle games into new smartphone compatible game genres



1. Use CSR to accelerate our efforts to make the world a better place throughthe power of the Internet.

2. Contribute to the sustainable development of Internet society

3. Contribute to society as a whole, recognizing our position as participantsin the economy and members of the local community

22

Support the Internet technical community and academic research Promote the use of the Internet in economic, political, educational,

and healthcare activities Promote culture and the arts using the Internet

Conduct educational activities that promote a safe Internet Improve the user environment of the Internet for youth

Provide support for athletes representing Japan Contribute to efforts to protect the environment, promote social

welfare, and provide humanitarian aid to those in need

Improve CSR activity




FY2012 CSR Activity Report*Fostering young engineers and creators

23

Sponsorship of SamurAI coding, the Information Processing Society of JapansInternational AI Programming contest for young engineers

Support for the education of young programmers through a business/educationpartnership with Vantan Contents Tracks Inc., the company that runs VantanGame Academy

Sponsorship of the 18th Student CG Contest sponsored by the ComputerGraphic Arts Society (CG-ARTS)

Support for CodeSprint Japan, a programming contest that originated in SiliconValley, as the main sponsor

Joint press conference with IPSJ (April2012)

Supporting local industries

Special sponsorship of Kochi Prefecture Social Network Game Design Contest, topromote the creation of local industry and increase youth employment

This was the first social game contest in Japan hosted and supported by a localNPO, the Kochi Prefecture Content Business Promotion Council (membersinclude the Kochi prefectural government, Shikoku Bank, and The Bank of Kochi).

The winner of the first contest, Koakuma no Joken, was released as a full-scalegame on January 23, 2012.

The second contest was won by a middle school student and the entry, Shin-Ryuki

Guild Fantasia, was released as a full-scale game on June 7, 2012.

Second Kochi Prefecture Social NetworkGame Design Contest winner, Shin-Ryuki

Guild Fantasia* Please see our webpage for more examples of CSR activities: http://www.gree.co.jp/csr/

Supporting and working with the technical community

Sponsorship of Android Bazaar and Conference 2012 Spring, hosted by JapanAndroid Group and The University of Tokyo

Sponsorship of Jenkins User Conference 2012 Tokyo for users of the Jenkinscontinuous integration tool

Sponsorship of Open Source Conference 2012 Kansai@Kyoto, where the latestinformation on open source projects was presented



24

FY2013 Business Strategy: Europe, North America, Asia

24

Release Android versions in addition toiOS version

Planning launch of new games basedon the simulation game design but with

different motifs

Developing and preparing to launchfurther titles in addition to the cardbattle games already offered

Have already attained ARPAU ofapprox. US$1 from current offering ofcard battle games

Achieve major improvement in KPI,

conduct ongoing promotions

Steady growth through two main game genres

Growth in simulation games Expansion of card battle games




25

Success through effective promotions

No. of appsin top 100

CompanyNo. of

companies

6 or more Zynga(2) 1

4 or more

Electronic Arts(3)TeamLavaGREE(4)Disney

TinyCo, Inc.

5

2 or more

GameloftMachine Zone, IncPocket Gems, Inc.Activision Publishing,Inc.Beeline EuropeBooyah, Inc.

FreshPlanet Inc.Halfbrick StudiosLudiaMobage, Inc.SupercellZ2Live, Inc

12

Success on iPhone and iPad

Multiple titles in the top ranking of theiPhone U.S. App Store

MODERN WAR achieved No.1 in theTop-Grossing Ranking1 on the U.S. AppStore

Expanding lineup and gaining promotional expertise

Used effective promotions to achieveranking at No.21 for MODERN WAR onthe Top Grossing. Also achieved sharprise to No.89 for Cerberus Age

Will introduce new promotions followingimprovements in KPIs

No. 21 (Aug. 13, 2012)Top GrossingRanking

Source: U.S Overall Google Play

No. 89 (Aug. 13, 2012)Top GrossingRanking

Source: Apple Inc.

(*1) Top 100 grossing apps in U.S. Apps Store as of August 11(*2) Includes apps from acquisition OMGPOP(*3) Includes apps from acquisition PopCap Games(*4) Includes apps from acquisition Funzio


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Net sales increased steadily in July,mainly in the U.S. market

Introduce language support in Korean,Chinese and other languages. Expandbusiness in Asia, Europe market

Developing business in Asia, Europe markets

0

0.5

1

1.5

6 7

*Total ex-Japan net sales of GREE and Funzio

GREE Platform

support for 14languages planned

Unit: Indexed so that June net sales= 1

Net sales from global (ex-Japan) market

Jun 2012 July 2012


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Appendix


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GREE

SNS + Social Games

SNS

Advertisement Sales Paid Service Sales

Growth inPage Views

Purchase ofitems

28

Diary/ Comments

Community /MB

My Apps

Social games

Users


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Great Pirates Battle Game!!

(released in August 2010)

Pirate Kingdom ColumbusOne-of-a-kind pet you can keep in

your mobile

(released in July 2007)

Odoriko Clinoppe

Dino LifeCavemen and dinosaurs getting along together?

Popular simulation game

(released April 2012)

Alien FamilyAlien family

rearing adventure

(release March 2012)

New exploration type card game

(released in August 2008)

Tanken DolilandEasy gardening experience

with your mobile

(released in September 2008)

Hacniwa

In-house social games

Feeling Fantastic! Play Fishing

Game with your mobile!

(released in May 2007)

Tsuri-Sta

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Sengoku KingdomThe Grand Battle! Sengoku

Card Game!

(released in February 2011)

Cerberus CrusadeThe Social-Strategy RPG

(released in April 2011)

Majin KingdomA battle game with summoning

legendary heroes!

(released in December 2011)

Dragon ArkClassical fantasy + simulation

+ action game

(released in Feb. 2012)

Sankoku ShinkiSankokushi+ fantasy+ card

(released in Feb 2012)

DecobitoA Delightful Life with Animals

(released in June 2011)

Zombie Jombie

Major U.S. hit with more than

1 million downloads

(released March 2012)

* Major markets excluding Japan, China and Korea

AKB48 Stage FighterThe first AKB48-themed social

game(released October 2011)

Naruto Ninja MastersCollect ninja cards and do battle!

(released June 2012)

Tomodachi DogsStart your new life with

your pet dog!(released April 2012)

Wacky MotorsRace your rivals for treasure in this

card battle game.(released July 2012)

Kingdom AgeLead your army and build your kingdom in

this exciting strategy game(released April 2012)

Modern WarBuild your military and achieve victory

in modern war!(released December 2011)

Crime CityBuild your criminal empire!

(released August 2011)

A Blockbuster! Monster Adventure

(released in June 2010)

Mon-Pla

Masashi Kishimoto Scott/Shueisha Inc./TV T okyo Holdings/Pierrot Co., LtdGREE, Inc./A-Team. Inc

AKSGREE, Inc./A-Team. Inc


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Wide Variety of Revenue Sources

- /-

GREE Mobile screen

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- SNS-

- Original ads (banners/text)- Tie-up ads

Advertisement

AdvertisementSales

PaidService Sales

Social games

- Free-to-play games linked to social network

- Rich lineup includes in-house games


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Illegal and harmful content

GREE Patrol

Warning/Deletion

Screening/Monitoring

Certified as aSafe Content Site

EMA(Content Evaluation and Monitoring Association)

31

The president chairs the committee.

Held monthly, members include executives in charge, patrol staff, legal staff, etc.

The first website approved by EMA (Content Evaluation and Monitoring Association) (Aug. 2008)

Maintains management system that exceeds EMA standards, passing continuous and periodic

inspections

24365 GREE

A 24 hour, 365 days per year patrol service begun in November 2006. GREE Patrol Centers were established in Tokyo, Hokkaido, and Okinawa, employing about

450 personnel. Systematic and visual surveillance of content and reporting is conducted. If inappropriate

material is discovered, measures are taken such as deletion, cautioning, suspension ofservice, etc.

Restrictions by age

Messaging between users over 18 and those under 18 is restricted. Users under 18 are excluded from the searches of users over 18. Friend request messages to under 18s are limited to standard wording.

User authentication

New sign-ups to GREE are verified using mobile phone authentication. Users in violation areblocked from signing up again.

Membership of a mobile phone filtering service is checked to verify the users age. Age information held by KDDI and SBM is checked for verification. (Discussions with other

carriers underway.)

GREE patrol system runs 24 hours a day, 365 days a year

Third-party certification

Security and Safety Improvement Committee chaired by CEO

Improving Safety & Security


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Improving Safety & Security:Educational Activities On- and Off-site

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Educational activities off-site

Continually carrying out education activities aimed toward educational organizations and local governments such as courses on GREEs

initiatives and the opening of the Patrol Center

Active participation in many kinds of educational events and cooperation with private and public bodies such as the Safe Net-Making

Promotion Conference

Educational activities on-site

From February 2009, GREE joined the Motto Good Net initiative of the Safe Net-MakingPromotion Conference, and maintains an official Motto Good Net account in GREE.

From July 2011, links were added to each service on GREE to an educational page.

Content is being renewed to make it even easier to understand.

In Dec. 2011, the educational application GREEs 6 Promises to All, which was released in

Aug., was upgraded to a service for each age.

Educational app, Manabou! Asobou! Rules of the Internetincludes this section for children ofelementary school age and younger.

Educational activities conducted by GREE employees at Azabu High School (May 19,2012)

Participation in conference on smartphone use for high school students in Osaka (July12, 2012)


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This document includes some forecasts, which are based on currently available information. Theauthenticity of the information is not guaranteed. Actual performance may differ due to various factors, etc.When producing this document, we were careful not to include errors or omissions, but the authenticityand integrity of the information are not guaranteed.

Making the world a better place through the power of the Internet.

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