GREE Reports FY2014 First Quarter Results

FY2014 First Quarter Financial Summary

Billions of yen

• 1. EBITDA = operating profit/loss + depreciation costs + amortization of goodwill
• 2. An extraordinary gain of ¥0.2 billion was recorded on the sale of investment securities, but an extraordinary loss of ¥5.2 billion was also posted from a write-off of assets related to certain titles and a provision for a voluntary retirement program and others, resulting in a total extraordinary loss of ¥5.0 billion
• 3. Figures are rounded off to the nearest hundred million yen

Financial Highlights

• Net sales amounted to ¥35.3 billion, a decrease of 5% compared to ¥37.0 billion in the fiscal 2013 fourth quarter
• Operating profit was ¥9.8 billion, an increase of 26% compared to ¥7.8 billion in the fiscal 2013 fourth quarter
• The operating profit margin improved by 6.6 percentage points quarter on quarter to 27.7%
• Cut fixed costs by ¥1.9 billion or 12% quarter on quarter through strict cost control; met, ahead of schedule, the target reduction committed to in the fiscal 2013 fourth quarter announcement
• Total expenses were ¥25.5 billion, a decrease of 12% compared to ¥29.2 billion in the fiscal 2013 fourth quarter
• A total extraordinary loss of ¥5.0 billion was recorded following an extraordinary gain of ¥0.2 billion recorded on the sale of investment securities and an extraordinary loss of ¥5.2 billion stemming from a re-examination of assets related to certain titles and the implementation of a voluntary retirement program and others

Business Update

Overall

• Coin consumption on smartphones increased by approximately ¥1.6 billion compared to the fiscal 2013 fourth quarter
• This was not sufficient to cover the decline in coin consumption on feature phones, resulting in a decrease in overall coin consumption

Web Game Business:*

• Coin consumption on third-party smartphone titles grew to 1.3 times that of the fiscal 2013 first quarter as titles released during the previous fiscal year contributed to growth
• Completed adjustments to development operations in order to address a halt in the flow of first-party releases and ensure ability to renew product offering on an ongoing basis

Native Game Business:*

• Maintained steady flow of new releases with titles such as Dragon Realms and Beyond the Dead
• Overseas operations on track to achieve monthly profitability within 2013**
• In Japan, sales were flat due to a lack of growth from some card battle games
• Started development on titles for Japan market in new genres other than card battle games

New Business

• Advertising: Spun off advertising business, integrating ad network, reward and affiliate, and media businesses and operations from development to sales into new subsidiary Glossom, Inc. (established November 1, 2013, following a change in the trade name of GREE group company Atlantis Co., Ltd.)
• Venture capital: In August 2013, invested in KAIZEN platform Inc., operator of planBCD, a user-friendly platform for website UI improvement
• Licensing and merchandising: GREE Entertainment Products, Inc. released the second series of the SiegKrone trading card game, Shingeki no Kyojin (Attack on Titan) in September 2013

Strategic Update

Key initiatives underway since fiscal 2013 fourth quarter as part of selection and concentration strategy:

• Realignment of development operations to enable continual flow of new title releases
  
  • Reallocation of resources in line with streamlining of development operations and narrowing of portfolio of core titles
  • Standardization of new product development process and release criteria
  • Strict pipeline management
• Transition to leaner cost structure in line with shift to smartphones
  
  • Optimization of operational scale and streamlining of management resources
  • Closures of certain overseas locations and implementation of voluntary retirement program
  • Control of development costs and advertising and marketing costs
  • Franchising of game engines and horizontal deployment of marketing expertise
• Optimization of business infrastructure to enable rapid decision making
  
  • Reorganization of operations into separate business divisions for browser-based games and native app games to reflect distinct market characteristics
  • Strengthening of Board; clarification of authority and responsibilities for each business

FY2014 Initiatives

Web Game Business:

• Promote steady growth in smartphone titles by leading partners, with seven titles planned for release in the fiscal 2014 second half
  
  • Second titles by Grani and GxYZ
  • Use of strong IP with high user acquisition potential
• Pursue renewed top-line growth in the fourth quarter as new titles contribute to earnings
  
  • Revised release schedule to prioritize tightening of release criteria and adjustments to development operations
  • From the third quarter, maintain a continual flow of first-party releases at one to two titles per quarter

Native Game Business:

Japan

• Five new titles planned for release in the fiscal 2014 second half
• Diversify portfolio with titles in new genres other than card battle games
• Enhance monetization of titles such as Saga of Fantasma and Haconiwa Fushigi na Tegami to Dobutsu Shima

Overseas

• Three new titles planned for release overseas in the second half
• Pursue growth of titles released in the first half and of next-generation core titles such as Knights & Dragons
• Target Europe and Asia markets with localized versions of hit titles while minimizing risk
• Ensure efficiency in new title releases by franchising game engines of hit games

Reference

For presentation materials and further information, visit GREE, Inc. - Investor Relations

About GREE, Inc.

GREE is a global mobile social company with businesses that include social gaming, social media, advertising, licensing and merchandising, and venture capital. Established in December 2004, GREE created the world's first mobile social game in 2007 and today is a global leader in free-to-play, reaching audiences around the world with its portfolio of first-party and partner titles. GREE has studios in Tokyo, San Francisco, Vancouver, and Seoul, and is listed on the Tokyo Stock Exchange (3632).