GREE Reports FY2014 Fourth Quarter Results

FY2014 Full Year and Fourth Quarter Financial Summary

Billions of yen

Notes

• 1. Breakdown of FY14 4Q net sales: Paid service sales ¥24.77 billion; ad media sales ¥1.80 billion
• 2. EBITDA＝Operating income/loss + depreciation costs + amortization of goodwill
• 3. In FY14 4Q non-operating income, an exchange loss of ¥0.34 billion was recorded arising from translation losses on USD-denominated loans to overseas subsidiaries
• 4. In FY14 4Q, an extraordinary loss of ¥0.82 billion was recorded (of which ¥0.74 billion comprised a loss on valuation of investment securities)
• Figures are rounded off

Financial Highlights

• Net sales for the fourth quarter amounted to ¥26.58 billion compared to ¥31.07 billion in the fiscal 2014 third quarter
• Operating income was ¥6.13 billion compared to ¥9.95 billion in the fiscal 2014 third quarter
• Net income was ¥2.78 billion compared to ¥4.74 billion in the fiscal 2014 third quarter
• Operating margin decreased by 9.0 percentage points quarter on quarter to 23.1%
• Improved fundamentals: Cut fixed costs by ¥0.8 billion or 6.5% quarter on quarter through strict cost control; reduced total costs by ¥0.67 billion or 3.2%. Increased net cash to ¥54.2 billion compared to ¥25.5 billion at the end of fiscal 2013 on strict cost control and curbing of investing activity

Business Update

Overall

• Implemented structural reforms during fiscal 2014 to create a leaner organization and streamlined development capabilities at Japan studios, among other improvements to the business. Made steady progress in production of new titles in new genres with a strong focus on game originality and playability
• Targeting a decisive pivot to a native game business structure in fiscal 2015; planning to boost headcount at Japan native game studios from 300 to 1,000 and double the number of native game production lines
• Launched two new services in non-game business domains in the fiscal 2014 fourth quarter, while also operating three additional new services in beta in preparation for launch in the fiscal 2015 first quarter

* Note on terminology:

“Native game” refers to mobile games provided as native apps for Android and iOS smartphones and tablets. “Web game” refers to browser-based games for feature phones and smartphones.

Game Business:

• Total consumption on smartphones grew 14% year-on-year, driven by strong growth in native games* for overseas markets, reaching approximately 73% of total coin consumption
• Consumption on mobile games for overseas markets grew 120% year on year, while consumption on those for Japan grew 5% year on year. Both declined quarter on quarter, reflecting lower consumption on some existing hit titles and delays in new title releases

Japan:

• Made strong progress with the production of original native games in new genres. Released Shometsu Toshi, the first title under the new label Wright Flyer Studios, on Android and iOS, exceeding 1 million downloads in one month
• Monthly coin consumption on the Pokelabo title The SAMURAI Kingdom, released on Android and iOS in the third quarter, exceeded 100 million. Started pre-registration of new action RPG from Pokelabo, CROSS SUMMONER, targeting release on Android and iOS in fiscal 2015 first quarter
• Continued to improve existing hit web games with events such as Guild Battle in Driland and Battlefield in Cerberus Age. Opened pre-registration for upcoming first-party web game Dragons’ Party, a dungeon exploration RPG, refining its game balance alongside that of another upcoming first-party title, LOST LAND TACTICS, through closed beta tests. The official releases of both titles are planned for late August 2014

Overseas:

• Achieved robust growth in League of War, a title developed in collaboration with MunkyFun since its official release on iOS in May; aim to grow revenue further by adjusting game balance and introducing events
• Localized version of GREE Korea 3D action MORPG Lost in Stars released by major game publisher MacroWell OMG Digital Entertainment Co., Ltd in Taiwan, Hong Kong, and Macau
• Appointed Andrew Sheppard as COO of GREE International. Andrew is highly experienced in the management of global studio operations, having developed and operated major hit titles in the U.S. and Europe while at Kabam
• In fiscal 2015, plan to achieve sustainable growth by targeting hard-core genres, expanding the product offering on Android and in European languages, and increasing the number of titles produced in collaboration with leading developers

Other Businesses

• New services: Expanded into new business domains with the start of two new services in the fourth quarter: uttoku, a luxury goods consignment service (launched May 2014) and Tonight, a last-minute hotel booking app (launched June 2014)
• Venture capital: GREE Ventures formed a second fund to focus on Series A stage investments in East Asia and South East Asia, having attracted investments from a number of leading corporations and institutional investors in Japan including the Organization for Small & Medium Enterprises and Regional Innovation, Japan and Credit Saison Co., Ltd.
• Invested in three new companies in the fourth quarter: YOYO, operator of Candy, a mobile rewards platform for prepaid phones in Southeast Asia; Wizpra, operator of wizpra, an internal communications platform for the service sector workplace; and Coubic, operator of Coubic, an online reservations platform

Fiscal 2015 First Quarter Earnings Forecast (July 1, 2014 – September 30, 2014)

Billions of yen

Reference

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

About GREE, Inc.

GREE is a global technology company with businesses that include mobile gaming, social media, advertising, 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).