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Edited Transcript of 3632.T earnings conference call or presentation 2-Aug-19 10:59am GMT

Full Year 2019 Gree Inc Earnings Presentation

Minato-ku, TKY Aug 12, 2019 (Thomson StreetEvents) -- Edited Transcript of Gree Inc earnings conference call or presentation Friday, August 2, 2019 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Toshiki Oya

Gree, Inc. - Senior VP & Director

* Yoshikazu Tanaka

Gree, Inc. - Founder, Chairman, CEO & President

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Presentation

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Yoshikazu Tanaka, Gree, Inc. - Founder, Chairman, CEO & President [1]

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Hi, this is Tanaka, and good afternoon, everyone. Now we'd like to get started with the fiscal year 2019 fourth quarter financial results briefing.

And let me go through the executive summary first. FY '19 actual. Net sales was JPY 70.9 billion, operating income was JPY 5.5 billion, EBITDA was JPY 6.4 billion.

In game business, we intend to focus more on long-term operation of game business, and we have solidified such a system basis furthermore. In overseas business, we try to increase this business so that we can improve the profitability.

Live entertainment business. We have built a live distribution platform, and we had a successful start. In advertising and media business, we have pursued to build media portfolio, which expanded in a steady base -- on a steady basis.

In fourth quarter, net sales were JPY 17.4 billion, operating income was JPY 1.3 billion, EBITDA was JPY 1.5 billion. Both net sales and operating income were in line with our forecasts, and they have stayed almost flat to the previous quarter.

FY '20 plan. We will continue to make aggressive investment into 3 business pillars. In game business, we maintain this engine, IP, global strategies. And while pursuing such strategies, we will further expand overseas distribution, and we will continue to develop new titles.

Live entertainment business. We have developed REALITY. So we intend to enhance their functionalities furthermore.

Advertising and media business. We are working on vertical media so we'll continue to make more investments to expand the media.

I'll hand over to Oya for financial results overview.

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Toshiki Oya, Gree, Inc. - Senior VP & Director [2]

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Good afternoon. And let me go through financial results overview. This year for the full year, net sales were JPY 70.9 billion, operating income was JPY 5.5 billion, and EBITDA was JPY 6.4 billion.

In Q4, net sales was JPY 17.4 billion, and operating income was JPY 1.3 billion. In the previous quarter, we had a forecast for the quarter to be in the range of JPY 17 billion to JPY 18 billion in net sales and in the range of JPY 1 billion to JPY 1.5 billion for operating income. So they both trended pretty much as expected so we had a strong result.

This page is showing the net sales, EBITDA and operating income trend for the past year. Overall, during the fiscal 2019, and supported by the overseas distribution and existing titles, we enjoyed strong results.

This is the Q4 operating income analysis. In Q3, operating income was JPY 1.09 billion. As you see on the slide, the actual operating income was JPY 1.55 billion. However, as I explained in the previous quarter, we had a one-off event in Q3, which boosted up the profit by -- was JPY 460 million. Excluding this onetime impact, the organic trend is shown on this graph here. So we were able to grow the profit by JPY 250 million. So we had anniversary titles during the Q4. The mainstay titles experienced their celebrated anniversaries: SINoALICE, Another Eden and Symphogear. So they grow themselves Q-on-Q, supported by anniversaries.

And we also made some investment for future user acquisitions by putting promotions, such as TV commercials, such as for SINoALICE.

And regarding decrease in fixed costs, this is what we normally do, but we try to be more efficient in our operation. As a result of such efforts, we were able to increase the profit by JPY 250 million so we had a solid result.

This is showing the cost structure. So what I just explained is shown in this table by line items. This is fiscal year-end dividend. Conventionally, we did not have a clear dividend policy other than the consolidated payout ratio. So now we are showing DOE of 2% to be utilized as the policy for dividend. So we will make a stable dividend based on this policy. If we were to see a stronger performance, then we will also provide dividend accordingly. For this fiscal year, we intend to provide JPY 10 as a dividend.

FY '20 outlook. Now that we are starting a new year, we made a change how we forecast for the year. So we have a huge portion of business coming from gaming. And under this game business, we have existing titles and new titles.

Under existing titles, we will continue to go global continuously, trying to generate earnings in a stable manner. New titles, also overseas distribution, including China, especially the new title business. Honestly, it's very difficult for us to forecast how big of those titles can be a hit, but we do have internal targets, but still very difficult to forecast how popular these games can be. And we do not want to provide misleading numbers either. So we just want everyone to know that we do have new titles to come up, and then we also share the trend of those new titles in qualitative manner so you can have better understanding of the actual conditions.

Live entertainment. Again, we will continue to make investment into reality, which is the VTuber live distribution platform as much as we spent in the previous year.

Advertising and media. Just like FY '19, we expect to see a steady growth of this business. Of course, we are still at an upfront investment phase, but we expect to see a reduction in the amount of losses.

Next, moving on to operational overview so I hand back over to Mr. Tanaka.

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Yoshikazu Tanaka, Gree, Inc. - Founder, Chairman, CEO & President [3]

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This is the operational overview. Let me look back on fiscal '19. So this is FY '19 results. So we continue to strengthen and focus on 3 earnings pillar businesses. In game business, we continue to pursue the engine, IP, global strategies. First of all, of course, it's important to introduce new titles, but we also think it's important to turn existing business to be profitable as well. So in order for us to operate those existing title for a long period, we will try to solidify those earnings from this existing business.

The other thing is the overseas distribution. So this will help us improve our profitability. So we launched titles into key regions and that went successfully last year. As a result, we successfully improved the profitability or earnings per title.

The console business. So we expanded distribution platforms such as Nintendo Switch and various messenger platforms.

Live entertainment. We have launched REALITY and try to expand this business.

Advertising and media. We also continue to strengthen media potential, and we were able to grow this business, too.

Let me give you more specifics. Again, as we launch new titles, but we also think it's very important to sustain the sales of existing titles that we've launched in the past. If -- while we sustain such business, then we can actually get incremental by launching new titles. So that's why we think this is most important thing.

SINoALICE and Another Eden, as you can see on this page, since the launch about -- for the past year, we have successfully maintained the sales level for these titles.

So it's not just maintaining the net sales, but we try to also grow the sales with improved profitability. And we're showing the results for Another Eden and DanMachi for sales index. So while we go global, we try to grow the sales. And we were able to successfully grow the sales of these titles.

So let me give you the launch plans, especially during FY '19, we try to focus on Asian markets such as Hong Kong and Taiwan. In addition, we also launched Another Eden in North America and Europe. As a result, we had a growth of the business, as you saw earlier.

In China, we have pretty much completed the preparation, and we are just waiting for the approval process to be completed. So when this is approved, we are now ready to launch the titles.

Distribution, we have a distribution by partners and distribution by ourselves. And of course, self-distribution will give us much better profitability so we want to focus more on self-distribution. And instead of using third-party IPs, we can enjoy higher profitability by using first-party IPs. And so we intend to grow games in the right top box furthermore.

In multi-platform distribution, we provided games to LINE, Nintendo and Facebook game platforms that we try to enhance our ID capabilities.

In live entertainment, the mainstay business is REALITY platform. We have developed this platform and launched it successfully. So we did launch the platform itself. We've also added avatar functions as well as official programs, so we try to enhance contents as well.

Advertising and media business. We focused on expanding user bases, which went smoothly.

Let me go over the medium-term plan. So of course, we will continue to enjoy the solid business out of game, and then trying to grow the next growth drivers in advertising and media as well as live entertainment.

And this is the strategy for FY '20. We will continue to focus on these 3 businesses. In game business, and we have been moving forward with engine, IP, global strategies. So we will further enhance our new engines and new IPs making more investments. And we will try to expand first-party IPs. So while operating games in a long-term, trying to expand fan communities to increase IP potentials. And thirdly, we will go further overseas distributions.

We have made expansion in FY '19. We still believe there is a further growth potential existing. So that will be reinforced in FY '20.

Live entertainment. We will continue to expand REALITY furthermore by making more investments.

Advertising and media. We'll continue to expand media potential. And that is part of the FY '20 strategy.

Game entertainment business. So these are the pipeline for the game business. In fiscal '20, we plan to launch 2 titles. In addition, we will expand into overseas distribution furthermore.

For FY '20 and beyond, currently, we have 4 -- or 4, up to 6 titles being developed towards FY '20 and beyond so that we can grow furthermore.

Overseas distribution plan. We have made big progress so far, but still we are preparing for further rollout into overseas markets for the new titles as well.

Live entertainment business. There are 3 focused areas. First, production business. We will try to discover and produce new VTubers.

Platform category. We will continue to enhance functionality and contents.

Thirdly, it is solutions. So we will provide solutions to businesses who are interested in VTubers. And so we continue to increase investment for expanding vertical media. So that was all for our FY '20 strategies. Thank you.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]