Earnings Call: Q2 2023

Nov 8, 2022

yen Revenue has consecutively grown from Q3 last fiscal year through Q2. IFRS operating profit was 3,100,000,000 yen and non GAAP operating profit was 3,000,000,000 yen Under IFRS, last fiscal year, we had one time gains. And under non GAAP operating profit, we had the baseball compensation. So please take that into account. Here are the financial results by segment. I would like to draw your attention to sports. Both the revenue and operating profit have grown significantly. We are finally starting to come out of the long tunnel of COVID-nineteen. For live streaming, while we are in the investment phase, revenue is growing steadily. For health care and medical, in August, we made Data Horizon into a subsidiary. And in part due to that, our revenue increased. For the game business, we do not yet have contribution from a new game. But due to seasonality, we saw increased revenue quarter over quarter. And here is the cost and expense breakdown. I have no particular comment to make here. I would like to mention that the consolidated employee headcount shown on the bottom increased due to Data Horizon being made into a subsidiary. For the financial highlights, under our policy to use our healthy financial base to grow corporate value while also considering ROE, we are engaging in investment in new growth and initiatives. This includes making Data Horizon into a subsidiary. Also, in October 2022, so not Q2, but the next quarter, we made ALM into a subsidiary. As of September 30th, ALM was an Equity Method affiliate. We are also working on increasing asset efficiency and on shareholder returns. In May 2022, we updated our shareholdings for policy purposes. For M and A, we conducted 15,000,000,000 yen total in borrowings in Q2. We also have a share buyback with a maximum of 15,000,000,000 yen underway. All of these are updates compared to the end of the last fiscal year. As I have mentioned before, this is our vision for our long term structure shift. We are now on the path to mid- to long term growth, meaningful profit contribution and business value creation in the serve approach. By focusing on the growth of our strengthened business portfolio and earnings based enhancement, under entertain, we aim to secure a good level of profit despite volatility. In under serve, we aim to increase our profit. We aim to achieve this structure in fiscal year 2024 onwards. We are now in the process of reaching that structure. Now I will go into each area in more detail. 1st, entertain. For the game business, our Q2 performance was impacted by seasonality in existing title performance. We expect to see the performance of new hit titles building on top of this foundation. In the long term, we aim to secure a good level of profit in the entertainment space despite volatility in games. From that perspective, under the game business, we aim to launch new titles at a pace of about 3 to 5 titles per year. For this fiscal year, we set about 5 titles. In February, we expect to launch our Hunter x Hunter game in traditional Chinese areas such as Taiwan. We also expect Tact Opus to be launched in spring next year. We are seeing some delays in new title launches in the short term. We also need to consider the mid to long term perspective. We just announced an enhancement of the partnership with Nintendo. At the briefing for the last full fiscal year in May, we shared that we were moving to the next stage in the Nintendo alliance. We are establishing a joint venture with the objective to strengthen the digitalization of Nintendo's business. The joint venture company will research and develop as well as create value added services to further reinforce Nintendo's relationship with consumers. Through this joint venture, Nintendo and DNA will endeavor to enhance the relationship between the two companies and create new business opportunities. The summary is shown on the slide. The joint venture will be called Nintendo Systems Co, Ltd. It will have 5,000,000,000 yen in stated capital and is scheduled to be established on April 3, 2023. Nintendo will contribute 80% of the capital and DNA will contribute 20%. Next is the live streaming business. As you can see, the segment is continuing its revenue growth trend. While securing segment profit for the full fiscal year, we are also investing for growth in an agile and disciplined manner. The live streaming business is made up of several businesses. First, Pokocha Japan. Our usage trends were solid, and revenue and operating profit both grew quarter over quarter. We had 4,290,000 downloads as of September 30, 2022. We also have the global versions of Pokochop in both the US and India. Last time, I mentioned that we had implemented measures to prevent overheating, and this had a temporary impact on usage and revenue. This has now settled down. We had reduced costs on a quarter on quarter basis through controls accompanying the overheating measures despite impact from factors such as the weak yen. As you can see in the graph on the right, just as we previously saw growth in Japan, we will invest appropriately, tuning as necessary to achieve steady growth. There may be some bumps, but we expect it will grow. We will continue to promote this business. We are also pursuing genres other than pokocha. Last fiscal year, we made idiom into a subsidiary. As of September 30, idiom had 1,140,000 downloads. Idiom just had its 4th anniversary of service launch and is making solid progress in fostering community and accumulating highly engaged users. As you can see, the revenue is growing steadily and the monthly average DAU on the right is also growing steadily, showing a steady accumulation of users. We have reached a level 10 times what it was before joining the DNA group. We are aiming to continue to achieve solid growth in genres other than pokocha centered on idiom. Next, I will talk about serve. As we talked about during the IR day held last month, under our serve approach, we intend to grow the healthcare and medical business. With that aim in mind, we enhanced our business portfolio from last fiscal year into this fiscal year. Going forward, we will focus on further growth and earnings space enhancement while also actively seeking synergies between health care and the peripheral medical area and seek sustained growth also from fiscal year 2024 onwards. We started in fiscal year 2020 with revenue of 2,100,000,000 yen and an operating loss of 1,200,000,000 yen We have enhanced our portfolio through the conversion into subsidiaries of ALM, Data Horizon and Nippon Tech Systems. Next fiscal year, fiscal year 2023, our goal is to achieve profitability. For fiscal year 2024, our goal is to achieve revenue of 20,000,000,000 yen and an operating profit of 5,000,000,000 yen and we aim to achieve sustained growth. So specifically, what issues do we aim to solve? And what are our focus markets? For people and the insured, we aim to extend healthy lifespans. We want to have an effective health business and rationalize medical costs. For pharmaceutical and insurance companies, we want to assist with efficient drug development and marketing and with new product development. We will drive health promotion for members of the insurance. Medicine is also important. Under medicine and care, etcetera, maintaining the regional medical structure is an important issue within the transformation of working styles for doctors. At the same time, we need to increase medicine and care quality. For these aims, our focus markets are the health big data market, including both data health and data use, as well as the medical digital transformation market, including Japan and the global market. Transformation market, including Japan and the global markets. We aim to have our new group companies data horizon and ALM drive growth in these areas. Looking at the quarterly results for healthcare and medical, we are making steady progress in establishing our business portfolio and organizational structure. As I mentioned earlier, we made Data Horizon a subsidiary in August. And in October, we made Almond to a subsidiary and newly established the medical business unit. Data Horizon also made Next, let's look at sports. Our performance significantly improved year on year. As I mentioned earlier, we are finally coming out of COVID-nineteen. Before COVID, this area was established as a business. But for the past 3 years, it was impacted by the pandemic. Now, we no longer have attendance restrictions, and we also made it to the Climax series, placing 2nd in the league. We expect to continue to increase performance centered on baseball, but also including basketball. As you can see, our attendance for the 2022 season significantly recovered at a 2.4 times level compared to last season. During the climax series, we had 33,037 people attend. Our stadium expansion was completed during COVID, adding many more seats,