GREE Reports FY2014 Second Quarter Results

FY2014 Second Quarter Financial Summary

Billions of yen

Notes

• 1. Breakdown of FY14 2Q net sales: Paid service sales ¥30.4 billion; ad media sales ¥2.2 billion
• 2. EBITDA＝Operating income/loss + depreciation costs + amortization of goodwill
• 3. In non-operating income, an exchange gain of ¥1.7 billion was recorded arising from translation gains on USD-denominated loans to overseas subsidiaries
• Figures are rounded off

Financial Highlights

• Net sales amounted to ¥32.6 billion, a decrease of 2.6% compared to ¥35.3 billion in the fiscal 2014 first quarter
• Operating income was ¥9.2 billion, a decrease of 6.1% compared to ¥9.8 billion in the fiscal 2014 first quarter
• Net income was ¥7.4 billion, an increase of 208.3% compared to ¥2.4 billion in the fiscal 2014 first quarter
• Operating margin improved by 0.4 percentage points quarter on quarter to 28.1%
• Cut fixed costs by ¥0.7 billion or 4% quarter on quarter through strict cost control; met, ahead of schedule, the target reduction committed to in the fiscal 2014 first quarter announcement

Business Update

Overall

• Posted firm sales growth in overseas markets, meeting commitment to achieve monthly profitability in overseas operations on a cash basis
• Japan sales declined quarter on quarter, but recovered in December on a monthly basis
• Made steady progress in development of new first-party titles in new genres

Web Game Business:*

• Overall consumption down 10% quarter on quarter due to continued decline in consumption on feature phones; monthly sales recovered in December
• Consumption on smartphones grew to approximately 68% of total coin consumption
• Revamped existing titles such as Driland from autumn, driving firm sales from December
• Improved monthly KPIs for consumption and user activity by revamping existing titles with new gameplay features and through cross promotion and other marketing initiatives
• Making steady progress with development: release schedule on track with three first-party titles and seven partner titles planned for release during fiscal 2014 second half

Native Game Business:*

• Grew annual revenue from overseas operations to US$200 million in calendar 2013
• In Japan, improved profitability through portfolio adjustments and tuning of existing games; achieved recovery in revenue from December
• Implemented G-lab and GREE Garage Production short-term prototype development programs aimed at boosting development capabilities and experimenting with new genres
• Making steady progress with development in new genres such as action battle RPG, side-scrolling action RPG, real-time strategy and action tower defence; increased planned output for fiscal 2014 second half to five titles overseas and six in Japan

New Business

• Advertising: Smartphone ad sales were firm, but not sufficient to cover the decline in feature phone ads. Favourable results were recorded in affiliate and reward business
• Venture capital: Investees continued to record steady growth; portfolio companies such as Retty and Berrybenka.com secured additional funding through third-party allocation of shares
• Licensing and merchandising: GREE Entertainment Products, Inc. recorded firm sales of the second product in the SiegKrone series, Shingeki no Kyojin (Attack on Titan), which was released in September
• Other: Formulated investment policy for the creation of new businesses: allocating 5% of fiscal 2014 operating income; plan to redeploy approximately 30 people to new business development by fiscal 2014 third quarter

• * Note on terminology:
  “Web game” refers to browser-based games for feature phones and smartphones. “Native game” refers to games provided as native apps for Android and iOS smartphones and tablets.

Earnings Forecast for the First Nine Months of Fiscal 2014 (July 1 – March 31, 2014)

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).