CEO Interview
Summary of Financial Results for the First--Half Period Ended September 30, 2009.

Nov 16, 2009

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Square Enix group (the “Group”) has established framework to be a truly global group of companies following the integration of the major UK games publisher/developer Eidos Ltd. (“Eidos”). Major titles released by Square Enix for the first half of the fiscal year ending March 31, 2010 include DRAGON QUEST IX: HOSHIZORA NO MAMORIBITO on the Japanese market, and Eidos brand title Batman: Arkham Asylum outside Japan, resulting in record first-half sales of 12.07 million units. President Yoichi Wada described the results for the first half as a “passing mark”. Following the announcement of the financial results, we asked Mr. Wada for an overview of the first half and key initiatives for the Group.

Summary of Financial Results for the First--Half Period Ended September 30, 2009.
Major titles boost Games and Publication segments

The financial results for the first half of the year ending March 31, 2010 show steady progress thanks to the release of major new titles. How would you evaluate this first half?

Wada

The Games market continues to present challenges, but our businesses have been progressing according to plan. Even though some segments have struggled, the leading role played by the Games segment since the second quarter has enabled us to get a “passing mark.” The shipping of DRAGON QUEST IX: HOSHIZORA NO MAMORIBITO exceeded 4 million units within the first two months of its release, and made a significant contribution to these results.

Sales figures have also increased significantly this term with the addition of the Eidos brand titles. How would you asses these results?

Wada

Consolidated results for the first half show sales up 33.2% on the same period last year to 90.5 billion yen, with operating income up 39.3% to 13.0 billion yen, and recurring income up 25.5% to 12.1 billion yen. However, quarterly net income was down 55.7% to 2.6 billion yen due to extraordinary losses following the integration of Eidos and personnel adjustments.
Meanwhile, the movement in the consolidated balance sheet from the end of the previous fiscal year to the end of this first half occurred in the first quarter, with the integration of Eidos in April being taken into account. The content production account portion of current assets increased from 18.4 billion yen at the end of March, to 25.9 billion yen at the end of September, mainly because of the addition of Eidos brand titles. Furthermore, the allowance for sales returns portion of current liabilities increased from 1.6 billion yen at the end of March, to 4.5 billion yen at the end of September to account for the difference in sales methods between Square Enix and Eidos. I see this is an area to be improved.

Consolidated Financial Results and Projections / H1 Results of Operating Income by Segmen

Could you give us an overview of each segment?

Wada
In the Games segment, DRAGON QUEST IX: HOSHIZORA NO MAMORIBITO sold well in Japan, and the Eidos brand title Batman: Arkham Asylum performed well overseas, while Kingdom Hearts 358/2 Days did well both domestically and internationally. The Games segment achieved outstanding sales of 48.4 billion yen, a 117.5% increase over the previous year. However, the Amusement segment suffered from the harsh market conditions with a 20.5% drop in sales to 25.8 billion yen, and operating income down 58.4% to 1.1 billion yen. The Publication segment performed exceptionally well. Not only comics but also game guidebooks performed well, with a 27.4% increase in Publication sales to 7.8 billion yen. Sales of comics serialized on periodical publications were further boosted by the release of animation series adapted from these stories. This is the result of successful marketing based upon the precise analysis of target users. The DRAGON QUEST IX guidebook was an instant success, beating another company’s best-selling novel to reach the top of the ranking within its first week. The Mobile Phone Content segment is advancing steadily with a slight drop of 3.2% to 5.1 billion yen in sales. Sales in Merchandising segment, which handles planning, production, sales and licensing of derivative products, resulted in a creditable 90% increase in the segment at 3.2 billion yen.

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