To Our Shareholders

Originally published in the Group' s 2013 Annual Report.

I would like to express my sincere appreciation for all the understanding and support you kindly extend to the Square Enix group (“Group”). I was appointed to the position of President and Representative Director at the Annual Shareholders’ Meeting and the Board of Directors’ Meeting held on June 25, 2013. I will draw on my previous experience and do my utmost to guide the Group under the new management structure toward significant business growth. I look forward to your continued support.

The fiscal year ended March 31, 2013 was a very difficult year for the Group. On a consolidated basis, net sales totaled ¥147,981 million (an increase of 15.7% from the prior fiscal year), operating loss amounted to ¥6,081 million (operating income of ¥10,713 million in the prior fiscal year), recurring loss amounted to ¥4,378 million (recurring income of ¥10,297 million in the prior fiscal year), and net loss amounted to ¥13,714 million (net income of ¥6,060 million in the prior fiscal year). The Group posted an operating loss for the first time since the merger between ENIX CORPORATION and SQUARE CO., LTD. into SQUARE ENIX CO., LTD.

The business environment is undergoing major changes, notably, the evolution of consumer game consoles into the next generation, considerable growth in new game genres such as social gaming, and the rapid spread of smart devices including smartphones and tablets. While we exerted managerial efforts in the major business segments of Digital Entertainment, Amusement, Publication, and Merchandising under the changing environment, sluggish performance of the Digital Entertainment segment, most noticeably in the HD (High-Definition) games category, and slow sales of new arcade game machines in the Amusement segment led to the consolidated operating loss.

The Amusement segment consists of the operation of amusement facilities and the development and distribution of arcade game machines. In the arcade game machine business, “Chosoku Henkei GYROZETTER” (Super High-Speed Transforming GYROZETTER), a new machine launched in the first half of the fiscal year under review, ended up with a disappointing result, far below the original plan. The GYROZETTER business attained some progress in creating new intellectual property (“IP”), but failed to become a big hit as a whole, with the number of shipments substantially below the target.

On the other hand, the operation of amusement facilities produced favorable results throughout the fiscal year under review, and in particular, achieved, in the second half, comparable store sales of 103% on a year-on-year basis. In the fiscal year under review, sluggish sales of arcade game machines had a negative impact on segment performance, but the entire Group’s arcade game machine development capabilities grew considerably, which produced strong IPs such as “LORD OF VERMILION” and “GUNSLINGER STRATOS.” In the context of live, non-virtual entertainments, the development of games for amusement facilities as well as the operation of amusement facilities are areas where we can expect deep-rooted demand going forward, and will thus continue to represent vital parts of our business portfolio.

In and after the next fiscal year ending March 31, 2015, amusement facility operations will be adversely affected by the upcoming increase in the consumption tax. However, we shall overcome the negative impact by further efficiency in operations and our strong IP portfolio, and strive to achieve a solid recovery in this business.

The Publication segment made steady progress with net sales of ¥11,086 million and operating income of ¥2,484 million. The segment is taking effective control of the business process from creation of new titles to enhancement of comic book sales through deployment of TV animation series to generate steady business expansion. In addition, our web-based new media called “GANGAN ONLINE” is accelerating on full scale development of new IPs such as “Watashi ga Motenai no wa Dou Kangaete mo Omaera ga Warui!” (It’s obviously you guys’ fault I’m not popular!) and “Gekkan Shojo Nozaki-kun” (Monthly girl’s comic magazine “Nozaki-kun”), and thus “GANGAN ONLINE” is increasing its presence as an additional medium alongside magazines for highlighting new titles. The emergence of electronic books is making a major change in the paper media-oriented publication industry. The Group is taking a responsive approach to the new tide of the industry, and will strive to capture new opportunities precisely for further business expansion.

The Merchandising segment showed steady performance, posting net sales of ¥3,264 million and operating income of ¥667 million. In the fiscal year under review, we launched a collector’s box and held special concerts to commemorate the 25th anniversary of the FINAL FANTASY series, which received favorable reception from our fans. We also opened an official merchandise store, ARTNIA, at our new headquarters, following our relocation, and crowds of people have come to enjoy shopping at the store. On top of the merchandising of character goods and CDs, the ARTNIA store is contributing to further elevation of our brand value.

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