Investor Relations

Outline of Results Briefing by SQUARE ENIX HOLDINGS held on May 13, 2013

Outline of Results Briefing by SQUARE ENIX HOLDINGS held on May 13, 2013
(Continued from previous page.)*

With respect to balance sheet items, there are no specific items worth noting, but I would like to comment on one point. With respect to the ‘Allowance for Sales Returns’ found on page 9 of the Earnings Briefings, the balance as of the end of March 2012 was ¥1,545 million, but the balance increased sharply to ¥4,319 million as of the end of March 2013. If you go to page 11 of the Earnings Briefing, ‘Loss on Disposal of Content’ of ¥3,696 million and ‘Loss on Evaluation of Content’ of ¥4,834 million were incurred, respectively, resulting in an extraordinary loss amounting to ¥11,210 million, and a net loss of ¥13,714 million.


Next, I plan to speak about our forthcoming business plans, in particular our HD Game business within our Digital Entertainment segment. To put it simply, the packaged games business, and in particular the Western market packaged sales business' operating and earnings efficiency, has been very challenging. In the fiscal year ended March 2013, we released the major titles including "Sleeping Dogs," "Hitman," and "Tomb Raider." These titles were lauded by the industry from a creative perspective, achieved very high levels of quality, and I believe that we achieved our primary goal of both reinvigorating existing IPs and creating new IPs. However, from the perspective of profitability, there was tremendous competition from many other strong titles, and with the diverse amount of entertainment options available, customers have become more selective, resulting in this disappointing outcome. In particular, net sales to customers is a critical metric (net sales being the actual number of units sold at the retail level beyond the number of sales to the distribution network), and we have seen significant degradation in results. In the packaged sales business, very strong competition in the marketplace has resulted in pricing methods such as price protection (costs incurred to maintain pricing) and back-end rebates (sales incentives) growing in increased importance, and creating a critical increase in pricing method costs. Furthermore, in the Western markets, while it was assumed that products could be sold across relatively long-term horizons, as a glut of major titles came into the market, sales opportunities and periods tightened, and this caused a critical increase in advertisement spend to lift initial shipments.