July 29, 2016
GungHo Online Entertainment, Inc.
Consolidated Financial Results for the 2nd quarter of FY Ending December 31, 2016
Supplementary Materials
New games under development with an eye toward the console F2P market
1. Summary of Financial Results for the 2nd Quarter of FY Ending December 31, 2016 (Trends of Quarterly
Performance)
2015
(Millions of yen)
Net sales
Gross profit
SG&A
Salary and
allowances
Advertising
expenses
Others
Operating
income
(operating
income margin)
Ordinary income
Profit
Profit attributable
to owners of
parents
2016
1st quarter
44,618
30,226
6,545
2nd quarter
37,722
24,925
7,142
3rd quarter
36,878
24,730
7,335
4th quarter 1st quarter 2nd quarter
35,110
31,699
29,743
23,453
21,261
19,719
9,886
7,126
7,187
845
838
842
1,046
878
874
3,946
4,492
4,583
6,957
4,053
4,019
1,754
1,811
1,910
1,882
2,195
2,294
23,680
17,783
17,394
13,566
14,134
12,531
(53.1%)
(47.1%)
(47.2%)
(38.6%)
(44.6%)
(42.1%)
23,775
23,775
17,757
17,734
17,529
17,348
13,543
10,973
13,965
13,965
15,128
11,172
10,950
6,180
9,197
3rd quarter
―
―
―
―
4th quarter
―
―
―
―
―
―
―
―
―
―
―
12,369
11,854
―
―
―
―
7,609
―
―
―
*Quarterly net profit is indicated as profit attributable to owners of parents
■GungHo has strived to sustain solid business results amid an oversaturated smartphone market
■Net Sales
In the second quarter of the fiscal year under review, GungHo carried out a collaborative event with popular
characters for “Puzzle & Dragons”, a puzzle role-playing game (RPG) on smartphones which accounts for
the majority of its sales, and kept on updating the game contents. It also held GungHo Festival 2016, an
offline event, on May 29, 2016. The cumulative number of visitors (including visitors to events held in nine
venues nationwide) hit a record high of 119,371. Even being in the fifth year since its launch, the event has
kept on attracting a broad range of users, and we have striven to maintain a robust performance amid a
saturated domestic smartphone market. In overseas markets, the North American version of Puzzle &
Dragons, for which a TV commercial was broadcast in 2015, marked 10 million cumulative downloads on
May 1, 2016. The Company had reformed the program for the Chinese version of “Puzzle & Dragons” to suit
the taste of Chinese users through collaborative work with Tencent, a leading Chinese internet service
provider. Advance registration kicked off on May 26, 2016, followed by the launch of formal services for the
Android version and iOS version on July 19 and July 20 respectively.
Regarding new games, the Company released “Puzzle & Dragons X (cross)”, an adventure puzzle RPG
geared to Nintendo 3DSTM, on July 28, 2016. It has also been developing a game for smartphones and LET
IT DIE, an online action game for PlayStation®4, both to be released by the end of 2016. In particular, the
game LET IT DIE was exhibited as a playable version at the large game event PAX EAST 2016, held in
Boston, USA in April 2016, and the world’s largest computer game fair Electronic Entertainment Expo 2016
(E3 2016), held in Los Angeles, USA in June 2016. It was highly rated by users. The game is for use on the
home video game console PlayStation®4, and is scheduled to be released as a Free-to-Play (F2P) online
game in North American markets ahead of other countries in the world.
In the Partner Publishing business, GungHo released Republique, a stealth adventure game tailored for
PlayStation®4, on April 14, 2016. The Company also acquired from Gameloft S.A. (headquartered in
France) the right to publish “Disney Magic Kingdom” within Japan, targeted at smartphone users, and is now
preparing for the official launch by the end of 2016.
With the aforementioned initiatives, the Company has focused on developing and updating games including
“Puzzle & Dragons” to keep entertaining users, and achieved a solid performance from the previous quarter
amid the oversaturated smartphone market.
■Selling, general and administrative expenses
(Salaries and allowances)
Salaries and allowances in the second quarter of the fiscal year under review were JPY 874 million, the
same level as in the previous quarter. The number of employees at the end of the second quarter of the
fiscal year under review was 383 (an increase of 15 from the previous quarter) on a non-consolidated basis
and 947 (a decrease of 23 from the previous quarter) on a consolidated basis.
(Advertising expenses)
Advertising expenses in the second quarter of the fiscal year under review were JPY 4,019 million, the
same level as the previous quarter. The holding of the off-line event, “GungHo Festival 2016” and the launch
of the advertisement for “Puzzle & Dragons X (cross)” on Nintendo 3DS resulted in the increase in
advertising expenses. However, such increase was offset by optimizing the advertising method for the North
American version of “Puzzle & Dragons”, and the reactionary decline in advertisements for games other than
Puzzle & Dragons where the level of promotional effort is now back to normal from the year-end and new
year period of which it had been reinforced. As a consequence, advertisement expenses remained at the
same level as the previous quarter.
■Operating profit
Operating profit of Q2 was 12,531 million yen, decreased by 11.3% compared to the previous quarter due to the
decrease of sales.
■ Number of MAUs remains at a high level despite a slowdown in growth in the number of new
contracts made in the smartphone market
Start of TV commercial
P&D was released for iPhone in February 2012. Initially, we carried out promotional activities mainly based on a
word-of-mouth approach. Subsequently, when the Android version was released in September 2012, we launched a TV
commercial in the following month. With the rapid penetration of smartphones, the number of DLs grew.
The number of DLs continued to increase steadily thereafter and exceeded 42million as of June, 2016. Additionally,
the number already accounts for over 94% of Japan’s gaming population of 44,680,000 (source: FAMITSU GAME
HAKUSHO 2016), reflecting a wide reach of P&D in the current market with one of the highest popularity in the nation.
On the other hand, this accounts for more than half of the 72,370,000 smartphone contracts (as of September 30,
2015: MM Research Institute, Ltd). While there has been a slowdown in the rapid contract growth rate seen in
smartphones in 2012 and 2013, and whereas the widening demand for switching models as the crossover point
approaches for the contract period of existing smartphone users has been restricted somewhat by “data transfer” when
changing the model, the MAU is transitioning stably at a high level.
■GungHo non-consolidated monthly sales
Regarding the non-consolidated monthly sales of GungHo, as a result of implementing monthly in-game events, etc.
the Company has been posting high profits for a long time backed by a stable, outstanding level of MAU despite some
fluctuations of sales in results from month to month. In the market for mobile phone games, the projected life cycle of a
game tended to be short. However, as smartphone games have stronger features as online games, the Company is
able to offer games that can continue to attract users on a long term basis by developing/updating games continuously
and implementing events effectively based on a proper analysis of user reactions.
■Result of the tender offer and completion of acquisition of treasury stock
GungHo carried out the tender offer of treasury stocks and the major shareholders will change as follows.
General number of acquired
248,300,000 shares
stock
Total price of acquired stock
73,000,200,000 JPY (tender offer price 294 JPY per share）
Period of acquisition
From Thursday, June 23, 2016 to Thursday, July 21,
2016 (20 business days)
Method of acquisition
Based on the method of tender offer
■List of shareholders (before tender offer)
■List of shareholders (after tender offer, taking into account the
cancellation of treasury stock)
Number of
Name of shareholders
shareholdings
Shareholdi
ngs rate
Name of shareholders
(%)
Number of
shareholdings
Shareholdin
gs rate
(%)
1 GOUDOU GAISHA Heartis
213,080,000
20.1
1 GungHo Online Entertainment, Inc.
346,928,438
32.7
2 SoftBank Group Corp.
199,204,800
18.8
2 GOUDOU GAISHA Heartis
213,080,000
20.1
3 GungHo Online Entertainment,
98,417,678
Inc.
9.3
3
GOUDOU GAISHA Son Equities
63,310,000
5.9
4 SoftBank Corp.
73,400,000
6.9
4 SoftBank Corp.
27,012,400
2.3
5 GOUDOU GAISHA Son Equities
63,310,000
5.9
5 Kazuki Morishita
10,096,000
0.9
■Shareholder return
As for treasury shares to be acquired through the Tender Offer, the Board of Directors held on June 21, 2016
resolved to cancelation policy of them in a number equivalent to 10% of total number of shares outstanding
promptly after the planned share acquisition. The purpose is to improve capital efficiency and clarify the return to
shareholders. The above-mentioned cancellation of treasury shares is planned to be carried out on or after
August 16, the settlement date for the Tender Offer.
(1)
Total number of
1,057,892,400 shares
(as of June 21, 2016)
98,417,678 shares
(as of June 21, 2016)
issued shares
(2)
Current number of
treasury shares
(3)
Number of shares to
248,300,000 shares
be acquired through
(23.47% of total number of shares outstanding as of June
21, 2016)
the Tender Offer
(planned)
(4)
Number of shares to
105,789,240 shares
be cancelled
(10.00% of total number of shares outstanding as of June
21, 2016)
(planned)
(5)
Post-cancellation
number of treasury
shares (planned)
240,928,438 shares
(25.30% of post-retirement total number of shares
outstanding)
■Consolidated Balance Sheet
(Millions of yen)
2013
1Q
2Q
2014
3Q
4Q
1Q
2Q
2015
3Q
4Q
1Q
2Q
2016
3Q
4Q
1Q
2Q
Current assets
Cash and deposits
Accounts receivable-trade
Short-term investment securities
Work in process
Deferred tax assets
Others
Non-current assets
Property,plant and equipment
Intangible assets
Goodwill
Software
Software in progress
Others
Investments and other assets
Investment securities
Deferred tax assets
その他/Others
Total assets
37,561
23,280
12,601
423
37
851
367
6,737
504
3,557
706
2,047
767
35
2,675
0
1,801
874
44,299
66,723
47,036
17,046
428
73
1,682
455
6,130
497
3,585
636
1,847
1,065
37
2,047
0
1,232
815
72,853
90,349 87,396 67,006 92,930 130,810 150,905 149,447
73,902 64,844 48,078 73,145 115,737 132,099 128,688
13,111 18,574 16,951 17,017 12,810 16,094 18,199
455
497
486
500
520
543
760
96
109
56
35
53
63
103
2,320
2,928
805
1,511
812
1,295
564
464
441
627
720
876
809
1,131
7,083 37,994 36,497 36,114
6,625 10,175 10,243
454
420
372
389
368
405
349
3,382
2,635
2,618
2,666
2,449
4,484
4,715
577
347
297
248
14
1,493
1,419
1,931
1,728
1,597
1,619
1,646
1,778
1,511
833
516
671
750
737
1,158
1,724
39
44
52
48
50
53
59
3,246 34,939 33,506 33,058
3,806
5,285
5,178
0 31,562 30,109 29,346
0
2,629
2,647
1,330
1,300
1,334
1,324
1,393
652
531
1,916
2,076
2,062
2,387
2,413
2,003
2,000
97,433 125,390 103,503 129,045 137,436 161,081 159,691
86,796
71,661
12,116
1,035
118
1,110
753
10,446
322
4,818
1,369
1,357
2,015
75
5,305
2,701
575
2,027
97,243
84,794 99,413 97,959 108,669
68,491 81,045 85,629 95,813
13,669 15,024
9,263
9,443
1,354
1,388
1,120
1,015
83
1
29
48
383
778
407
793
811
1,174
1,509
1,553
10,929
8,665
9,785 10,066
271
256
509
1,067
4,721
3,597
3,802
3,677
1,266
0
0
0
1,107
595
600
572
2,272
2,925
3,123
3,017
74
76
77
87
5,935
4,811
5,473
5,321
2,636
1,620
1,524
1,392
564
502
621
677
2,734
2,688
3,327
3,251
95,723 108,078 107,745 118,735
Current liabilities
Notes and accounts payable-trade
10,927
336
23,550
417
33,398
352
46,731
528
14,504
562
25,362
344
22,751
494
11,009
455
Current portion of long-term loans payable
Income taxes payable
Others
Non-current liabilities
Long term loans payable
Others
Total liabilities
Shareholder's equity
Capital stock
Capital surplus
Retained earnings
Treasury shares
Accumulated other comprehensive income
Foreign currency translation adjustment
Others
Total Accumulated other comprehensive income
Minority interests
Total non-current assets
Total assets
122
7,724
2,744
1,381
826
555
12,308
29,644
5,337
5,498
18,808
0
111
18,824
4,197
1,380
803
576
24,931
45,502
5,337
5,498
34,665
0
95
27,392
5,557
1,361
782
578
34,759
59,942
5,338
5,499
49,103
0
99
37,135
8,968
1,231
788
442
47,962
72,065
5,338
5,471
61,255
0
106
9,048
4,787
1,207
825
382
15,712
83,467
5,338
5,471
75,438
-2,780
96
87
476
931
943
934
936
19,452 10,431 19,612
8,008 15,419
4,728 10,209
5,468
6,273
7,797
6,828
5,893
4,891
5,512
1,202
1,193
1,411
811
701
663
656
803
782
1,009
277
257
198
158
398
410
401
533
444
465
498
26,564 18,412 29,877 17,035 23,452 11,673 17,721
98,497 116,120 128,443 140,128 71,301 82,251 88,430
5,338
5,338
5,338
5,338
5,338
5,338
5,338
5,471
5,471
5,471
5,471
5,471
5,471
5,469
90,468 108,091 120,414 132,099 102,805 113,756 119,937
-2,780 -2,780 -2,780 -2,780 -42,314 -42,314 -42,314
-628
0
-628
2,974
31,990
44,299
-575
0
-575
2,995
47,922
72,853
-346
2,460
1,606
1,253
188
414
213
0
0
0
0
0
48
167
-346
2,460
1,606
1,253
188
462
380
3,077
2,902
2,715
2,730
2,715
2,297
2,146
62,673 77,428 87,790 102,481 119,023 131,203 142,656
97,433 125,390 103,503 129,045 137,436 161,081 159,691
17,218
426
28,466
579
16,224
455
388
126
514
1,950
73,790
97,243
17,065
406
11,930 15,286
354
467
772
765
214
193
4,736
9,593
5,852
4,265
720
1,139
105
62
614
1,077
12,651 16,425
93,310 100,920
5,338
5,338
5,469
5,469
124,817 132,427
-42,314 -42,314
-224
109
-28
-282
261
-11
0
0
37
109
-28
-282
1,660
1,639
1,560
1,344
84,049 90,356 95,094 102,309
95,723 108,078 107,745 118,735
■Consolidated Profit and Loss Sheet
(Millions of yen)
2013
1Q
Net sales
3Q
2014
4Q
Total
1Q
30,904 43,717 41,639 46,799 163,060
Cost of sales
Cost of sales ratio
2Q
9,617 13,367 13,182 16,951
53,119
2Q
2015
3Q
4Q
Total
1Q
2Q
3Q
2016
4Q
Total
1Q
2Q
Total
49,909
44,424
38,494
40,241 173,069 44,618 37,722 36,878 35,110 154,329
31,699
29,743
61,443
16,048
14,198
12,544
13,198
10,438
10,023
20,461
55,989 14,392 12,796 12,148 11,656
50,993
31.12% 30.58% 31.66% 36.22% 32.58% 32.16% 31.96% 32.59% 32.80% 32.35% 32.26% 33.92% 32.94% 33.20% 33.04% 32.93% 33.70% 33.30%
Gross profit
21,286 30,350 28,456 29,847 109,941
33,860
30,225
25,950
21,261
19,719
40,981
2,670
3,811
5,095
7,135
18,713
5,071
5,242
6,281
6,201
22,797
6,545
7,142
7,335
9,886
30,910
7,126
7,187
14,314
Salaries, wages and bonuses etc.
567
601
618
1,075
2,863
619
649
653
1,031
2,953
845
838
842
1,046
3,573
878
874
1,753
Advertising & marketing
814
1,897
3,223
4,498
10,433
2,963
3,086
4,164
3,268
13,483
3,946
4,492
4,583
6,957
19,979
4,053
4,019
8,072
1,289
1,311
1,254
1,561
5,416
1,488
1,506
1,463
1,902
6,360
1,754
1,811
1,910
1,882
7,357
2,195
2,293
4,488
18,616 26,538 23,360 22,712
91,228
28,789
24,982
19,669
20,841
94,283 23,680 17,783 17,394 13,566
72,425
14,134
12,531
26,666
Total selling, general and administrative expenses
Others
Operating profit
Operating profit ratio
27,043 117,080 30,226 24,925 24,730 23,453 103,335
60.24% 60.71% 56.10% 48.53% 55.95% 57.68% 56.24% 51.10% 51.79% 54.48% 53.07% 47.14% 47.17% 38.64% 46.93% 44.59% 42.13% 43.40%
Non-operating profit
Interest income
Foreign exchange gains
Others
Non-operating expenses
54
123
5
13
196
39
35
35
182
293
117
51
155
-23
300
32
25
57
31
30
36
29
127
33
32
32
68
166
48
42
29
28
148
22
12
35
4
69
-41
-14
18
0
0
0
88
88
56
-7
108
-54
102
0
0
0
17
23
10
-1
50
6
3
3
25
39
12
16
18
2
49
9
12
22
7
11
8
1,292
1,319
734
318
-4
3
1,052
22
76
20
0
119
201
188
389
Interest expenses
5
7
7
6
28
6
6
6
6
26
12
12
10
8
44
7
7
14
Treasury stock acquisition costs
0
0
0
0
0
0
0
0
0
0
0
58
0
0
58
0
0
0
Equity in losses of affiliates
0
0
0
1,284
1,284
725
295
0
0
1,021
0
0
0
0
0
0
0
0
Foreign exchange losses
0
0
0
0
0
1
15
-11
-6
0
0
0
0
0
0
186
179
365
1
3
0
1
6
0
0
0
3
4
9
6
9
-9
16
7
1
9
18,662 26,650 23,358 21,433
90,104
28,095
24,699
19,709
21,020
93,524 23,775 17,757 17,529 13,543
72,606
13,965
12,368
26,334
Others
Ordinary profit
Extraordinary profit
0
82
1
2
87
0
0
7,591
0
7,591
0
0
0
66
66
0
0
0
Gain on sales
0
0
0
0
0
0
0
7,591
0
7,591
0
0
0
0
0
0
0
0
66
66
Loss on valuation of stocks of subsidiaries and affiliates
Others
Extraordinary loss
Impariment loss
82
1
2
87
0
0
0
0
0
0
0
0
0
0
0
0
0
14
123
59
593
791
0
39
184
1
225
0
23
181
2,636
2,841
0
514
514
14
123
59
593
791
0
39
184
1
225
0
23
204
1,698
1,902
0
514
514
938
938
0
0
0
0
0
Loss on valuation of investment securities
Others
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Profit
18,648 26,609 23,300 20,842
89,400
28,095
24,660
27,116
21,018 100,890 23,775 17,734 17,348 10,973
69,832
13,965
11,854
25,820
Profit attributable to owners of parent
12,321 15,857 14,437 12,151
54,768
17,063
15,029
17,622
12,323
43,432
9,197
7,609
16,807
62,038 15,128 11,172 10,950
6,180
■The number of downloads for smartphone applications
Puzzle & Dragons (Japan)
Reached date
2012/2/20
2012/7/15
2012/10/17
2012/11/5
2012/11/22
2012/12/12
2012/12/31
2013/1/18
2013/1/30
2013/2/18
2013/3/9
2013/3/25
2013/4/9
2013/4/28
2013/5/18
2013/6/8
2013/6/29
2013/7/22
2013/8/16
2013/9/14
2013/10/14
2013/11/15
2013/12/15
2014/1/4
2014/1/31
2014/3/1
2014/3/23
2014/4/20
2014/5/27
2014/7/8
2014/8/15
2014/9/25
2014/11/16
2014/12/31
2015/2/19
2015/3/28
2015/5/15
2015/7/17
2015/9/20
2015/11/24
2016/1/26
2016/3/30
2016/6/17
Downloads
Launch
100
200
300
400
500
600
700
800
900
1,000
1,100
1,200
1,300
1,400
1,500
1,600
1,700
1,800
1,900
2,000
2,100
2,200
2,300
2,400
2,500
2,600
2,700
2,800
2,900
3,000
3,100
3,200
3,300
3,400
3,500
3,600
3,700
3,800
3,900
4,000
4,100
4,200
Puzzle & Dragons (North America)
Reached date
2012/11/8
2013/7/27
2013/10/30
2014/3/7
2014/5/22
2014/9/16
2014/12/31
2015/5/6
2015/9/29
2015/12/30
2016/5/1
Downloads
Launch
100
200
300
400
500
600
700
800
900
1,000
(Unit: ten thousand)
Puzzle & Dragons (South Korea)
Reached date
2013/1/21
2013/7/1
2014/3/15
Downloads
Launch
100
200
Puzzle & Dragons (Hong Kong, Taiwan)
Reached date
2014/1/23
2014/3/11
2014/12/17
Downloads
Launch
100
200
Princess Punt Sweets (Japan)
Reached date
2012/11/19
2013/1/15
2013/2/13
2013/5/5
2013/8/17
2013/9/15
2013/10/23
2014/1/10
2014/4/12
2014/9/14
2015/6/20
2016/4/3
Downloads
Launch
100
200
300
400
500
600
700
800
900
1,000
1,100
Princess Punt Sweets (Taiwan,
Hong Kong, Macao)
Reached date
2015/4/13
2015/6/19
Downloads
Launch
100
Divine Gate
Reached date
2013/9/30
2013/10/26
2014/1/23
2014/9/20
2015/4/14
2015/11/29
Downloads
Launch
100
200
300
400
500
SUMMONS BOARD
Reached date
2014/2/10
2014/4/1
2014/11/9
2015/6/19
2015/10/4
Downloads
Launch
100
200
300
400
LEGEND OF KINGDOM
Reached date
2014/6/30
2014/8/11
Downloads
Launch
100
CRAZY TOWER
Reached date
2012/9/10
2013/2/15
Downloads
Launch
100