Mixi Inc

TSE:2121

Earnings Call Transcript 2020-Q4

[Koki Kimura, executive]

Thank you very much for coming to our earnings result briefing despite your busy schedule. I am Koki Kimura, President and Representative Director of mixi. I'll explain about the earnings result for fiscal year 2020. In this presentation, I will cover financial and business status of FY 2020 as well as initiatives and results forecast for FY 2021.

Let me start with financial status. Please turn to Page 4, for consolidated income for the fourth quarter. Net sales were JPY 39.8 billion, up 4.6% year-on-year. EBITDA was JPY 15.1 billion and profit attributable to owners of parent was JPY 10.2 billion, up 9.3% year-on-year. We started to disclose EBITDA from this briefing due to increase of consolidated subsidiaries by stock acquisition.

Please turn to Page 5. This page shows full year cumulative consolidated income. Net sales were JPY 112.1 billion. EBITDA was JPY 20 billion and profit attributable to owners of parent was JPY 10.7 billion. Even though we recognize decreased sales and profit, sales were better than expected, mainly in Monster Strike. And we could achieve the forecast which was revised upward on March 23.

Please turn to Page 6 for changes in quarterly performance by business segment. Entertainment business recorded sales of JPY 38.7 billion and Lifestyle business recognized JPY 1 billion for sales of Entertainment business increased by JPY 1.7 billion year-on-year, and this is because sales of new consolidated subsidiaries, Chariloto and Net Dreamers were added to the sales of Monster Strike.

Please turn to Page 7. This page shows changes in quarterly sales costs. Outsourcing costs increased year-on-year and this is due to inclusion of the cost of new consolidated subsidiaries. Page 8 is about changes in quarterly SG&A expenses. Personnel costs increased year-on-year due to year-end bonus and cost of new consolidated subsidiaries. On the other hand, advertising costs decreased year-on-year. This is mainly because advertisement for Monster Strike has become more efficient. Monster Strike grew its sales in February and March with streamlined advertising cost. It will continue to generate profit as our main business.

Now let me move on to business status. Please turn to Page 10. First, I'd like to review revitalization of Monster Strike, and growth of Sports businesses we focused on during FY 2020. We worked on recovery of MAU and ARPU to revitalize Monster Strike and achieved sales and profit better than the forecast at the beginning of this fiscal year. Regarding government managed betting sports business, after the acquisition of Chariloto in FY 2019, we additionally acquired Net Dreamers which operates netkeiba.com as a new group company to promote joint business development by the 3 companies. Preparation for renovation of government managed betting sports is progressing steadily through restructuring of local bicycle race tracks.

Please turn to Page 11 for the review of Monster Strike. We could recover the number of active users by marketing efforts such as anniversary campaign, which generated publicity among users. In addition, collaboration with popular IPs and offering attractive new characters, improved ARPU in the second half. We recognized once again that Monster Strike can achieve strong sales and profit as long as appropriate measures are taken. And that led to firm confidence. We will continue to offer various surprises to users to improve business performance.

Page 12 is a review of sports businesses. As for an achievement in government managed betting sports, Chariloto was selected as a restructuring operator for Tamano Keirin Bicycle Racetrack. We will implement renovation of ceiling with Tamano City. In the area of professional sports, we acquired a basketball team, Chiba Jets Funabashi and launched a sports gifting service online. However, the environment around sports has become severe due to the impact of COVID-19, such as holding games with no spectators and game cancellations.

Please turn to Page 13 for Digital Entertainment and Lifestyle segments. Regarding Digital Entertainment, we obtained a gain from another company for the first time. After completing the transfer of Kotodaman, we implemented collaboration campaign with Monster Strike to successfully put the game on a growth track. We also work on preparation of new titles of our own. In Lifestyle segment, we enhanced monetization measures like Family Album new year card, a new service developed with SFIDANTE, which became our group company in this fiscal year under review.

Next, let me explain our initiatives in FY 2021. Please turn to Page 15 for our management policies. I assume the world has come to a significant turning point due to COVID-19 pandemic, which disrupted our conventional normal life and imposed restrictions such as staying at home are causing much stress on society. Under such a circumstance, I realized the necessity of entertainment, which can relax the people. Having said that, there still are many entertainment, which can be enjoyed off-line only. By making use of our know-how in entertainment and IT technologies for promoting digital transformation, we believe we can deliver such entertainments to many users. Now is the time for us to energize Japan and the world.

Please turn to Page 16. Starting from FY 2021, we will categorize our business into 3 segments for disclosure by adding sports businesses for which we expect further growth. That is Digital Entertainment segment for games and animations, such as Monster Strike and Kotodaman. Sports segment for government managed betting sports and Chiba Jets and Lifestyle segment for Family Album, minimo and SNS mixi.

Please turn to Page 17 for the policy of Digital Entertainment business in FY 2021. We will continue to focus on revitalization of Monster Strike. Our goal is to establish Monster Strike as a brand to be loved for 10 years and more and will ensure greater synergy between game planning, marketing and media mix measures for its revitalization. Also, we will aim for earnings increase through collaborations with external IPs. In addition to these regular measures, we will continue to revitalize Monster Strike by offering new gaming experience, which materializes substantial value of the game. Regarding development of new games, we will be selective by executing plans with a good chance of success only. Mobile game market has already matured, but it still stands as a huge market. We believe, we can create and drive a new category if we can offer a new play.

Please turn to Page 18 for Sports businesses. We'll invest in government managed betting sports to establish the second pillar in our business. Government managed betting sports is an attractive market with a large market size and high-growth rate. We intend to grow this category to be an earnings pillar through transformation to a new entertainment by IT technologies. At the same time, we will cooperate with local governments like Tamano Keirin Bicycle Racetrack to contribute to regional revitalization. In FY 2021, we will continue to strive for growth of Chariloto and Net Dreamers and proceed with new service development for synergy, such as joint business development and participation to peripheral businesses.

Please turn to Page 19. Other sports than government managed betting sports are severely affected by COVID-19. And it is difficult to have a clear outlook. Because of such a situation, we'd like to encourage athletes to use on them, with which we can develop a circle of support for them. As for professional sports teams, we will continue to support Chiba Jets, FC Tokyo and Yakult Swallows for their medium to long-term growth.

Please turn to Page 20. In Lifestyle businesses will enhance monetization of Family Album. We need to stay at home due to COVID-19, and it has become difficult to communicate with family living far away from them like grandparents. Family Album has supported online communication within families. We'll continue our growth by addressing social needs.

Lastly, I will explain about results forecast for FY 2021. Please turn to Page 22 for full year forecast. We estimate net sales as JPY 100 billion. EBITDA is JPY 15 billion, operating income is JPY 11 billion and profit attributable to owners of parent is JPY 6.5 billion. Consolidated net sales are expected to decline by 10% year-on-year to reflect sales increase of Monster Strike and consolidated EBITDA is estimated to decline by 25% year-on-year, reflecting the cost such as investment in government managed betting sports, the estimated impact by COVID-19 is partially reflected in this forecast as well. I will explain about it later. Sales and profit of new businesses are not included in the forecast as usual to make this forecast conservative as previous fiscal year.

Please turn to Page 23. This page shows major causes for the change of EBITDA. While current sales of Monster Strike are favorable, we assume it has not realized substantial revitalization yet. Due to COVID-19, we cannot clearly see the possibility of events and movies, which are regularly run every year. Therefore, we developed a conservative forecast. We will be streamlining expenses such as advertisement cost. Investments in government managed betting sports business are mainly for new service development. This item is planned to increase by JPY 2.8 billion year-on-year for quality improvement to make steady contribution to earnings. In other digital entertainment business, profit growth of Kotodaman is expected, and we'll work on selected new game development.

Please turn to Page 24. This page summarizes effects of COVID-19 on our business. We see certain effects of stay at home demand for online businesses. On the other hand, off-line businesses are affected negatively. Overall, online business accounts for a large proportion in our business. So the situation is favorable to us at this moment. Still, we maintain a conservative forecast.

Please turn to Page 25 for shareholder returns. Year-end dividend for fiscal year 2020 is JPY 55 as originally estimated, and this makes annual dividend as JPY 110 with interim dividend. Our dividend payment policy remains unchanged for FY 2021, and annual dividend is expected to be JPY 110 based on 5% DOE. Treasury stock acquisition in the end of FY 2020 was postponed as we determined enough investments have already been made for future corporate value improvement including acquisition of Net Dreamers.

Lastly, please turn to Page 26 for investment policies. In FY 2021, we intend to make active investments to improve our corporate value. To be more specific, early launch of new services for government managed betting sports. And M&As to grow main businesses.

I appreciate your continuous support. This concludes my presentation. Thank you for your attention.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]