CEO Comment Volume 36, 2008.02
Interim Financial Report for Fiscal Year Ending June 2008 and Business Developments
Forecast Revisions and Updates
As approved at the special board meeting on February 15, we announced revisions to both the interim financial results and the forecasts for the full fiscal year ending June 2008 (details to be announced in our fiscal year summary on February 20 and also at a briefing to be held February 21).
Consolidated Interim Performance (fiscal year ending June 2008) (million yen)
| Original forecast | Revised forecast | Difference in value | Result of previous year | |
| Net Sales | 19,000 | 19,093 | 93 | 7,601 |
| Operating Income | 40 | -181 | -221 | 1,015 |
| Ordinary Income | -100 | -287 | -187 | 938 |
| Net income | -400 | -884 | -484 | 68 |
Consolidated Full-Year Performance (fiscal year ending June 2008) (million yen)
| Original forecast | Revised forecast | Difference in value | Result of previous year | |
| Net Sales | 43,000 | 43,000 | 0 | 7,601 |
| Operating Income | 3,000 | 2,800 | -200 | 1,015 |
| Ordinary Income | 2,700 | 2,500 | -200 | 938 |
| Net income | 700 | 400 | -300 | 68 |
Revisions were made based on the following developments:
While net sales showed a significant increase as predicted, mainly reflecting the performance of newly-consolidated Sogei, Ltd., a negative impact on income was felt from the Incubation segment recording an approximately 300 million yen impairment loss. Taking a conservative accounting approach, our original plan at the start of the year to include deferred tax assets was cancelled. These factors translated into a downward revision of approximately 300 million yen in income in the interim performance forecast, as well as revisions to the full-year forecast values as shown above.
The decision to post the impairment loss, which centered on unlisted shares, was the result of the application of prudent accounting practices. Typically, an impairment loss is posted when future cash flow is expected to fall below book value. However, in order to properly manage stricter accounting audits and to alleviate investor concerns and also in view of the recent uncertainty emerging in stock markets, we decided on posting an impairment loss at this time to optimize future income by lowering book value.
Meanwhile, the following business segments (1 to 3) are growing steadily and the Incubation segment (4) also accelerated its performance with a focus on Next-Generation 2.0 operations.
1）Solutions Segment Highlights
DG&Ibex, which focuses on cross-media promotions, continued its healthy growth in digital promotions using web-based and other digital media and is becoming one of the most profitable next-generation solution companies in the industry.
Sogei, which became a wholly-owned subsidiary last April, managed to move into the black thanks to restructuring undertaken in the previous fiscal year.
Mansion DB, which began as a collaborative business with Kakaku.com, has already completed its nation-wide expansion. With many developers already participating, Mansion DB continues to add numerous new functions beneficial to users of the site. We recognize Sogei’s unpredictable business environment, such as the dwindling condominium market and delays in obtaining development authorizations and will devote our utmost efforts to further improving income.
2）Portal/Blog Segment Highlights
Kakaku.com, consolidated in our interim results (April to September), shows business growth at a rate faster than planned. The Kakaku.com group recorded an increase in the monthly number of users to 21 million at the end of January, a figure translating into one in four Japanese internet users accessing the site. We will further enrich our service content for all Internet users and accelerate growth.
AD-Butterfly, an advertiser-and-blogger matching service launched by next-generation advertising service provider CGM Marketing, is also showing a significant increase of more than 1,000 participating bloggers per month.
Subsequent to completing the development of a video advertising service, we have begun a full-fledged sales effort for our blog video advertising service with support from our shareholders, Dentsu Group and ADK, in order to strategically turn Ad-Butterfly into a pillar of interim income.
3）Finance Segment Highlights
ECONTEXT’s financial results were released yesterday, once again posting double-digit growth in its main settlement service, despite the temporary year-on-year decline of the number of contracts creating the impression of a slowdown.
A notable development in this segment is that PIA, the leading ticket distributor, added ECONTEXT’s services, including convenience store settlement, Internet-based bank settlement and Pay-easy settlement, to their payment options. We believe ECONTEXT is now in a position to cover more than 80% of the ticket -transaction market thanks to this new development, in addition to its existing business with Lawson Ticket.
Today’s announcement also includes our new offering called “Privacy Lock,” a personal information management solution. We aim to achieve further growth through enhanced settlement services and further new business development.
STOCKCAFE, an IR site operated by Growth Partners, increased the number of unique users to 140,000 (at the end of January) thanks to the effects of its mash-up with Kakaku.com, gaining wider recognition as a leading interactive investing website.
4）Incubation Segment Highlights
Foreign investment, mainly targeting Silicon Valley businesses, has been aggressively pursued through Joi Ito’s Lab since last year with the following developments.
Etology has become one of the world’s biggest ad-matching marketplace, distributing more than 1.7 billion advertisements each day.
In the business development area, we have been vigorously developing a Japanese version of Twitter mini-blog services for mobile phones and personal computers, following the capital participation announced last January. Twitter achieved wider name recognition through various services such as real-time reporting of the U.S. presidential election process in cooperation with Google. The Twitter technology team and DG Incubation team continue to work closely to launch the Twitter service in Japan in early spring.
While the market environment is currently facing a rather unpredictable future due to credit uncertainty in the U.S., we at Digital Garage remain committed to further promoting business contexts that are beneficial to society.
We sincerely appreciate your continued support and guidance.
