CEO Comment Volume 37, 2008.08
Summary of Financial Results for Fiscal Year Ended June 2008
Regarding Forecast Revisions Primarily Due to 1.6 Billion Yen Impairment Loss on Operating Investment Securities
As approved at the special board meeting on August 1, we hereby announce revisions to our earnings forecast for the fiscal year ended June 2008. (Further details will be announced in our fiscal year summary on August 14 and also at our results presentation on August 15.)
First of all, I would like to apologize deeply to our shareholders and investors for reporting very disturbing final results due to the large revisions primarily resulting from the impairment loss at DG Incubation Inc. (our investment and consultation business). (Rather than putting the matter off until the future, we have sincerely responded in the current fiscal year after discussions with our auditors.)
(Click here to see the “Business segment summary for the fiscal year ended
June 2008 and comparisons with the previous year’s results and forecasts”)
Other than the incubation segment, the finance, portal/blog and solution segments continue to maintain their growth trend, although some companies did not meet their goals. In particular, robust growth continued in the portal/blog segment, primarily driven by the Kakaku.com Group.
(Click here to see “Sales and operating income by operational business segment”)
The key factors behind the revisions to our results are a 1.6 billion yen impairment loss on operating investment securities at DG Incubation (although we had to sharply lower our forecasts due to the loss, we spent no cash and only lowered book value to maximize earnings in the future) and the incubation business, which failed to meet its goals (it could not execute the planned sale of shares due to a slowdown in the IPO markets inside and outside Japan and the postponement of a public offering by a venture we are financing). In addition, we treated all our consolidated subsidiaries in the same conservative manner with no exceptions.
(Click here to see “Sales and operating income of the incubation segment”)
We have already shifted our focus this year to “strategic business investments” in resilient Silicon Valley and Japanese businesses, which we select based on a strict criteria. Meanwhile we are basically freezing our “general ‘pure’ investments” via the fund jointly formed with Japan Asia Investment Co., Ltd. (JAIC), a leading venture capital firm.
The negative factors in our financial results for the fiscal year ended June 2008 are summarized in the following three points.
1. Our incubation business logged an impairment loss on operating investment securities of 1.6 billion yen, which caused a sharp downward revision of earnings (in particular, the Digital Garage Group posted an operating loss as a result of the impairment loss included in sales costs, which generally would be recorded as an extraordinary loss) due to drastic changes in the business environment and stricter audits and accounting rules.
2. After our listed subsidiary ECONTEXT Inc. lowered its financial results forecast on May 14, our finance business 1) experienced temporary communications problems and added a reserve as a cost to support customers and recover operations and 2) reported an impairment loss on investment securities at its capital alliance partner. Our finance business lowered its forecast again after recording these two extraordinary losses.
3. Conditions at DG&Ibex remained favorable in our solution business. Sogei Co., Ltd, which became a consolidated subsidiary from the fiscal year ended June 2008, returned to profitability for the first time in four years after starting the “new investment in ‘Mansion DB,’” its joint venture with Kakaku.com Inc. Sogei’s healthy growth slowed in the first half, however, due to the impact from problems related to the extended screening period to authorize building construction in accordance with the revision of The Building Standards Law and failed to meet its initial goals.
Once again, I apologize for the largest downward revisions to our forecasts since our listing and for any concern we have caused. We do, however, recognize that the impairment loss on operating investment securities in our incubation business and ECONTEXT’s additional downward revisions are only temporary and isolated events. We have begun final preparations for the coming three years, reviewing what areas need to be addressed in terms of our management system and business operations. (Rationally assessing each new rule and change in the economic environment surrounding the management of our businesses, we are devoting ourselves to reconfirm the “total and partial optimization” and “centripetal and centrifugal force” of our group management over the next three years.)
In order to simultaneously announce the new Digital Garage Group mid-term management plan at our financial results briefing on August 14, we have already begun advancing toward the formulation of a blueprint for the future we are going to create with each group company. These disappointing results are primarily attributed to the recording of an impairment loss, but both the board members and employees of the Digital Garage Group intend to sincerely and faithfully endeavor to increase shareholder value from the perspective of our stakeholders.
We sincerely appreciate your continued support and guidance.
