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Kadokawa Shoten was in its first year of the establishment and did not pay any dividend. In addition, there was the income of operating charges in an amount of ¥177 million and the income from the real estate lease in an amount of ¥570 million, and as the result the net sales income amounted to ¥1,333 million. The operating expense, which is the aggregated amount of the sales expenses mainly consisting of the cost of real estate lease and personnel expenses and the general and administrative expenses, was ¥947 million, and the operating profit was ¥385 million. The ordinary profit resulted in ¥585 million, as the non-operating profit consisting of the interest received, the insurance payment received, etc., exceeded the non-operating loss. The net profit of the term was ¥333 million, as the result of counting the extraordinary gain by the sales profit of the securities for investment, etc., and the extraordinary loss by the sales loss of the securities for investment, etc., and the corporate tax. After all, the unappropriated profit at the end of the fiscal year under review amounted to ¥23,782 million including the profit carried forward from the previous fiscal year. |
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3.Progress and Results of The Group’s Operations In the fiscal year under review, as the Japanese economy could not completely breakaway from the deflation and the consumer spending did not fully come back, the economic environment in front of the corporations remained uncertain. Nevertheless, the general atmosphere was toward the recovery supported by the improving profitability of corporations and the rise of stock prices due to the improvement of economic indices. According to a survey by Japan’s Scientific Publishing Research Institute, the estimated total sales of publication in this fiscal year decreased by 2.2% from the previous year: 1.9% decrease as to magazines and 2.7% decrease as to the books. Thus, the Japanese publishing industry could not yet breakaway from the seven straight years of negative growth and stayed in harsh management environment. In contrast, a study by the Japan Video Software Association reports that the total video software sales in this fiscal year was ¥351.8 billion (103.8% of the sales in the previous year), driven by the continuously increasing sales of DVDs, which amounted to ¥264.5 billion (122.3% of the sales in the previous year). These figures indicate that the demand associated with the new life style is being created in line with the rapid spread of digital home appliances and the mega-band communications. As to the politics, the policy to build up “Intellectual Property Power” was established under the leadership of the office of Prime Minister and joint efforts by the government and the private sector, and a new road map for the promotion of contents business and the growth of contents industry as the national strategy of Japan was laid on. Under such circumstances, Kadokawa Group, following its mid-term management plan and aiming to improve the profitability and stable growth, has strived for the continual improvement of the business structure toward such objectives as the creation of diversified contents, the enhancement of marketing force and the improvement of management efficiency. As the result, contributed mainly by such factors as the continued favorable sales of book sector of the publication business, especially paperback pocket book series and comics, the excellent results of the box-office sales, DVDs and video sales and the licensing business of the software and the increase of profitability due to the business expansion and the improvement of business structure in the digital contents business, the consolidated business performance in the fiscal year under review attained the increase of both income and profit and marked the sales amount of ¥91,614 million (103.2% of the figure in the previous year), the operating profit of ¥4,834 million (136.4% of the figure in the previous year), the ordinary profit of ¥5,230 million (143.7% of the figure in the previous year), and the net profit of the term of ¥2,304 million (162.1% of the figure in the previous year). The operating results of each business segment were as follows. [Publication Business Segment] The publication business segment mainly consists of Magazine and Advertisement Division and Book Division. |
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Magazine and Advertisement Division The magazine and advertisement division covers such diversified and unique area as TV program information magazines, urban information magazines, animation information magazines, comics magazines. The corresponding department of Kadokawa Shoten Publishing Co., Ltd. is affected by the stagnant industry environment in both aspects of sales income and advertisement income due to the harsh economic conditions, but is making extensive approach to the market in the process of new development to utilize its brand power in wide variety of business. “Weekly The Television” and “Monthly The Television” are still maintaining their position as the leading TV listings information magazines but these magazines, and also “Walker” series regional information magazines, are facing the shrinking market and the challenge of competitive publications, and therefore the company intends to further implement the business innovation in order to cope with such harsh business environment. The company is also making its best effort to create new reader segment for “Extra Issue of Adult Walker” and “Extra Issue of Family Walker”. The sales of animation and comics magazines “Gundam Ace” and “NEWTYPE” increased their sales supported by the explosion of animation boom. And, the free magazines “Tokyo Index” (stock type) and “Kadonavi” (flow type), which are the company’s challenge to the new market, made a successful start. The sales of “Dengeki PlayStation” and other video game magazines of Media Works Inc. continued to be in good shape. The sales of hobby magazine “Dengeki Hobby Magazine” jumped up by more than 20% compared to the previous year driven by the recent boom of figure collection. SS Communications Inc. accomplished excellent performance, by the contribution of the continued favorable sales of the living information magazine “Lettuce Club” and the excellent market acceptance earned by the mook books “Lettuce Club 365 Days Series”, of which line-up was replenished. The company also made new investment in the new publication of “Mainichi ga Hakken”, which is a magazine for the living and life style of fifties and older, in order to reinforce and replenish the area of living information magazines. As the result of such activities as stated above, the consolidated sales of magazines was 93.2% of the same in the previous year and the consolidated sales of advertising was 96.2% of the same in the previous year. The consolidated sales of the magazine and advertisement division in total were 94.5% of the same in the previous year and amounted to ¥44,307 million. |
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Book Division The book division enjoyed many well-reputed books and hot sellers as the result of the reinforcement of editorial planning and marketing forces. Kadokawa Shoten Publishing Co., Ltd. held “Go-Go Campaign” of Kadokawa Bunko, which celebrated its 55th anniversary, at the bookstores nationwide and succeeded in making “Ayashi” (authored by Miyuki Miyabe), “Tsui tanin ni tameshitakunaru yomesode yomenai kanji” (edited by Modern Language Seminar) and “Kousetsu Hyaku Monogatari” (authored by Natsuhiko Kyogoku), as the hot sellers. The company also enjoyed the increased sales of books in collaboration with the movies such as “Chakushin Ari” (authored by Yasushi Akimoto), “Juon 2” (authored by Kei Oishi) and “Joze to Tora to Sakanatachi” (authored by Seiko Tanabe), and thus contributed significantly to the activation of the paperback pocket edition books segment of the industry. The Dengeki Bunko of Media Works Inc. also maintained favorable sales performance including the hit of “Kino’s Trip” series (authored by Keiichi Shigurezawa) and recorded the sales increase by 50% over the previous year. As to the independent books, “Ashitaniwa Kogan Arite” (published by Kadokawa Shoten and authored by Mitsumasa Ootani), “Nochino Kousetsu Hyaku Monogatari” (published by Kadokawa Shoten and authored by Natsuhiko Kyogoku, and awarded The 130th Naoki Prize), “E Alor Sorega Doshitano” (published by Kadokawa Shoten and authored by Junichi Watanabe) and “Yume - Inochio kaketa V tassei eno 647-nichi” (published by Kadokawa Shoten and authored by Senichi Hoshino) among others became the hot sellers. In the area of comics, “Five Star Story” (published by Kadokawa Shoten and authored by Yuzuru Nagano), “Multiple Personality Detective Psycho 9” (published by Kadokawa Shoten and authored by Eiji Ootsuka and Shou Tajima), “Gundam The Origin” series (published by Kadokawa Shoten and authored by Yoshikazu Yasuhiko), “Yotsubato! 1” (published by Media Works and authored by Kiyohiko Azuma) and some others made hot sellers supported by faithful fans. And the sales of “D-N-Angel” (published by Kadokawa Shoten and authored by Yukiru Sugisaki), “Chrono-Crusade” (published by Kadokawa Shoten and authored by Daisuke Moriyama), “Gunslinger Girl” (published by Media Works and authored by Yu Aida), etc., increased significantly by the effect of the media mix with TV animation pictures. In the area of books for game playing techniques, “J. League - Let’s make professional soccer team 3 - The Complete Guide” (published by Media Works and edited by Dengeki PlayStation), “Final Fantasy XI - Dengeki no ryodan edition - Vana'diel Official World Guide 1/2” (published by Media Works and edited by Dengeki PlayStation), etc., made the hit in conjunction with the popularity of the games. As the result of the above, the consolidated sales of the book division reached 113.3% of the same in the previous year and amounted to ¥27,645 million. By the results of activities stated above, the consolidated sales of the publication business segment, including the sales of products purchased from the affiliated companies, reached 100.02% of the same in the previous year and amounted to ¥73,911 million. |
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[Software Business Segment] The software business segment consists of the box-office sale of movies, the production and sale of the image software such as DVDs, the sale of image rights for use by TV and overseas companies, the licensing of rights mainly related to the animation and comic works for the publication and translation, the production and sale of game software, the production and sale of goods made from the animation works, etc. As to the box-office sale of movies, “Chakushin Ari”, “Aono Honoo”, ”Makai Tensei”, “Warau Iemon” were the hot topics. And, the titles made by the investment to overseas productions such as “Lord of The Ring - Two Towers” and “Lord of The Ring - Return of The King” were the box-office hits following the success of the first edition. As to the sale of DVDs, the movie titles “Mashotensei”, “Ao no Honoo”, “T.R.Y.”,“The ring” and “Lord of The Ring - The Twin Towers” and TV animation pictures “Kiddy Glade” and “Full Metal Panic” made the hit. And, the DVD remaster edition of Kadokawa film “Five Star Story” and Daiei films “Zatoichi” series were marketed, taking advantage of the film library in possession, and attracted the interest of fans to record favorable sales. In addition, the export sales of the remake right of movies and the income from other licensing business related to various picture stocks in the library increased significantly. By the results of activities stated above, the consolidated sales of the software business segment reached 122.6% of the same in the previous year and amounted to ¥13,112 million. |
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[Digital Contents Business Segment] The digital contents business segment consists of the operation of PC websites, the operation of cellular phone sites, the production and sale of digital contents, etc. In the fiscal year under review, Walkerplus, Inc. achieved significant improvement of the profit by the replenishment of contents, the increase of recognition and the innovation of business structure under such favorable circumstances that the functions of PC and cellular phone are being sophisticated and the mega band communications are becoming common. And, the business performance of Kadokawa Interactive Media Corporation, which is engaged in the production and sale of the electronic TV listings, and Kadokawa Digix Corporation, which is specialized in the production of digital contents, continued to be in good shape. As the result, the consolidated sales of the digital contents business segment reached 116.3% of the same in the previous year and amounted to ¥2,878 million. |
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[Other Business Segment] Other business segment consists of the logistics business, the advertisement agency business, etc., and accomplished the consolidated sales of ¥1,712 million, which is 99.2% of the same in the previous year, by implementing the streamlining in the logistics business area and the reinforcement of diversified marketing in the advertisement agency business area. 2.Capital Expenditures The Company acquired a land lot located close to the head office during the fiscal year under review. The amount of investment in this fiscal year is ¥179 million. 3.Fund Procurement No funds were procured during the fiscal year under review. 4.Pressing Issues The economic environment surrounding Kadokawa Group is predicted to keep changing rapidly in the future due to the change of economic and politic conditions, ever-lasting development of technical innovation especially toward digitalization, dramatic improvement of the communications infrastructure toward common use of mega band and the appearance of new life style of consumers associated with rapid spread of digital home appliances. In order to establish the management system that can tackle with such situation flexibly and rapidly, the management of Kadokawa Group intends to enhance the management capability including the reinforcement of corporate governance and to build up the foundation of future growth by expanding the group based activities in the fields of publication, image business, digital contents and new contents business and by rapidly responding to the diversification of media. 1.Reinforcement of Group Management Structure In Kadokawa Group, each group company will strive to increase the corporate value taking advantage of respective speciality and quality to the maximum extent and pushing forward the business reform continually, and the holding company will make its best effort to improve the management efficiency and to rise the profitability by utilizing the advantage of the functions of holding company and timely executing the business integration toward the selection and concentration of the management resources. In the aspect of corporate governance, in pursuit of the assurance of the soundness and transparency of management and the establishment of management structure, which can tackle with the change of management environment, the tenure of directors shall be shortened to one year, the outside board members shall be invited and the number of outside corporate auditors shall be increased to two, all for the enhancement of corporate governance starting from the director and auditor structure. In addition, in view of the reinforcement of the compliance and risk management system of the whole group, the supervisory organization of the group shall be concentrated to the holding company, the compliance rules of the group companies shall be unified and the reinforcement and streamlining of the organization and management infrastructure of each group company shall be pushed forward. 2.Reinforcement of Business Development Capability Publication Business In the fiscal year being reviewed, the group made efforts to expand the business to the new area, replenish the contents and reinforce the marketing force as stated below and the same strategy will be further pursued for the enhancement of business development by the whole group. At the same time, the group will strive with at most effort to reinforce the editing and planning capabilities in order to supply the contents, which have the presence and creativity that appeal to the readers’ needs. 1.Inauguration of Free Magazine Business Kadokawa Shoten Publishing Co., Ltd. newly sent out a stock type free magazine “Tokyo INDEX” in September 2003 and a flow type free magazine “Kadonavi” in Nagoya and Fukuoka districts in November 2003, aiming to launch new marketing support business by the publication of magazines as a part of its new business development. The company will expand the distribution area for these free magazines when the acceptance in the market is favorable. It is expected that the new development will supplement the conventional information distribution business by means of magazines, Internet, cellular phone, etc., and such effective and extensive utilization of information contents will appeal to the consumers’ convenience and information needs and contribute to the expansion of the base to generate profit of the group’s magazine and advertisement segment. 2.Expansion of Group for Replenishment of Contents The Company subsidized MediaLeaves Inc., which has ENTERBRAIN, Inc., ASCII Corporation and others under its control, in March 2004. By this acquisition, the group largely supplemented the contents in the PC and IT related field and other wide range of entertainment fields and established a strong position in the game software related area. The group will further intensify its effort to increase the contents to be utilized by the whole group in future. 3.Reorganization of Group Companies for Reinforcement of Marketing Force Aiming to reinforce the marketing force of the whole group, the book sales promotion department of Kadokawa Shoten Publishing Co., Ltd. and Kadokawa Book Service Co., Ltd. were reorganized into newly established Kadokawa Book Service, Ltd. and, thus, the sales activity to satisfy the bookstores nationwide became feasible. The group will further implement effective sales promotion activities to increase the profitability. |
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Software Business In the software business area, the group intends to further promote the planning and production of high value added image software, based on the media mix strategy associated with the publication business, the procurement of overseas products, the sale of DVDs and other video package business, and the licensing business, and to establish a comprehensive business development base including the distribution business and the operation of theaters. From such viewpoints, the group proceeded on the strategic reconstruction of the group companies and the reinforcement of business base by means of the corporate acquisition and the tie-up with the overseas corporation in the fiscal year being reviewed as stated below. The group will continue to implement such policy and will drastically reinforce the competitive edges of the whole group. 1.Strategic Reorganization of Group Companies and New Establishment of Kadokawa Pictures, Inc. In order to strategically integrate the visual business of the group, Kadokawa-Daiei Pictures, Inc., which was established by taking over the movie business of Daiei Co., Ltd., absorbed a part of the image business of the Entertainment Division of Kadokawa Shoten Publishing Co., Ltd., in January 2004, by means of the corporate division and merger. And, further in April 2004, the company merged with Toskadomain Co., Ltd., which was specialized in the production of TV dramas, to complete the integration of the image business of three companies. And, at the same time, the company changed its corporate name to Kadokawa Pictures, Inc. and stepped out newly for visual business. In addition, the company acquired 43.3% of the outstanding shares of Nippon Herald Films, Inc., which is known as an old establishment specialized in the procurement of foreign films, by the subscription to third party allocation capital increase in March 2004, and the company is expanding its visual business base in conjunction with the operation of theaters under the control of Nippon Herald Films, Inc. 2.Establishment of New Company for video Package Business In order to expand the video package sales business, Kadokawa Entertainment, Inc. was established in January 2004. The company will conduct the video package sales business intensively for the group. 3.Conclusion of Products Supply Agreement with and Investment in Dream Works LLC in the States In April 2004, Kadokawa Entertainment, Inc., through its subsidiary in the US, invested in the Dream Works LLC, which is one of the major film studios in Hollywood, and acquired the distribution right in Japan of the films produced by Dream Works and the related rights regarding the DVD and video tape sales, publication, merchandising, etc. The company intends to significantly enhance the quality and quantity of the visual contents supply capability and the source of related licensing business for the whole group. |
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Digital Contents Business In accordance with the shift of communications network including the cellular phone toward the use of mega band transmission, the digital contents business grown out from the incubation stage and is steadily progressing to the profitable business. Walkerplus, Inc. has realized significant improvement of profitability by the replenishment of such contents as the restaurant information and wedding related information, the expansion of cellular phone related business to timely supply the urban information and movie information and the implementation of business reformation. And its web and cellular phone business in collaboration with various publication contents, such as those of “MOBILE NEWTYPE”, “Dengeki Online” and “@ Lettuce Club”, is increasing the number of users and gaining the recognition. The group will further reinforce its business development capability and profitability in the field of the digital contents business and will intensify the risk management including the control of personal information. Kadokawa Group will maintain its effort toward being the “Mega Contents Provider” and will strive to solidify the business foundation as the “Integrated Corporate Group in Publication and Image Businesses” riding on two driving wheels of publication and image businesses. The group also intends to be the promoter of the contents business in Japan and exert its utmost effort to accomplish steady growth of the group and further enhance the corporate value. The management of the group would like to sincerely solicit the shareholders to kindly understand the operating policies of the group and to provide your continued encouragement and support. |
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