KADOKAWA ANNUAL REPORT 2005

Firstly I would like to mention that the Kadokawa Group, which is celebrating the 60th anniversary of its establishment in 2005, is now entering a new “Growth phase”. At the settlement of accounts for this term, we recorded the highest sales and income since we became listed in 1998. Moreover, if we calculate the profit with the figures from the 32 consolidated companies of Kadokawa group, which have performed an incubatory role as a result of their business having been enhanced, the ratio of consolidated to non-consolidated income has more than doubled. Our sales are now at the same level as those of a conventional top group publishing companies, and in terms of operating income, we are far ahead of them. As I have mentioned several times before, this is the result of both executives and employees having united behind this effort to take on the challenge to reform our mode of operation, predict the trend of the future, and not simply stick to the former publishing business model.
Group management through “integration” under Kadokawa Holdings is achieved thanks to the fact that the management state is capable of coping with the changing life styles and tastes of consumers and also thanks to the cost reduction through BPR (business process reengineering) including the rearrangement of the business operation, which has been carried out over the past 4 years.
Moreover, we have actively promoted M & A since the start of this new business that meets the demands of the times. Not all of the Group companies were high income makers when they joined the Group, however, through the Japanese “agricultual type M&A” reviving them using a foundation of high quality management and raising them so that they create a synergy effect within the Group, each company now contributes to the business result of the Group. With regard to the direction of operation, we promote “horizontal business development” in the publishing business division such as cultivating new genres and “vertical business development” in the movie and visual business division including planning,

production of Japanese movies, purchasing foreign movies, distribution and theatrical openings, package sales of DVDs, etc. and selling licenses utilizing intellectual property. Furthermore, in order to minimize risks and maximize income making opportunities, we intend to actively develop the multi-use of content in each field.
The biggest asset of Kadokawa Group is our archive of content including 2,000 movies, 20,000 novels and 5,000 comic books. The importance of content has recently become a topic of discussion not only in the business world, but also on the stock market. Our company is the largest content holder of all public companies, and we pride ourselves on being a creative group that introduces new movies and new books.
The task of the Group is to create new IT/digital content business, which is an area expected to show growth in domestic and foreign markets, through the seamless fusion of broadband and mobile phones. 10 years has passed since the business innovation through the Internet first began in the Japanese economy. I am sure that Kadokawa Group will cultivate new business fields and maintain our status as a company exploring the cutting edge of today's demands, through gathering the Group assets of rich content and establishing a 3rd portal, the “Content Portal” using our entertainment content.

Kadokawa Group is aiming at “further increase in corporate value” through growth, and at the same time we will actively deliver a return to shareholders through taking an initiative in the introduction of a combination of stable dividends and profit related dividends. We will continue to show progress as a “comprehensive content enterprise”, which is unprecedented in the world, and I would be grateful for your continued understanding and support for the business of the Group.