MediaLeaves Group that we purchased in the previous term has been included in the consolidated accounting from this term. The consolidated business performance in the fiscal year under review has attained a sales amount of ¥121.845 billion (133.0% of the figure in the previous year), operating income of ¥7,699 million (159.3% of the figure in the previous year), ordinary income of ¥5,873 million (112.3% of the figure in the previous year), and net income for the term of ¥1,330 million (57.7% of the figure in the previous year).
Kadokawa Holding shares became listed in the First Section of the Tokyo Stock Exchange on September 1, 2004.
The operating results for each business segment were as follows.

[Publication business segment]
Sales in the publication business segment were ¥95,504 billion (129.2% of the figure in the previous year) and the operating income was ¥7,354 million (150.2% of the figure in the previous year).

<Magazine and advertising division>
The magazine and advertising division has been affected by the stagnant industry environment caused by the severe depression, however, the division is making an effort to heighten the degree of brand recognition in the market utilizing the brand force in various fields.
TV program information magazines “The Television Weekly” and “The Television Monthly” (both by Kadokawa Shoten), the regional information magazine “Walker” series that was reinforced further by the launch of “Otona-no Walker (Adult’s Walker)”, the animation/comic magazine “New Type” (Kadokawa Shoten), the game information magazine “Weekly Fami-tsu” (enterbrain), “Dengeki PlayStation” (Media Works), the hobby magazine “Dengeki Hobby Magazine” (Media Works), the life style information magazine “Lettuce Club” (SS Communications), the PC information magazine “Weekly ASCII” (ASCII) and so on showed a favorable trend in sales supported by the firm brand force in each field.

<Book Division>
The book division enjoyed the success of many well-reputed books and hot sellers as a result of the reinforcement of editorial planning and marketing forces, and the sales of the division have shown continued favorable performance.
As to independent books, “The Da Vinci Code (Part 1/Part 2)” (Kadokawa Shoten, by Dan Brown) became a hot seller, and the number of copies sold exceeded 1.75 million as of the end of the fiscal year. “Angels & Demons (Part 1/Part 2)” (Kadokawa Shoten) by the same author was influenced by this success and also showed expanded sales. Apart from these, there were some hit works including “Namakubi-ni-kiitemiro” (Kadokawa Shoten, by Rintaro Norizuki), “Chokonka Fuyajo Kanketsuhen” (Kadokawa Shoten, by Seishu Hase), “Yakusoku (promise)” (Kadokawa Shoten, by Ira Ishida), etc. “Tengoku-no-kaidan (Part 1/Part 2)”, which was novelized from a South Korean TV drama (Kadokawa Shoten, by Pak He Geyon) showed favorable sales results due to the current boom in things South Korean.
In the area of paperback books, “New edition Ningen-no Shomei (proof of humanity)” (Kadokawa Shoten, by Seiichi Morimura) became a hit seller again due to the media mix with the TV drama. Moreover, “ Battery (I ∼ III)” (Kadokawa Shoten, by Atsuko Asano), “Yoru-no-hatemade” (Kadokawa Shoten, by Ryuji Morioka) and the “Maru-ma” series (Kadokawa Shoten, by Tomo Takabayashi) including “Korega Ma no tsuku daiippo!” and the “Ki-no-tabi” series (Media Works, by Keiichi Shiguresawa) recorded favorable sales.
In the area of comics, “Renewal of Evangelion (9)” (Kadokawa Shoten, by Yoshiyuki Sadamoto) that was supported by many fans as a popular series, “Multiple personality detective Sailo (10)” (Kadokawa Shoten, by Eiji Ootsuka and Shouu Tajima), “Gundam The Origin (7/8)” (Kadokawa Shoten, by Yasuhiko Yoshikazu), “Yotsubato! (2/3)” (Media Works, by Kiyohiko Azuma) and so on became big hit books. Moreover, “ Keroro Gunso (Sergeant Keroro) (1 ∼ 10)” (Kadokawa Shoten, by Mine Yoshizaki) increased sales through the media mix with the TV animation.
In the area of books on game playing techniques, “Derby Stallion 04 collected edition”, “Radiator Stories Final Guide”, “J. League - Let’s make a professional soccer team! ’04 Final Perfect Guide” (all by enterbrain) and “J. League - Let’s make a professional soccer team! 04 The Master Guide” (Media Works) showed continued favorable sales linked with the popularity of these games.

[Software business segment]
Sales in the software business segment were ¥20.438 billion (155.9% of the figure in the previous year) and the operating income for the segment was ¥1,686 million (121.2% of the figure in the previous year).
As to the box-office sale of movies, “The Lord of the rings/The return of the king” (Kadokawa Herald Pictures) made a big hit following on from parts one and two. The first Dream Works film for the Kadokawa Group, “Shark Tale” also won great popularity.
As to the sales of DVDs, the first tie-up movie with Dream Works “Shrek 2” (Kadokawa Entertainment) made a big hit with sales exceeding 800,000 copies, and “Chakushin-ari”, “Onmyoji II”, “Lord of The Rings - The Twin Towers” and “Lord of The Rings / The return of the king” also made the hit. Moreover, the animation series “Chrno Crusade” and “Maburaho” (both by Kadokawa Shoten) showed continued excellent sales supported by their deep-rooted popularity.
With regard to game software sales, the latest version of the popular game software series “Derby Stallion 04” (enterbrain) recorded sales exceeding 600,000 copies and “Kishin-houkou Demon bane” (Kadokawa Shoten) was also a hit.
Furthermore, Kadokawa Films increased sales steadily in TV drama productions such as “Denchi ga kirerumade (Till the batteries run out)”, TV sales utilizing our abundant archive and in licensing business.

[Digital Content Business Segment]
The sales for the digital content business segment were ¥4,139 million (143.8% of the figure in the previous year) and the operating income for the segment was ¥556 million (321.1% of the figure in the previous year).
As to website management business, the largest class entertainment information site in Japan “walkerplus.com” (Walkerplus) gained more recognition and the business territory was expanded.
With regard to content distribution business, Kadokawa Interactive Media and Kadokawa Degix have maintained good performance.
As to mobile business, “Daily Walker”, “Movie Walker” (Walker Plus), “Mobile Fami-tsu (Game information)”, “MelodyClip _ (ringing melody distribution)” (both by enterbrain) showed steadily increasing sales.

[Other Business Segment]
The Other business segment consisting of logistics business, advertisement agency business, etc., accomplished sales of ¥1,764 million (103.0% of the figure in the previous year) and operating income of ¥598 million (127.4% of the figure in the previous year).
The logistics business is continuously promoting rationalization.
(2) State of capital investment for the business group
Kadokawa Group bought the land adjacent to the head office in order to construct a new company building. We also acquired land near to the logistics center in order to further improve the efficiency of logistics operation for the group. The amount of investment was ¥1,499 million and ¥209 million respectively.
The total amount of investment for the year under review was ¥3,677 million on a consolidated basis.

(3) State of fund procurement for the business group
The Kadokawa Group issued a 2009 maturity moving strike convertible bond for which clients were sought in overseas markets centering around the Swiss Confederation (excluding USA) to provide the necessary funds for M&A performed in order to reinforce publication and visual business, as a strategic investment and for the promotion of collaboration.
The following is an outline of our corporate bond.

1. Total issuance amount	¥11,400,000,000
2. Issuance price	100% of face amount
3. Issuance date	June 18, 2004
4. Interest rate	No interest is attached
5. Repayment method	100% repayment of face amount
6. Repayment date	June 18, 2009
7. Convertible price	¥4,800
8. Convertible claim period	From July 2, 2004 to June 4, 2009
9. Capitalization amount	¥2,400
10. Contents of security	No security or guarantee is set.

(4) Issues that the business group must deal with
The business fields of the Kadokawa Group extend to publication, film/visual and digital content business, and the kaleidoscope surrounding the management environment changes with the evolution of technology, expansion of infrastructure and diversification of media.
With regard to the publication business, we bought MediaLeaves, which has ASCII and enterbrain under it in March, 2004. As to film/visual business, we established the package sales company Kadokawa Entertainment in January, 2004 and we plan to gain sole ownership of Kadokawa Herald Pictures in August, 2005, so the number of group companies has increased recently and the business scale has expanded. If we consider Kadokawa Shoten as 1, the sales and profit of the group as a whole were 1.1 times and 1.1 times respectively when listed in the second section of Tokyo Stock Exchange (March, 1999), and by the end of this year (March, 2005) they had increased to 1.73 times and 2.28 times respectively.
Under these circumstances, the most important issue for us currently is to carry out improvement of growth potential and profitability for group management and reinforcement of governance and compliance in parallel while utilizing the uniqueness of individual business companies that are capable of coping with change flexibly and promptly.

1. Reinforcement of Group management structure
Our company has entered into an age of full-scale group management. In the Kadokawa Group, each group company will take advantage of their respective specialties and uniqueness and push forward business reform continually in order to achieve the objective of increasing corporate value. In parallel with this, we will focus on the clarification of directionality for the Group and selection/concentration of management resources, and we will strive to grow as a group and maximize the business value.
With this objective, we appointed Akio Honma as the president & CEO from senior managing director as of April 1, 2005 in order to reinforce the group management structure, and set strategic meetings for each business domain in the group in order to maximize the synergy effect as a group, to plan and adjust group strategies and to exchange information.
We will continue to use the managing director 1 year fixed term system, which we have been using for some time and select managing directors from outside of the company in order to secure the soundness and transparency of management and to form a structure capable of coping with rapid change, and moreover, we have set up an administrative committee that makes plans and recommendations for executive personnel affairs, remuneration, personnel exchange within the group, utilization, adjustment, compliance, coping with various legal amendments and establishment of management policy.

2. Reinforcement of growth force
As to publication business, the overall market has been flat for the last 3 years or so, and we have tried to strengthen editing force, planning force and marketing force further. We will continue to follow this policy and at the same time we will expand the fields targeting aged and female readers that have not been successfully reinforced before. We will cultivate these fields (incubation) ourselves, and at the same time we will investigate the purchase of publishing companies in these fields as one of the possible strategies taking into account economic efficiency, time required for cultivation and investment efficiency.
With regard to film/visual business, it was decided to gain sole ownership of Kadokawa Herald Pictures, and we have completed vertical business development from planning, production, performance/distribution, sales of DVD packages, etc. to licensing sales to TV, etc. In this way, the profit that used to flow outside can be kept inside the group, and we will pursue multi use development of content further in fields where expansion of demand is expected such as video on demand.
As to digital content business, the management culture was transformed to black ink in the previous year, and we will strive to increase sales and profit focusing on content for mobile phones, etc. in the future.
In all fields, the characteristic feature of our company is that we have a huge archive of stories, information and cultural type content. Through the promotion of new business creation utilizing these assets, we will further enhance our growth potential.

3. Cultivation of new overseas markets
We will establish local companies and develop overseas markets focusing on Asia and North America in order to expand the licensing business for comics and animation that are also popular overseas and to increase the profit making opportunities for our movies archive that exceeds 1,700 titles, including remake licenses.
Kadokawa Group aims to be an ever-growing comprehensive content group enterprise through the consideration of the reinforcement of group management, globalization and further utilization of the content archive in the broadband age.
We hope our shareholders will continue to show their encouragement and support for the new management and the new challenges undertaken by the Kadokawa Group.