KADOKAWA ANNUAL REPORT 2006

The IT revolution that started in the 1990s has evolved and expanded further recently, and the Internet and broadband environments involving also the mobile environment are certainly having a great impact on the publishing industry, film industry and the entire content industry from a broad perspective. In this situation, our company group anticipates a recovery of the Japanese economy and has carried out M&A and investments actively over the last few years in order to cope with changes in the age symbolized by radical transformation of consumers’ lifestyles. This means that we have said good-bye to [concentration and selection] and shifted the axis of management greatly towards the direction of [selective expansion]. In publishing business, our group acquired Ascii and Enterbrain, and in the movie/visual business we acquired Nippon Herald Films, and we have made an investment in DreamWorks in the USA.
“Mega software publisher”, the objective that our company has advocated has evolved into mega contents provider, and now our directionality as a “Comprehensive media enterprise” is getting clearer, including conventional publishing business as well as movie/visual business incorporating globalization and cross media business suitable for the broadband age. Each company of the group will become stronger in their respective categories in the niche market and we aim to be the only one enterprise with high profitability. Kadokawa Group Holdings is aiming to be the “Number one enterprise group” of Japan in the contents industry that has a scale exceeding ¥11 trillion, by uniting more than 40 group companies and by exercising the multiple synergy effects of each company.

Last year our consolidated sales achieved more than ¥120 billion for the first time since establishment, and it increased significantly by 123.3% compared with the previous year to ¥150.256 billion in this year. Ordinary income increased by 126.4% of the figure in the previous year to ¥7.426 billion, however, operating income dropped to ¥6.812 billion (88.5% of the figure in the previous year) and net income was ¥1.323 billion (99.5% of the figure in the previous year). The factors considered to be behind these drops were, a delay in reconstruction of Ascii, loses from and the former Nippon Herald Films, goodwill depreciation due to active M&A performed over the last few years and loss on sales of shares due to acquisition of DreamWorks of USA by Paramount Pictures. Moreover, there are some other management issues that were carried over to the next year.
However, even though 60 years has now elapsed since its establishment our company is still in the youthful growth phase, and we are learning precious lessons from those issues and acquiring the strength to cope with the following generation. With regard to publishing business, we have merged the net and paper and split the company into separate companies according to the publishing market, and with regard to the organizational change of movie/visual business, we integrate it according to the market. This means that we have reformed our organization with the intention of remaining loyal to the market in both cases. Through the process of realizing organizational reform, I have once again been reminded of the ability of the group to provide a flexible response and this has further bolstered my confidence in the future of the group.
I also recognize that it was a major tribute to our sales ability that we were able to achieve the sales and profit budgeted for this year. Furthermore I have come to realize that the variety and abundance of content, strength and vitality of character of Kadokawa Group has generated these figures and increased the business result. These contents include, of course, “The Da Vinci Code”, which became the largest hit book in Japanese publishing history with sales exceeding 10 million copies. I am proud that we have been able to show you a part of the image of a mega content provider, the image that Kadokawa Group is going to put forward as a standard-bearer for the content industry, which is a point I make consistently. I would like to summarize this fiscal year as being one in which Kadokawa Group has established a reputation inside and outside of Japan for going beyond the boundaries of a conventional publishing company and in which we have gained a lot of confidence.

Kadokawa Group Holdings will keep moving forward this year, too. We would be grateful for your continued understanding and support in the future, too.