Financial Results Presentation for the 2006 Fiscal Year

Transcription

1 Financial Results Presentation for the 26 Fiscal Year February 22, 27 GMO Internet Inc. (TSE First Section: 9449) Internet for Everyone 1

2 A Cautionary Statement About the Contents of this Document The contents of this document are based on current generally recognized economic and social conditions as well as premises considered reasonable by GMO Internet Group as of February 22, 27. Please note that in the event of any change in the business environment or other unforeseen occurrence they are subject to change without prior notice. 2

3 A g e n d a Financial Highlights of FY 26 for FY 27 1 Business Segment 2 Internet Use Support (Infrastructure) Business 3 Internet Advertising Support (Media) Business 4 Internet Finance Business 4. Strategy FY 27 3

4 S u m m a r y Internet Infrastructure Segment Further increase in market share in 5 major business areas. The number 1 web solutions provider in Japan. Sales 16.8 billion (5.% year-over-year increase in revenue) Operating Profit billion (5.5% year-over-year increase) Continuous positive results. Internet Media Business Successful monetization of 22.2 million users through business partnership with Overture. Sales reached 2 million a month in the fifth month of the partnership. Sales billion (2.4% year-over-year increase in revenue) Operating Profit 5.37 million (this is a significant profit recovery from million in the same term in the previous year) 4

5 S u m m a r y Internet Finance Segment Loans and Credit Business JICPA guidelines released on October 13, 26 and billion is reserved in an excess interest repayment fund (a conservative estimate of 3 years of repayments). A loss of billion is recorded and balance sheet restructuring is planned. Establishment of joint venture with Lehman Brothers Japan and launch of fee-based business. Revision of loan portfolio reduction in personal unsecured loan assets. Forecast Forecast sales of 6 billion, operating profit of 7 billion, ordinary profit of 6.3 billion and net profit of 2.5 billion. The Internet Infrastructure and Internet Media segments will continue to grow while the Internet Finance segment is expected to grow after reserving an excess interest repayment fund. 5

6 Financial Highlights of Fiscal Year 26 for Fiscal Year 27 6

7 Financial Highlights and Forecast Sales 7, 6, Actual Forecast 5, 4, 3, 2, 1, Sales 9,174 12,313 15,678 23,561 37,219 5,842 6, 7

8 Financial Highlights and Forecast Operating Profit / Ordinary Profit Transfer to to Excess Interest Repayment Fund: 1.94 billion Forecast 5 Actual Operating Profit 274 1,186 2,122 2,84 4,352 4,271 7, Ordinary Profit 167 1,11 1,946 2,85 4,13 3,992 6,3 8

9 Financial Highlights and Forecast Net Profit Forecast Transfer Transfer to to Excess Excess Interest Interest Repayment Repayment Fund: Fund: billion billion Shrinkage: Shrinkage: billion Actual 9

10 FY 26 Year End and Fourth Quarter Consolidated P&L billion transfer to excess interest repayment fund. (a conservative 3-year repayment estimate reserved in one installment) Sales Business Expenses SG&A Expenses Operating Profit FY 26 5,842 13,594 32,976 4,271 FY 25 37,219 12,814 2,52 4,352 Percentage change from the previous term +36.6% +6.1% +64.4% -1.9% FY 26 4 th Quarter (Oct Dec) 14,91 3,46 9,77 1,724 FY 25 4 th Quarter (Oct Dec) 11,56 3,368 6,239 1,898 Year-Over Over-Year Change +29.5% 1.1% +56.6% -9.1% Ordinary Profit 3,992 4,13-2.7% 1,589 1, % Net Profit -12,99 3, % -12,633 2, % Transfer to Excess Interest Repayment Fund: billion Shrinkage: billion Transfer to Excess Interest Repayment Fund: 1.94 billion 1

11 FY 26 Fourth Quarter Consolidated Balance Sheet (I) Despite the amount reserved in funds, our financial base was strengthened with a capital increase through the allocation of new shares to a third party. FY 26 4 th Quarter End of Dec. FY 26 3 rd Quarter End of Sep. Percentage change from the previous term FY 25 4 th Quarter End of Dec. Year-Over Over-Year Change Current Assets Cash and Deposits Operating Loans: billion 16,411 32,94 14,74 22, % +45.8% 54,56 24, % +36.2% Fixed Assets Assets Total Current Liabilities Fixed Liabilities Liabilities Total Minority Equity Consolidated adjustments account: billion Short Term Loans: billion Excess Interest Repayment Fund: billion Long Term Loans: billion Excess Interest Repayment Fund: 2.79 billion 39, ,279 15,336 21, ,75-4, ,651 12,311 19, , % +.4% +3.% +7.6% +3.7% - 33,551 88,57 56,435 1,655 67,9 4, % +66.2% +86.6% +1.8% +88.9% - Net Assets (including minority equity) 19,528 (8,185) 23,456 (7,46) -16.7% 16, % 11

12 FY 26 Fourth Quarter Consolidated Balance Sheet (II) A comparison between the balance sheet of the Finance segment and the other segments combined. Internet Finance Segment Cash and Deposits Operating Loans Other Assets Assets Total 16,117,, 63,788,, 21,837,, End of December 26 Interest-bearing Liabilities 55,64,, Other Liabilities 33,211,, Total Shareholders Equity 13,466,, Shareholders Equity and Liabilities Total 11,743,, 11,743,, Off balance sheet operating loans totaled 53.3 billion Cash and Deposits 16,823,, Marketable Securities Other Assets Assets Total O t h e r S e g m e n t s Interest-bearing Liabilities 6,42,, 34,373,, 54,11,, 77,237,, End of December 26 Other Liabilities 18,437,, Total Shareholders Equity 24,426,, Shareholders Equity and Liabilities Total 77,237,, 12

13 FY 26 Fourth Quarter Consolidated Cash Flow Cash flow from operating activities is 4.5 billion a substantial increase. Cash Flow from Operating Activities Cash Flow from Investing Activities Cash Flow from Financing Activities Total Cash Flow FY 26 Corporate Tax etc: billion Acquisition of investments in securities: Acquisition of intangible fixed assets: Redemption of bonds: billion Repayment of short&long-term debt: billion 4,544-3,4 7,995 9,16 FY ,733 34,748 11,866 Increase/Decrease in Cash Equivalents 9,978 11,883 Cash Equivalents Balance 33,18 23,22 13

14 Sales and Operating Profit - Quarterly Comparison by Segment In the Media segment sales are up 17.3% and operating profit is up 17.3% from the previous quarter. Profits have also increased in the Finance segment due to an increase in loans with guarantors. 16, S a l e s Operating Profit 14, 12, 1,55 1, 8, 6, 1,5 55 4, 2, 5 5/3Q 5/4Q 6/1Q 6/2Q 6/3Q 6/4Q Total 11,49 11,56 11,713 11,329 12,897 14,873 Internet Finance 4,759 4,629 4,56 4,633 5,741 7,22 Internet Media 2,857 3,135 3,243 2,775 2,886 3,387 Internet Infrastructure 3,89 3,827 4,27 3,998 4,366 4, /3Q 5/4Q 6/1Q 6/2Q 6/3Q 6/4Q Total 1,331 1, , ,724 Internet Finance 692 1, Internet Media Internet Infrastructure

15 Sales and Operating Profit - Year Year-Over Over-Year Comparison Year-over-year increase in revenue. Slight decrease in profit a result of interest repayment costs. Sales Quarterly Change Operating Profit Quarterly Change 16, 14, 2,2 2, 1,8 The impact of a decrease in profits in the finance segment 12, 1,6 1, 1,4 1,2 8, 1, 6, 8 4, 6 4 2, 2 1Q 2Q 3Q 4Q 24 4,9 4,927 6,197 7, ,657 6,646 11,49 11, ,713 11,329 12,897 14,91 1Q 2Q 3Q 4Q , ,331 1, , ,724 15

16 Report by Segment 16

17 GMO Internet Group Fields of Business Management resources are concentrated in these 3 business areas. 17

18 Report by Segment 18

19 Internet Infrastructure Segment Sales A 32.4% year-over-year increase in revenue (in five major business areas). Continual positive results from the major business areas including web hosting, security and credit card payment processing. Internet Infrastructure Sales Quarterly Change Internet Infrastructure Sales Year-Over-Year Comparison /4Q 6/1Q 6/2Q 6/3Q 6/4Q 4/4Q 5/4Q 6/4Q Corporate Corporate Comms Comms. Provider Provider Domain Domain Web Hosting 1,819 1,872 1,956 1,984 2,43 Web Hosting 1,59 1,819 2,43 Website Website Construction Construction Security Security Payment Payment Processing Processing E-commerce E-commece Other Other *Corporate communications sales are represented by the dotted line as this business is an extraordinary factor. 19

20 Internet Infrastructure Segment Operating Profit A year-over-year increase in profits of 42.7%. Internet Infrastructure Operating Profit Quarterly Change Internet Infrastructure Operating Profit Year-Over-Year Comparison Extraordinary Factors /4Q 6/1Q 6/2Q 6/3Q 6/4Q Operating Profit /4Q 5/4Q 6/4Q Operating Profit

21 Domain and Server Businesses Key Factors Domain contracts up 28.2% and web hosting contracts up 24.8% year-over-year. Domain Name Registrations S e r v e r C o n t r a c t s (thousands) (thousands) /3Q 5/4Q 6/1Q 6/2Q 6/3Q 6/4Q Active Total Registered Total /3Q 5/4Q 6/1Q 6/2Q 6/3Q 6/4Q Server Contracts

22 Security Business Key Factors and Market Environment Contracts up 61.2% year-over-year and market share has further expanded. Advancement into the European market. (contracts) Security Business Sales and No. of Certificates Issued 16, 14, 12, 25 2 Electronic Authentication Market Share and Development in Japan* Entrust.n et 7% Comodo 9% Other 9% Verisign 49% 1, 8, 15 Geo Trust 26% VeriSign 6, 1 GeoTrust 4, 5 Comodo 2, Entrustnet 5/4Q 6/1Q 6/2Q 6/3Q 6/4Q Contracts 8,592 1,147 11,273 12,598 13,849 Sales *Certification Services Ltd. included from FY26 3rd quarter (no. of contracts not included). January 25 December 26 GeoTrust Japan commands 26% of the electronic authentication market in Japan. Verisign s market share is 5%. *Source: Netcraft Japan (September 3, 26) Others 22

23 Security Business Strategy Expansion into the Global Market 14, 12, 1, 8, 6, 4, 15 4,896 Domestic Market Share and No. of Certificates Issued (contracts) (%) No. of Contracts Market Share 18 6, , ,592 1, , , , Q 25 2Q 25 3Q 25 4Q 26 1Q 26 2Q 26 3Q 26 4Q Security Business Entry into the Global Market in FY 26 8/ 26 British GeoTrust Europe company, Certification Services Ltd becomes a subsidiary 1/26 Belgian state-managed certificate authority, Global Sign NV becomes a subsidiary. Rapid growth in the Domestic Market + Securing our position in the global market Establishing a structure for global expansion 23

24 E-Commerce Support Business Key Factors A 226% year-over-year increase in contracts. Over 1, contracts! MakeShop Inc. paperboy&co. Inc Sales and No. of E-Commerce Contracts Shopping Cart Contracts (contracts) 2,86 3,48 4,949 6,88 8,86 11, ,136 Online Shop Customers 82,5 82,5 Potential Online Shop Customers (15% of corporate contracts) 1 5 5/3Q 5/4Q 6/1Q 6/2Q 6/3Q 6/4Q Sales Approx. 55, 5, GMO Internet Group Corporate Contracts 24

25 Credit Card Payment Processing Business Key Factors A 21.1% year-over-year increase in consolidated sales and a 5.1% increase in ordinary profit. ( thousands) 5, 45, 4, 35, 3, Credit Card Payment Processing Sales ( thousands) 2, 15, Credit Card Payment Processing Ordinary Profit 25, 2, 1, 15, 1, 5, 5, 1Q 2Q 3Q 4Q ,799 31,41 445, , , , , ,723 *Based on figures released by GMO Payment Gateway up to the 3 rd quarter 25, and consolidated figures from the 4 th quarter 25. 1Q 2Q 3Q 4Q 25 54,163 73,147 17, , , , , ,583 *Based on figures released by GMO Payment Gateway up to the 3 rd quarter 25, and consolidated figures from the 4 th quarter

26 Credit Card Payment Processing Business Strategy Strategy 2 Capturing the 5 trillion government payments market. Tokyo Bureau of Waterworks and Fujisawa City accounts acquired. 26

27 Internet Infrastructure Segment News The only company in the industry to receive the highest customer support rating in a customer support ratings institution undercover survey. GMO Internet Asahi Net So-net Entertainment NTT-ME Nifty USEN DREAM TRAIN INTERNET Panasonic Network Services NTT Communications SoftBank BB NEC BIGLOBE Plala Networks Customer Service Ratings in the ISP Industry Company Performance Score Quality Score *Customer Support Ratings (ISP Industry), by the Japanese corporation HDI-Japan 27

28 Report by Segment 28

29 Internet Media Segment Sales An 8.% year-over-year increase in revenue. 4 Internet Media Segment Sales - Quarterly Change 4 Internet Media Segment Sales - Year-Over-Year Comparison /4Q 6/1Q 6/2Q 6/3Q 6/4Q Media Construction Advertising Sales 1,946 1,837 1,388 1,438 1,764 JWord Online Games Other /4Q 5/4Q 6/4Q Media Construction Advertising Sales 2,3 1,946 1,764 JWord Online Games Other

30 Internet Media Segment Operating Profit A 43.9% year-over-year increase in profit. 22 Internet Media Segment Operating Profit Quarterly Change 22 Internet Media Segment Operating Profit Year-Over-Year Comparison Profit Growth Stage /4Q 6/1Q 6/2Q 6/3Q 6/4Q Operating Profit /4Q 5/4Q 6/4Q Operating Profit

31 Group Reach Over 22 million users, a 1.5% year-over-year increase. 25, GMO Internet Users Property Users (thousands) Reach (%) Yahoo! 38, Rakuten 25, Page View Ranking 2, Microsoft *1 24, NTT.Com*2 22, , GMO 22, Nifty 2, , Google 2, NEC 18, FC2 18, , Amazon 17, Users 18,111 2,9 22,198 *1 Combined Figure including MSN *2 goo operated by NTT Resonant and the connection service plala operated by Plala Networks *Source: NetRatings December 26 31

32 Activating a 2.2 Million-User Group Reach The second stage of the Overture partnership blog site, yaplog! The Overture sponsor sites that appear on Yahoo! are now displayed on the yaplog! site. Pay-per-click advertising takes maximum advantage of yaplog! media strength and provides a new income model. Operation cost zero! 4.72 million yaplog! users (12/26) Overture sponsor sites 32

33 Activating a 2.2 Million-User Group Reach Sales reached 2 million a month in the 5th month of the partnership. ( thousands) 2, 18, 16, 14, 12, 1, Sales Resulting from the Business Partnership with Overture 8, 6, 4, 2, September October November December January 33

34 Report by Segment 34

35 Internet Finance Segment Sales and Operating Profit A 56.% year-over-year increase in revenue and an increase in profit from the previous quarter as a result of an increase in loans with guarantors. Internet Finance Segment Sales 7, 6, 5, 4, Internet Finance Segment Operating Profit 1,25 1,15 1, A result result of of factors factors including including a campaign campaign to to attract attract new new customers customers in in the the securities securities business business (temporary (temporary factor) factor) and and credit credit costs costs in in the the loans loans and and credit credit business. business. 3, 2, , 5/4Q 6/1Q 6/2Q 6/3Q 6/4Q Sales 4,629 4,56 4,633 5,741 7, Operating Profit 5/4 Q 6/1 Q 6/2 Q 6/3 Q 6/4 Q 1, * GMO Internet Securities included from the 1 st quarter of

36 Internet Securities Business Key Factors Number of accounts up 35.% from the previous quarter while number of transactions has risen by 46.1% and value of transactions is up 96.2%. (accounts) 18, Total Accounts (transactions) 9, No. and Value of Transactions 7, 16, 8, 6, 14, 7, 5, 12, 6, 5, 4, 1, 8, 4, 3, 3, 6, 2, 2, 4, 1, 1, 2, 6/2Q 6/3Q 6/4Q 6/2Q 6/3Q 6/4Q Accounts 6,235 12,521 16,96 Value of Transactions No. of Transactions 7, ,2 769,513 12, , ,965 * FX trading introduced in October and futures and options service launched in November 26 36

37 Loans and Credit Business of overall strategy. * *LE refers to the average number of organizations a customer has borrowed from. 37

38 Loans and Credit Business Strategy and response to challenges before us. Excess Interest Repayment Fund A conservative reserve Balance sheet strengthening Create a reserve in line with JICPA guidelines Reserve 12.7 billion (a conservative estimate of 3 years of repayments) Reinforce financial base through immediate capital injection. Lowering of Interest Rate Cap Reduce credit costs and SG&A Reduction in personal unsecured loans (revision of loan portfolio) Conversion to fee-based business (joint venture established with Lehman Brothers Japan) Reduce balance sheet and improve ROA 38

39 Loans and Credit Business Excess Interest Repayment Fund Handling of excess interest repayment fund accounting. 9/26 Proposal for revision of Money Lending laws Elimination of interest gray zone 29.2% 2% 1/26 The JICPA releases practical guidelines Reserve forecast gray-zone interest repayments for a reasonable period of time in an excess interest repayment fund. 3 years (a conservative estimate) Profit and Loss Balance Sheet Loan Assets 117,259 Transfer to Excess Interest Repayment Fund 1,94 Interest Repayments 358 Excess Interest Repayment Fund (Interest) 7,85 1.8% 12,73 Transfer to Excess Interest Repayment Fund 8,217 New Standards (conservative 3-year estimate) SG&A Expenses Extraordinary Loss Allowance for doubtful debts (principal) 5,618 New Standards (conservative 3-year estimate) 39

40 Loans and Credit Business Credit Cost Reduction Credit tightening and a focus on attracting low credit-risk customers. No. of Customers Acquired through PC or Mobile Phone Average LE of Newly Acquired Accounts Credit Limit Tightening Credit Cost Reduction Measures Credit Cost Reduction Strengthening of of Net Net Marketing Customers Accounts *LE refers to the average number of organizations a customer has borrowed from. 4

41 Loans and Credit Reduction in Personal Unsecured Loans Major revision to loan portfolio strategy. Reduction of personal unsecured loans and conversion to fee-based business. Operating Loans Balance billion 32.6 billion Small business loans Wholesale finance Unsecured loans with guarantor Unsecured loans without guarantor 81.7 billion Major Reduction Conversion to Fee-Based Business 12/26 41

42 Loans and Credit Business Conversion to Fee Conversion to Fee-Based Business Turning changes in the market environment into profit opportunity. Impact of of legal reforms in in the the industry Revision of of interest rate rate cap cap and and stricter enforcement of of industry laws Market realignment A product strategy that addresses interest rates and and credit risk risk Seizing profit opportunity through the the purchase of of loan assets at at a reduced price. Increase profits without expanding balance sheet through fee-based business Revision of of loan portfolio Entry into roll-up business 42

43 Loans and Credit Business Entry Into Roll Up Business Structure of Roll Up Business Finance, Loan due diligence etc. Lehman Brothers Group 51.% dividend joint venture company United Capital, Inc. (equity method affiliate) GMO Internet Inc. Inc. 9.6% GMO LOAN-CREDIT HOLDINGS, Inc. Inc. (consolidated) 49.% (This 49 million investment is the only balance sheet risk) Operation (redirection of surplus SG&A) 1.% GMO NetCard Inc. Inc. (consolidated) Operation fees (connect to asset balance, actual cost + commission) Purchase at low-cost the loan assets of other companies that are going out of business. Loan assets Loan assets Services Capital Remuneration 43

44 Loans and Credit Business Improving ROA Reduce balance sheet and improve return on investment. Reduced loan assets in line with revised loan portfolio. Improved ROA Improve profit performance through conversion to fee-based business 44

45 Strategy in the Fiscal Year 27 45

46 Outline of Fiscal Year 27 Strategy A comprehensive group that maximizes it s 3 strengths, sophisticated technology, selling power and strong marketing. Internet Infrastructure Internet Media Internet Finance Overwhelmingly the number 1 web solutions group The profit growth stage Turning change into opportunity Domain and Web Hosting Further increase Loans and Credit Further improve customer satisfaction Target domestic market share: 74% Security Expansion into global market Page Views Introduction of Overture into all GMO Group media Rigorous response to interest rate cap reduction and interest repayments Roll-up business success E-commerce Support Internet Securities Expansion throughout Japan Card Payment Processing Moving into payments for public utilities. API distinguishing us from competitors Moving from investment stage to investment recovery stage. 46

47 Internet for Everyone 47