Gree Q4 Financial Results

GREE, Inc.
Financial Results for the Fourth Quarter of the Fiscal Year Ended June 30, 2012
August 14, 2012
Copyright GREE, 2004-2007 GREE,Inc. All Rights Reserved. Copyright Inc. All Rights Reserved.
Contents
FY2012 Fourth Quarter Business Results Business Strategy for the Fiscal Year Ending June 30, 2013 (FY2013)
Copyright GREE, Inc. All Rights Reserved.
FY2012 Fourth Quarter Business Results
FY2012 Fourth Quarter Highlights

Global launch of GREE Platform Launched GREE Platform globally, enabling distribution of games in 169 countries (*1) Through Funzio acquisition, secured excellent creative talent and development and operational expertise behind hit social games and top-ranking titles on the U.S. App Store Continued investing globally in hiring and other areas. Expanded network of game studios to span five countriesJapan, U.S., China, South Korea and the U.K. Focused on global expansion and improvement of user environment, which resulted in a shortage of major IP titles and new titles Implemented measures to improve the GREE user environment, including anti-RMT measures (*2), setting of monthly purchase limits for underage users, and discontinuation of comp-gacha functions Formed partnerships aimed at securing major IP titles and strengthened game development pipeline targeting launches in FY2013
3
Progress of global expansion
Expansion in Japan
(*1) As of July 31, 2012 (*2) Real money trading (RMT) indicates using usage rights of GREE services to make monetary or property exchanges, as well as all related advertising, announcing and soliciting.
FY2012 Fourth Quarter and Full-Year Financial Results (Consolidated)

Millions of yen
FY2012
YoY change
4Q FY2012
YoY change
3Q FY2012
QoQ change
Net sales Operating profit Ordinary profit Net profit
158,231 82,729 81,935 47,967
+147% +166% +166% +163%
40,080 18,996 18,439 12,328
+90% +94% +90% +117%
46,189 24,549 24,505 13,448
-13% -23% -25% -8%
Net sales reached a record high of 158.231 billion (+147% YoY) FY2012 expenses increased significantly due to costs associated with global expansion, including labor and rental charges. However, all profit lines rose sharply as growth in net sales outpaced growth in expenses, mainly on higher paid services revenue.
4
Net Sales & Operating Profit (Consolidated)

Millions of yen
50,000 46,189 45,000 40,000 41,529 40,080
35,000
30,432 30,000 25,000 21,093 20,000 15,000 10,000 6,221 5,000 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
FY2011 20116 FY2012 20126
22,535 16,646
24,549 18,996
16,372 14,302 12,410 6,924 8,199 9,789
Net sales
profit Operating 5
Sales by Business (Consolidated)

Paid Services Sales
Millions of yen
Advertisement Sales
Millions of yen
50,000 45,000 40,000 35,000 30,000 25,000 27,503 38,290 36,444 42,882
4,000 3,636 3,500 3,000 2,500 2,000 18,387 1,500 13,906 10,147 11,938 1,000 2,363 2,466 2,928 2,706 2,262 3,238 3,306
20,000 15,000
10,000 5,000 0 1Q 2Q 3Q
500
0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
4Q
1Q
2Q
3Q
4Q
20116 FY2011
20126 FY2012
FY2011 20116
FY2012 20126
Focused on global expansion of GREE Platform and improving our user environment, resulting in a shortage of major IP titles and new titles.
Steady growth in sales of partner advertising and reward advertising.

6
FY2012 Fourth Quarter Operating Expenses (Consolidated)

FY2012
Cost of sales: Rental charges
Millions of yen
YoY change
4Q FY2012
YoY change
3Q FY2012
QoQ change
13,099
5,963 4,289 2,846 62,403 18,516 18,809 7,043 18,033
+138%
+120% +151% +160% +127% +36% +167% +289% +255%
4,571
1,606 1,709 1,254 16,512 4,489 4,958 2,300 4,764
+122%
+52% +190% +206% +79% +14% +101% +237% +121%
3,678
2,099 979 599 7,962 5,246 5,501 1,968 5,245
+24%
-23% +75% +109% -8% -14% -10% +17% -9%
Labor costs
Others SG&A: Advertising Paid-charge commissions Labor costs Others
Rental charges: Increased in FY2012 due to higher user activity and increased number of data centers associated with global expansion Advertising: Increased in FY2012, but ratio of advertising expenses to sales declined YoY due to more effective advertising based on cost performance assessment Labor costs: Increased in FY2012 due to smooth progress of global personnel plan
FY2012 Fourth Quarter Balance Sheet (Consolidated)

Millions of yen
End-4Q FY2012 End-4Q FY2011

Current assets Cash and cash equivalents Receivables Others Fixed assets Assets Current liabilities Liabilities Paid-in capital Capital reserves Capital reserves Others Shareholders equity
YoY change +157% +227% +67% +153%
End-3Q FY2012 102,657 51,662 32,993 18,001
QoQ change +19% +41% -14% +18%
122,287 72,759 28,238 21,288
47,607 22,254 16,944 8,407
43,010
165,297 68,512 81,311 2,179 2,177
15,248
62,855 25,202 25,393 2,135 2,133
+182%
+163% +172% +220% +2% +2%
22,715
125,373 53,914 54,102 2,172 2,169
+89%
+32% +27% +50% +0% +0%
79,338
291 83,985
33,434
- 241 37,462
+137%
+124%
67,009
- 80 71,270
+18%
+18%
8
FY2012 Fourth Quarter Cash Flow Statement (Consolidated)

Millions of yen
End-4Q FY2012 End-4Q FY2011

Net cash provided by operating activities Net cash provided by investment activities Net cash provided by financing activities Cash and cash equivalents at the end of the period
YoY change +280% +648% +227%
59,578 -24,488 15,479 72,759
15,678 -3,272 -1,090 22,254
9
Dividends
Year-end dividend forecast:30 per share
In FY2012, GREEs consolidated net sales rose 146.6% and net income rose
163.0% YoY. We therefore plan to strengthen measures to return value to shareholders.
We recognize shareholder returns as an important aspect of our business and will

pay dividends in line with our business performance and financial circumstances, while also setting aside internal reserves to optimize and develop our business.
In line with our basic policy of tying dividend distributions to earnings results, we
target a consolidated dividend yield of 20% over the long term
Based on a consideration of the 146.6% increase in consolidated net sales and

163.0% increase in consolidated net income, we forecast a dividend of 30 per share (FY2011: 9 per share) and a consolidated dividend ratio of 14.5%.
* FY2012 dividend distributions must be approved at the regular meeting of shareholders scheduled for September 25, 2012.
10
Initiatives to Improve User Environment

Activities of the Social Game Platform Contact Conference Initiative
Clear guidance
Date announced June 22
Guidelines for in-game notifications

Improve transparency by providing appropriate notifications regarding gacha function terms and content
Guidelines
Compgacha
Guidelines for comp-gacha Compilation of examples of comp-gacha

In addition to providing examples of comp-gacha, also provided game companies with examples of functions that could interfere with the independent and rational decision making of users and warn against their use.
May 25 June 22
Guidelines on measures to prevent real money trading

RMT
Prohibition of RMT and prevention of fraud, deceitful practices, or other actions that have an adverse impact on the user environment
June 22
User environment
Protection of youth
Provision of an environment appropriate for young users

Provision of an appropriate environment that not only protects young users, but allows them to enjoy social games in the long term
April 23
System
Dissolution/ reorganization
Formation of committee to guide the establishment of Social Gaming Environment Quality Council (tentative name)
June 22
11
Initiatives to Improve User Environment

Formation of committee to guide the establishment of the Social Gaming Environment Quality Association (tentative name)
Social Game Platform Contact Conference
Social Gaming Environment Quality Association (tentative name) Main activities (current plan)
Establishment date October (tentative)
Dissolution and reorganization
Purpose To promote the development of a social gaming environment that people can use safely
Establishment committee
Self-imposed regulations to enhance user environment
Participants
Academic experts Experts in the field Attorneys CESA Six member corporations of Social Game Platform Contact Conference
Participants (current plan) Academic experts Experts in the field Consumer groups Game companies Platform companies
Educational activities targeting youth
Consumer help desk (management of counseling center)

12
Regular meetings started July 25
FY2012 Fourth Quarter Operational Review

Launched GREE Platform globally in May 2012
App Portal English App Portal Japanese
GREEs first exhibit at E3, the largest game show in the world
Revamped UI to create new worldwide GREEs booth featured playable demos mobile social gaming platform with unified of 13 GREE titles and 12 GREE partner English- and Japanese-language design titles.
13

Launched several in-house titles globally Net sales from global (ex-Japan) market
Unit: Indexed with Jan.-Mar. 2012 net sales as 1 2.0
1.5
1.0
0.5
0.0 20121-3 Jan.-Mar., 2012 20124-6 Apr.-Jun., 2012 *Total ex-Japan net sales of GREE and Funzio
Launched beta version of Japanese titles globally. Planning to implement beta promotions sequentially
Steady growth in net sales from global market

14

Secured major IP New game design
Masashi Kishimoto Scott/Shueisha Inc./TV Tokyo Holdings/Pierrot Co., Ltd GREE, Inc./A-Team. Inc
Formed partnership with Namco Bandai Games with a view to developing business globally. In the first phase, launched NARUTO Ninja Masters (feature phone) version on June 27th
Launched new game Tomodachi Dogs (English title Puffy Puppy) as a smartphone native app in April
15
Business Strategy for the Fiscal Year Ending June 30, 2013 (FY2013)
FY2013 earnings forecasts

Millions of yen
FY2013 (forecast) (A)

Net sales Operating income Ordinary income Net income 195,000 205,000 74,000 84,000 74,000 84,000 46,000 52,000
FY2012 (actual) (B)

158,231 82,729 81,935 47,967
(A)/(B) Change
+23.2% +29.6% (10.6%) +1.5% (9.7%) +2.5% (4.1%) +8.4%
Net sales
Japan Europe, North America, Asia
Net sales in Japan are expected to recover and enter into a gradual growth mode with the launch of major IP titles and new smartphonecompatible titles Launch in-house and co-branded games offered in Japan on the global market. Net sales expected to grow with launch of new titles in genres such as simulation games and card battle games Maintain costs at an appropriate level by making cost-effective advertising purchases and operating servers efficiently. Make aggressive investments, especially in human resources, to create systems to support global growth.
17
Costs
Japan Europe, North America, Asia
FY2013 Business Strategy

Japan
Improve game KPIs Improve KPIs through introduction of new game models, etc.
Europe, North America, Asia

Improve ARPDAU and other KPIs based on understanding of the market characteristics of each region
Introduce hit titles
Expand lineup of in-house and cobranded games based on major IP
Expand lineup of simulation games
Expand and improve game design
Develop and provide new game design to succeed major card battle hits
Launch additional card battle games
Other
Improve CSR activities and initiatives to improve user environment
Expand area of coverage through expansion of languages supported
18
FY2013 Business Strategy: Japan

FY2013 Q1 progress
July-Aug. coin consumption during first five days of month
(Unit: Indexed so that 1 = coin consumption during first five days of July)
110 1.1
Coin consumption recovering in August Company resources that had been focused on global launch of GREE Platform and on initiatives to improve the user environment are now being freed to focus on game development and operation Developing new game models such as event models
(For reference) Progress in compliance with guidelines
1.0 100
Compliance with guidelines

Discontinuation of comp-gacha Discontinuation of comp-gacha-like functions
GREE titles/jointly launched games
GREE partner games
Completed by end- Completed by endMay June
Completed by end- Completed by endJune June

Began implementing Completed by endsequentially in June August
90 0.9
July 7 2012
Clear in-game guidance

August 8 2012
19

FY2013 Major IP titles planned (selected titles)
Numerous in-house and co-branded games planned based on major IP
Summon Night series

NBGI
(Autumn launch planned)
Pacman series
NBGI
(Winter launch planned) Idolmaster series

NBGIPROJECT iM@SI
(Winter launch planned)
many more game launches also planned
BLEACH Soul Masters

Taito Kubo Shueisha Inc./TV Tokyo Holdings/Pierrot Co., Ltd
Started preregistration on 7/20. End-Aug. launch planned)

20

FY2012 New games planned (selected titles)
Expand lineup beyond card battle games into new smartphone compatible game genres
Animal Days
MONPLA SMASH
Wacky Motors
MODE STYLE
Soul Island
Launched in July 2012
21

Improve CSR activity
1. Use CSR to accelerate our efforts to make the world a better place through the power of the Internet.
Support the Internet technical community and academic research Promote the use of the Internet in economic, political, educational, and healthcare activities Promote culture and the arts using the Internet 2. Contribute to the sustainable development of Internet society
Conduct educational activities that promote a safe Internet Improve the user environment of the Internet for youth
3. Contribute to society as a whole, recognizing our position as participants in the economy and members of the local community Provide support for athletes representing Japan Contribute to efforts to protect the environment, promote social welfare, and provide humanitarian aid to those in need
22
FY2012 CSR Activity Report*

Fostering young engineers and creators
Sponsorship of SamurAI coding, the Information Processing Society of Japans International AI Programming contest for young engineers Support for the education of young programmers through a business/education partnership with Vantan Contents Tracks Inc., the company that runs Vantan Game Academy Sponsorship of the 18th Student CG Contest sponsored by the Computer Graphic Arts Society (CG-ARTS) Support for CodeSprint Japan, a programming contest that originated in Silicon Valley, as the main sponsor
Joint press conference with IPSJ (April 2012)
Supporting and working with the technical community

Sponsorship of Android Bazaar and Conference 2012 Spring, hosted by Japan Android Group and The University of Tokyo Sponsorship of Jenkins User Conference 2012 Tokyo for users of the Jenkins continuous integration tool Sponsorship of Open Source Conference 2012 Kansai@Kyoto, where the latest information on open source projects was presented
Supporting local industries

Special sponsorship of Kochi Prefecture Social Network Game Design Contest, to promote the creation of local industry and increase youth employment This was the first social game contest in Japan hosted and supported by a local NPO, the Kochi Prefecture Content Business Promotion Council (members include the Kochi prefectural government, Shikoku Bank, and The Bank of Kochi). The winner of the first contest, Koakuma no Joken, was released as a full-scale game on January 23, 2012. The second contest was won by a middle school student and the entry, Shin-Ryuki Guild Fantasia, was released as a full-scale game on June 7, 2012.
* Please see our webpage for more examples of CSR activities: http://www.gree.co.jp/csr/
Second Kochi Prefecture Social Network Game Design Contest winner, Shin-Ryuki Guild Fantasia
23
FY2013 Business Strategy: Europe, North America, Asia

Steady growth through two main game genres Growth in simulation games Expansion of card battle games
Release Android versions in addition to iOS version Planning launch of new games based on the simulation game design but with different motifs
Developing and preparing to launch further titles in addition to the card battle games already offered Have already attained ARPAU of approx. US$1 from current offering of card battle games Achieve major improvement in KPI, conduct ongoing promotions 24

Expanding lineup and gaining promotional expertise Success on iPhone and iPad
No. of apps in top 100 Company No. of companies
Success through effective promotions
6 or more Zynga(2) Electronic Arts(3) TeamLava 4 or more GREE(4) Disney TinyCo, Inc.
Top Grossing Ranking
No. 21 (Aug. 13, 2012)
Gameloft Machine Zone, Inc Pocket Gems, Inc. 2 or more Activision Publishing, Inc. Beeline Europe Booyah, Inc.
FreshPlanet Inc. Halfbrick Studios Ludia Mobage, Inc. Supercell Z2Live, Inc
12
Top Grossing Ranking
No. 89 (Aug. 13, 2012)
Source: U.S Overall Google Play
Source: Apple Inc. (*1) Top 100 grossing apps in U.S. Apps Store as of August 11 (*2) Includes apps from acquisition OMGPOP (*3) Includes apps from acquisition PopCap Games (*4) Includes apps from acquisition Funzio
Multiple titles in the top ranking of the iPhone U.S. App Store MODERN WAR achieved No.1 in the Top-Grossing Ranking1 on the U.S. App Store
Used effective promotions to achieve ranking at No.21 for MODERN WAR on the Top Grossing. Also achieved sharp rise to No.89 for Cerberus Age Will introduce new promotions following improvements in KPIs
25

Net sales from global (ex-Japan) market
Unit: Indexed so that June net sales= 1 1.5
Developing business in Asia, Europe markets
GREE Platform support for 14 languages planned
0.5
0 6 Jun 2012 *Total ex-Japan net sales of GREE and Funzio 7 July 2012
Net sales increased steadily in July, mainly in the U.S. market
Introduce language support in Korean, Chinese and other languages. Expand business in Asia, Europe market
26
Appendix
SNS + Social Games
Users
SNS
Social games
My Apps Diary / Comments Community / MB
Growth in Page Views
Purchase of items
Advertisement Sales
Paid Service Sales
GREE
28
In-house social games
Tsuri-Sta
Odoriko Clinoppe
Tanken Doliland
Hacniwa
Mon-Pla Pirate Kingdom Columbus
Feeling Fantastic! Play Fishing One-of-a-kind pet you can keep in New exploration type card game Game with your mobile! (released in August 2008) your mobile (released in May 2007) (released in July 2007)
Easy gardening experience A Blockbuster! Monster Adventure Great Pirates Battle Game!! (released in August 2010) with your mobile (released in June 2010) (released in September 2008)
Sengoku Kingdom Cerberus Crusade

The Grand Battle! Sengoku Card Game! (released in February 2011) The Social-Strategy RPG (released in April 2011)
Decobito
A Delightful Life with Animals (released in June 2011)
Crime City
Build your criminal empire! (released August 2011)
AKB48 Stage Fighter Majin Kingdom

The first AKB48-themed social A battle game with summoning game legendary heroes! (released October 2011) (released in December 2011) AKS GREE, Inc./A-Team. Inc
Modern War
Dragon Ark
(released in Feb. 2012)
Sankoku Shinki
Sankokushi+ fantasy+ card (released in Feb 2012)
Zombie Jombie
Alien Family
Dino Life
Build your military and achieve victory Classical fantasy + simulation in modern war! + action game (released December 2011)
Major U.S. hit with more than 1 million downloads (released March 2012)
Cavemen and dinosaurs getting along together? Alien family Popular simulation game rearing adventure (released April 2012) (release March 2012)
Kingdom Age
Tomodachi Dogs Naruto Ninja Masters

Collect ninja cards and do battle! (released June 2012)
Masashi Kishimoto Scott/Shueisha Inc./TV Tokyo Holdings/Pierrot Co., Ltd GREE, Inc./A-Team. Inc
Wacky Motors
Race your rivals for treasure in this card battle game. (released July 2012) * Major markets excluding Japan, China and Korea
Lead your army and build your kingdom in Start your new life with this exciting strategy game your pet dog! (released April 2012) (released April 2012)
29
Wide Variety of Revenue Sources
GREE Mobile screen
- - / Original ads (banners/text) - - Tie-up ads
Advertisement
Advertisement Sales
Social games
- SNS - Free-to-play games linked to social network - Rich lineup includes in-house games -
Paid Service Sales
30
Improving Safety & Security

GREE patrol system runs 24 hours a day, 24365 GREE 365 days a year
A 24 hour, 365 days per year patrol service begun in November 2006. GREE Patrol Centers were established in Tokyo, Hokkaido, and Okinawa, employing about 450 personnel. Systematic and visual surveillance of content and reporting is conducted. If inappropriate material is discovered, measures are taken such as deletion, cautioning, suspension of service, etc.
EMA
(Content Evaluation and Monitoring Association)
Certified as a Safe Content Site
Restrictions by age
Messaging between users over 18 and those under 18 is restricted. Users under 18 are excluded from the searches of users over 18. Friend request messages to under 18s are limited to standard wording.
GREE Patrol
User authentication
New sign-ups to GREE are verified using mobile phone authentication. Users in violation are blocked from signing up again. Membership of a mobile phone filtering service is checked to verify the users age. Age information held by KDDI and SBM is checked for verification. (Discussions with other carriers underway.)
Security and Safety Improvement Committee chaired by CEO

The president chairs the committee. Held monthly, members include executives in charge, patrol staff, legal staff, etc.
Screening/ Monitoring
Warning/ Deletion
Third-party certification
The first website approved by EMA (Content Evaluation and Monitoring Association) (Aug. 2008) Maintains management system that exceeds EMA standards, passing continuous and periodic inspections
Illegal and harmful content

31
Improving Safety & Security: Educational Activities On- and Off-site

Educational activities on-site
From February 2009, GREE joined the Motto Good Net initiative of the Safe Net-Making Promotion Conference, and maintains an official Motto Good Net account in GREE. From July 2011, links were added to each service on GREE to an educational page. Content is being renewed to make it even easier to understand. In Dec. 2011, the educational application GREEs 6 Promises to All, which was released in Aug., was upgraded to a service for each age.
Educational app, Manabou! Asobou! Rules of the Internet includes this section for children of elementary school age and younger.
Educational activities off-site

Continually carrying out education activities aimed toward educational organizations and local governments such as courses on GREEs initiatives and the opening of the Patrol Center Active participation in many kinds of educational events and cooperation with private and public bodies such as the Safe Net-Making Promotion Conference
Educational activities conducted by GREE employees at Azabu High School (May 19, 2012)
Participation in conference on smartphone use for high school students in Osaka (July 32 12, 2012)
Making the world a better place through the power of the Internet.
This document includes some forecasts, which are based on currently available information. The authenticity of the information is not guaranteed. Actual performance may differ due to various factors, etc. When producing this document, we were careful not to include errors or omissions, but the authenticity and integrity of the information are not guaranteed.

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GREE, Inc.

Copyright GREE, Inc. All Rights Reserved.

FY2012 Fourth Quarter Business Results

Copyright GREE, Inc. All Rights Reserved.

FY2012 Fourth Quarter Highlights

Progress of global expansion

FY2012 Fourth Quarter and Full-Year Financial Results (Consolidated)

Net sales Operating profit Ordinary profit Net profit

158,231 82,729 81,935 47,967

+147% +166% +166% +163%

40,080 18,996 18,439 12,328

+90% +94% +90% +117%

46,189 24,549 24,505 13,448

-13% -23% -25% -8%

Net Sales & Operating Profit (Consolidated)

50,000 46,189 45,000 40,000 41,529 40,080

16,372 14,302 12,410 6,924 8,199 9,789

Sales by Business (Consolidated)

Steady growth in sales of partner advertising and reward advertising.

FY2012 Fourth Quarter Operating Expenses (Consolidated)

FY2012 Fourth Quarter Balance Sheet (Consolidated)

End-4Q FY2012 End-4Q FY2011

YoY change +157% +227% +67% +153%

End-3Q FY2012 102,657 51,662 32,993 18,001

QoQ change +19% +41% -14% +18%

122,287 72,759 28,238 21,288

47,607 22,254 16,944 8,407

Copyright GREE, Inc. All Rights Reserved.

FY2012 Fourth Quarter Cash Flow Statement (Consolidated)

End-4Q FY2012 End-4Q FY2011

YoY change +280% +648% +227%

59,578 -24,488 15,479 72,759

15,678 -3,272 -1,090 22,254

We recognize shareholder returns as an important aspect of our business and will

Based on a consideration of the 146.6% increase in consolidated net sales and

Initiatives to Improve User Environment

Date announced June 22

Guidelines for in-game notifications

Guidelines for comp-gacha Compilation of examples of comp-gacha

Guidelines on measures to prevent real money trading

Provision of an environment appropriate for young users

Copyright GREE, Inc. All Rights Reserved.

Initiatives to Improve User Environment

Social Game Platform Contact Conference

Dissolution and reorganization

Self-imposed regulations to enhance user environment

Educational activities targeting youth

Consumer help desk (management of counseling center)

Regular meetings started July 25

FY2012 Fourth Quarter Operational Review

FY2012 Fourth Quarter Operational Review

Steady growth in net sales from global market

FY2012 Fourth Quarter Operational Review

Copyright GREE, Inc. All Rights Reserved.

FY2013 earnings forecasts

FY2013 (forecast) (A)

FY2012 (actual) (B)

FY2013 Business Strategy

Europe, North America, Asia

Introduce hit titles

Expand lineup of in-house and cobranded games based on major IP

Expand lineup of simulation games

Expand and improve game design