Square Enix 2008 Annual Report Download - page 5

To Our Shareholders
I am grateful to our shareholders for the opportunity to present the Company’s annual report for the fiscal
year ended March 31, 2008.
In the fiscal year under review, on a consolidated basis, net sales declined 9.8% to ¥147,516 million.
Operating income decreased 17.0% to ¥21,520 million, and recurring income declined 28.1% to ¥18,864
million. Net income amounted to ¥9,196 million, a 20.9% decrease compared with the previous fiscal year.
As a result, the recurring income margin was 12.8%, and return on equity (ROE) stood at 6.7%.
The Company’s dividend policy is to maintain an optimal balance between performance-linked payouts
and stable returns to shareholders. In line with this policy, we have set dividends for the fiscal year ended
March 31, 2008 at ¥30 per share, resulting in a consolidated payout ratio of 36.7%.
We were unable to surpass the recurring income we achieved in the previous fiscal year.
Five years have now passed since the merger that led to the formation of SQUARE ENIX. After reviewing
the progress made during this period, we intend to refine and reaffirm our strategies for the future.
Fiscal year ended March 31, 2008:
Earnings Remain within Current Range
In April 2003, Square Co., Ltd., and Enix Corporation carried
out a merger in order to be better prepared for the coming
industry reorganization. Since its formation, the Company has
successfully raised recurring income from its previous range
of ¥5–¥18 billion to a new range of ¥15–¥27 billion (see Figure
1 on page 05). The synergies created between Square and
Enix have acted to bolster the earning potential of the merged
Company, and have built a foundation to take us to the next
stage of growth.
We have embarked on an array of initiatives to further
increase the Company’s earning potential to ¥50 billion;
however, we were unfortunately not able to make significant
headway towards this target in the fiscal year ended March
31, 2008.
Results of the Company’s First Five Years:
Nearly All Business Segments on a Growth Track
To shape a basic business structure, management should
first focus on sales growth, while following with a focus on
earnings enhancement. To verify the effectiveness of our
growth strategies, it is worthwhile to look at the compound
annual growth rate (CAGR) of sales for each business
segment. The Games (Offline) segment generated sales of
¥45.7 billion in the fiscal year ended March 31, 2003 (simple
total of the corresponding segment sales of the pre-merged
companies), while in the fiscal year ended March 31, 2008, the
corresponding figure was ¥41.6 billion. With a CAGR of -1.9%,
we can see that this segment has fallen back to its starting
point. This alludes to issues that must be addressed in both
product development and marketing, which I will discuss later.
Meanwhile, all of our other business segments have exhibited
robust growth over this five-year period. The Games (Online)
segment has achieved a 23.8% CAGR, with sales moving
from ¥4.2 billion to ¥12.1 billion. The segment has also built
a good balance among the three key regions of Japan, North
America, and Europe, while exhibiting an extremely strong
operating income margin of 48.6% in the fiscal year ended
March 31, 2008. In a very short time this segment has become
one of our core businesses. At present, the segment’s reliance
on our flagship massively multiplayer online role-playing game
(MMORPG) is considerable; however, we see progress in our
nurturing of different types of products and services, including
casual online games. We are also starting to experiment with
a range of new earnings models, such as per-item-based
charging. These developments have enabled continuous growth
in the Games (Online) segment.
In the Mobile Phone Content segment, we have expanded
sales from ¥1.7 billion to ¥6.6 billion, a CAGR of 31.1%. Not
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