Corporate Management Policy Briefing / Third Quarter Financial Results Briefing for the 73rd Fiscal Term Ending March 2013

Corporate Management Policy Briefing / Third Quarter Financial Results Briefing
for the 73rd Fiscal Term Ending March 2013

Outline | Presentation by the President | Q & A

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7	You mentioned that you would aim for the operating profit of 100 billion yen in the next fiscal year. If I remember correctly, in the past, when the financial forecast for the coming fiscal years was talked about on occasions, such as financial briefings, what was mentioned was not actually reflected in the following year’s financial forecasts released with the announcement of actual full fiscal year results. You used the word "commitment" this time, so can we expect what you mentioned is going to be reflected in the following year’s financial forecast unless the conditions like the foreign exchange rate situation change? And also, what’s your viewpoint on shareholder returns? The financial performance has long been sluggish, so do you have any plans for shareholder returns in the meantime before your operating performance recovers next fiscal year? I would like to confirm if there will be any change in the company’s policy of shareholder returns.
7	Iwata: First of all, what I mean by committing to earning an operating profit of 100 billion yen is that this is going to be reflected in the financial forecast of the next fiscal year unless the expected foreign exchange rate situation changes. Otherwise, I would not have used a word such as "commitment." Next, with respect to the shareholder returns, we have been continuously applying the policy based on either the consolidated payout ratio of 50 percent or using 33 percent of the consolidated operating profit as the dividend resource for quite some time, and we are proud of this policy having been praised as an advanced shareholder return policy when Nintendo’s operating performance was good. On the other hand, we also understand that there will be criticism of insufficient shareholder returns in situations, such as the current one, when the financial performance continues to be unfavorable. We are always considering how the shareholder returns should be. But if we decided to make large shareholder returns even when our financial performance was weak, it would mean that it would be difficult to make shareholder returns in the same way we did before when our financial performance was strong. Recently in particular, there is a growing business risk of attempting to establish a situation where our platforms, which are the core of Nintendo’s business, are firmly accepted worldwide. Even under the current circumstances, we are able to make medium to long-term judgments to take our business into the future because of our strong balance sheet. This is why, in principle, we would like to maintain the shareholder return policy as it is now. However, as we are receiving various opinions concerning this issue, we will continually consider what the best method is as returns to shareholders.

You mentioned that you would aim for the operating profit of 100 billion yen in the next fiscal year. If I remember correctly, in the past, when the financial forecast for the coming fiscal years was talked about on occasions, such as financial briefings, what was mentioned was not actually reflected in the following year’s financial forecasts released with the announcement of actual full fiscal year results. You used the word "commitment" this time, so can we expect what you mentioned is going to be reflected in the following year’s financial forecast unless the conditions like the foreign exchange rate situation change? And also, what’s your viewpoint on shareholder returns? The financial performance has long been sluggish, so do you have any plans for shareholder returns in the meantime before your operating performance recovers next fiscal year? I would like to confirm if there will be any change in the company’s policy of shareholder returns.

Iwata:

First of all, what I mean by committing to earning an operating profit of 100 billion yen is that this is going to be reflected in the financial forecast of the next fiscal year unless the expected foreign exchange rate situation changes. Otherwise, I would not have used a word such as "commitment."

Next, with respect to the shareholder returns, we have been continuously applying the policy based on either the consolidated payout ratio of 50 percent or using 33 percent of the consolidated operating profit as the dividend resource for quite some time, and we are proud of this policy having been praised as an advanced shareholder return policy when Nintendo’s operating performance was good. On the other hand, we also understand that there will be criticism of insufficient shareholder returns in situations, such as the current one, when the financial performance continues to be unfavorable. We are always considering how the shareholder returns should be. But if we decided to make large shareholder returns even when our financial performance was weak, it would mean that it would be difficult to make shareholder returns in the same way we did before when our financial performance was strong. Recently in particular, there is a growing business risk of attempting to establish a situation where our platforms, which are the core of Nintendo’s business, are firmly accepted worldwide. Even under the current circumstances, we are able to make medium to long-term judgments to take our business into the future because of our strong balance sheet. This is why, in principle, we would like to maintain the shareholder return policy as it is now. However, as we are receiving various opinions concerning this issue, we will continually consider what the best method is as returns to shareholders.

8	You are aiming for the operating profit of 100 billion yen in the next fiscal year. Do you have a strategy in place if this fails? Will you take responsibility if you cannot accomplish it?
8	Iwata: First of all, this may not be a direct answer to your question, but it is my job to focus on how to accomplish this aim, rather than to think about what we should do if our aim cannot be accomplished. I believe my job is to establish as promising a situation as possible to accomplish this aim. From this perspective, for Nintendo 3DS, it is vital to create similar momentum as we see in Japan in the overseas markets. So, the point is to launch several key titles seamlessly abroad to change the sales momentum of Nintendo 3DS itself, and then to create a cycle where hardware sales soar and its software sells well. As for Wii U, there will not be any key titles at the beginning of the year, so even though it will take some time, starting from this summer when the software lineup is enriched, we will promote our platform and aim to change the sales momentum dramatically. As for your second question, I used the word "commitment," so I believe you can understand what I meant by that.

You are aiming for the operating profit of 100 billion yen in the next fiscal year. Do you have a strategy in place if this fails? Will you take responsibility if you cannot accomplish it?

Iwata:

First of all, this may not be a direct answer to your question, but it is my job to focus on how to accomplish this aim, rather than to think about what we should do if our aim cannot be accomplished. I believe my job is to establish as promising a situation as possible to accomplish this aim. From this perspective, for Nintendo 3DS, it is vital to create similar momentum as we see in Japan in the overseas markets. So, the point is to launch several key titles seamlessly abroad to change the sales momentum of Nintendo 3DS itself, and then to create a cycle where hardware sales soar and its software sells well. As for Wii U, there will not be any key titles at the beginning of the year, so even though it will take some time, starting from this summer when the software lineup is enriched, we will promote our platform and aim to change the sales momentum dramatically.

As for your second question, I used the word "commitment," so I believe you can understand what I meant by that.

9	You have committed to the operating profit of 100 billion yen; however, the hardware market has shrunk drastically this fiscal year. What are the assumed conditions of the market to achieve 100 billion yen? I would like to know if the assumed market size is similar to the current fiscal year, larger to some degree or shrink continuously.
9	Iwata: It is obvious that if we are able to sell only about the same number of units of Nintendo 3DS next fiscal year as this fiscal year, the sales growth of software will be limited. In such a case, we will probably not be able to reach the level of operating profit we are aiming for. Therefore, the current sales levels of Nintendo 3DS in the overseas markets are not at all satisfactory in regard to the hardware’s potential. This is not happening due to external factors. In our understanding, this is because we could not fully convey the appeal of the Nintendo 3DS platform and as a result, fewer consumers purchased it than we had expected. So, obviously, our aim is to increase our hardware sales more than in this fiscal year.

You have committed to the operating profit of 100 billion yen; however, the hardware market has shrunk drastically this fiscal year. What are the assumed conditions of the market to achieve 100 billion yen? I would like to know if the assumed market size is similar to the current fiscal year, larger to some degree or shrink continuously.

Iwata:

It is obvious that if we are able to sell only about the same number of units of Nintendo 3DS next fiscal year as this fiscal year, the sales growth of software will be limited. In such a case, we will probably not be able to reach the level of operating profit we are aiming for. Therefore, the current sales levels of Nintendo 3DS in the overseas markets are not at all satisfactory in regard to the hardware’s potential. This is not happening due to external factors. In our understanding, this is because we could not fully convey the appeal of the Nintendo 3DS platform and as a result, fewer consumers purchased it than we had expected. So, obviously, our aim is to increase our hardware sales more than in this fiscal year.

Outline | Presentation by the President | Q & A

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