Rakuten Reports Consolidated Financial Results for the Six Months Ended June 30, 2012

TOKYO--()--Rakuten, Inc. (JASDAQ:4755) today announced consolidated financial reports for the six months ended June 30, 2012. The Rakuten Group for the first half achieved solid results with consolidated net sales of ¥200,528 million, operating profit of ¥35,224 million, and ordinary profit of ¥34,725 million. These figures represent a 12.9% increase for net sales, and 19.8% and 18.9% growth, for operating profit and ordinary profit, respectively, compared to the same period of the previous fiscal year. All three results are record highs for the first half of the current fiscal year. Net income for the period was ¥19,545 million, a turnaround from the ¥41,923 million net loss in the second quarter of the previous fiscal year.

Qualitative Information, Financial Statements, etc.

  • Qualitative Information Concerning Consolidated Business Results

(1) Business Results for the Second Quarter of the Fiscal Year Ending December 31, 2012

In the first half of the current fiscal year (January 1, 2012 – June 30, 2012), the future outlook of the world economy continued to deserve close watch as the European debt crisis has been prolonged. Japan's economy was also not immune to the effects of overseas economic conditions, yet saw domestic demand return to a firm pace spurred by restoration demand, leading to mild recovery.

Meanwhile, the spread of the Internet and the developing shift in social foundations across the world means that the Internet continues to be a major engine for worldwide economic growth, as documented in the most recent White Paper ("Hakusho") from the Ministry of Internal Affairs and Communications.* Among other implications, the economic effects of the near tripling of global sales in the smartphone market between 2009 and 2011 have spilled over into related markets including Internet shopping. Boosted by the strong winds of these environment changes, the global Internet shopping market cotinues to be poised for even stronger growth.

At Rakuten, we seek to drive corporate value to the next level by making deliberate steps to take Rakuten Ichiba's BtoBtoC marketplace model to the world and pouring effort into service enhancements for the rapidly spreading smartphone and tablet devices. In the Internet Finance business segment, we are aggressively promoting the businesses, focusing on the Rakuten Card business where there are notable synergies with Internet services.

(2) Segment Information

Business results for each segment are as follows.

< Internet Services >

In the first half of the current fiscal year in the Internet Services segment, we saw customers continuously shift to e-commerce in daily consumption on Rakuten Ichiba flagship site, owing to an enhanced product line-up, promotion of mobile Internet usage, expanded next-day deliveries, and other initiatives. In addition, efforts taken together with our merchants to put out attractive products in the Rakuten Super Sale, a giant sales event, led to expansion of gross merchandise sales and an increase in active users. These efforts contributed to firm growth in unique buyers and number of orders to sustain the segment's high growth with a 14.1% year-on-year rise in domestic e-commerce gross merchandise sales. Travel services also maintained its high growth to realize a 15.1% year-on-year increase in the value of gross bookings. Dynamic Packages had brisk sales, and the unit strengthened its overseas business by setting up a Singapore office during the first quarter as its first local affiliate in Southeast Asia.

Overseas, the e-commerce business focused on its marketplace model and rolled out points programs and other initiatives that have proven successful and boosted business in Japan, and all of these efforts contributed to our business expansion. In further action during the first quarter, we made Canada-based Kobo Inc., a worldwide e-book operator, into a consolidated subsidiary. Kobo has been expanding services to many countries and has now started service in Japan, as of July.

As a result of these actions, net sales for the segment jumped 26.2% year-on-year to ¥125,459 million, while segment operating income grew by 5.9% to ¥30,491 million.

< Internet Finance >

The Internet Finance segment increased its credit card membership during the first half of the current fiscal year, which boosted shopping transaction value and prompted a healthy rise in revolving shopping balances, resulting in higher commission income and a pronounced growth in its profit. Outside of credit card-related services, banking services benefited from its effective marketing programs to Rakuten members and solid growth in loan balances to achieve increased interest income from loans. In securities services, enhanced usability of trading tools and a linked account service with Rakuten Bank Co., Ltd. led to an increase in new comprehensive accounts opened at Rakuten Securities Inc.

As a result of the above, the Internet Finance segment had ¥72,336 million in net sales, a 0.6% increase from the same period of the previous fiscal year. Segment operating income was ¥9,564 million, a 123.9% year-on-year increase due in part to last year's recording of a ¥4,264 million allowance for loss on interest repayments taken in advance of the re-organization of the credit card business.

< Others >

During the first half of the current fiscal year, the Others segment maintained good results in operating profit, despite lower telecommunications sales stemming from the shift to a new business model that emphasizes new, high-growth services such as cloud services and moves away from a traditional landline operator providing bypass services. In the second quarter, the segment started FUSION Cloud, using Rakuten's proprietary cloud technology. The professional sports division had significant growth compared with the same period in the previous year in both stadium and ticket revenue, aided by a good season start by our professional baseball team.

As a result of the above, net sales were ¥16,319 million, a 2.2% year-on-year decrease, while segment operating income grew 267.1% year-on-year to ¥614 million.

 
* Source: Heisei 24 Nen Joho Tsushin ni Kansuru Genjo Hokoku [Fiscal 2012 Information and Communications Status Report] (published by the Ministry of Internal Affairs and Communications, July 17, 2012)
 

(3) Qualitative Information about Consolidated Business Forecasts

In the year ending December 31, 2012, we anticipate further expansion in the use of our services in Japan including e-commerce and travel, resulting in continued high growth. In financial services, we expect unsettled market conditions to persist, but nevertheless anticipate sustained earnings growth created from synergies within the Rakuten Group. We will also continue to make strategic allocations of corporate resources and active investments in high-growth areas such as e-books in order to open up more mid- and long-term income opportunities. While making these advance investments, Rakuten intends to surpass its current financial results in the fiscal year ending December 31, 2012.

In addition to our activities in the rapidly changing environment of Internet-related business in Japan and overseas, Rakuten, Inc. and its group companies are also involved in the securities business and other finance-related business activities, with the result that our business performance is affected by financial market trends and other factors. For these reasons, it is impossible to predict financial results, and no forecasts are included in this report.

(4) Other Information

(a) Changes in Recognition Timing of the Reserve for Points

The former accounting procedure for the Rakuten Super Points program treated regular points by recognizing a reserve for points at an amount corresponding to the balance of points available for customer use at the end of the period and treated limited-time points as an expense in the period used. Under the new policy, the projected value of points granted for both regular and limited-time points will be recognized in the reserve for points at the time of transaction.

Points granted and used have both grown recently as point programs play an increasingly important role each year as marketing tools. In response to these conditions, the Rakuten Group has constructed a point campaign management system and developed an internal management structure in order to gain timely understanding of campaign effects. In the first quarter accounting period, we have been able to promptly calculate the estimated value of granted points from campaigns at the time of generation for both regular and limited-time points. We are thus able to gauge and to manage the point balances in the important Rakuten Super Points marketing tool. At the same time, we have adopted a uniform accounting procedure for the Rakuten Super Points program. This method accounts for points in the reserve for points by using the projected value of point grants, and recognition timing will be based on the transaction that caused the points to be generated.

The change in accounting policy is applied retroactively, and the prior year quarterly and fiscal year financial statements are presented after retrospective application.

As a result, the amounts for operating profit and ordinary profit for the first half of the previous fiscal year are each ¥196 million higher and loss before income taxes and minority interests for it is ¥196 million smaller than before retrospective application, and the reserve for points at the end of the previous fiscal year is ¥5,290 million higher. In addition, reflecting the cumulative effect in net assets at the beginning of the previous fiscal year reduces retained earnings at that time by ¥2,812 million.

(b) Application of the Accounting Standard for Net Income Per Share

Starting in the first quarter of the current fiscal year, we are applying the Accounting Standard for Earnings Per Share (Accounting Standards Board of Japan [ASBJ], Statement No. 2, revised June 30, 2010) and the Guidance on Accounting Standard for Earnings Per Share (ASBJ Guidance No. 4, revised June 30, 2010).

According to this change, the calculation of diluted net income per share for stock options whose right to exercise is established after a fixed period of work service sets the value of receipts on the assumption that funds are paid in when rights are exercised and has changed to a method that includes the future service-related portion furnished by the company.

For the stock split conducted after the statement date of the balance sheets for the first six months of the fiscal year, net income per share and net income per diluted share were calculated under the assumption that the stock split took effect at the start of the previous fiscal year.

(c) Application of the Accounting Standards for Accounting Changes and Error Corrections

As a result of accounting changes and corrections to prior period errors after the beginning of the first quarter financial reporting period, we have applied the Accounting Standards for Accounting Changes and Error Corrections (ASBJ Statement No. 24, December 4, 2009) and the Guidance on Accounting Standards for Accounting Changes and Error Corrections (ASBJ Guidance No. 24, December 4, 2009).

 

(5) Other

 
1. Significant changes in the scope of consolidation: Yes
Increase: Kobo Inc.
2. Adoption of simplified or specific accounting treatments: No

3. Changes in accounting policies and presentation of the financial statements

(major items that provide the basis for preparing financial statements)

Changes due to amendment of accounting standards: Yes

Other changes: Yes

Changes in the accounting estimate: No

Modified re-disclosure: No

4. Number of shares issued (Common stock)

(1)Common stock (including treasury stock)

1,320,066,000 shares (As of June 30, 2012)

1,319,457,800 shares (As of December 31, 2011)

(2)Treasury stock

6,007,900 shares (As of June 30, 2012)

6,007,900 shares (As of December 31, 2011)

(3)Average number of shares issued for the six months ended June 30

1,313,700,076 shares (January 1 – June 30, 2012)

1,312,556,546 shares (January 1 – June 30, 2011)

(Note)   Rakuten Inc. made a 100-for-1 stock split regarding shares of its common stock on July 1, 2012. Total shares issued and treasury stock as of the end of the fiscal period and average number of shares during the fiscal period are calculated under the assumption that the stock split took effect at the start of the previous fiscal year.
 

The above information was originally prepared and published by the Company in Japanese as it contains timely disclosure materials to be submitted to the Osaka Securities Exchange. This English summary translation is for your convenience only. To the extent there is any discrepancy between this English translation and the original Japanese version, please refer to the Japanese version. The following financial information was prepared in accordance with generally accepted accounting principles in Japan.

*The full report is available at:
http://corp.rakuten.co.jp/ir/releases/pdf/2012/12Q2tanshin_e.pdf

About Rakuten:

Rakuten, Inc. (JASDAQ:4755), is one of the world's leading Internet service companies, providing a variety of consumer- and business-focused services including e-commerce, e-reading, travel, banking, securities, credit card, e-money, portal and media, online marketing and professional sports. Rakuten is expanding globally and currently has operations throughout Asia, Western Europe, and the Americas. Founded in 1997, Rakuten is headquartered in Tokyo, with over 10,000 employees and partner staff worldwide. For more information, visit http://global.rakuten.com/group.

Contacts

Rakuten Investor Relations
investor-relations@mail.rakuten.com
http://corp.rakuten.co.jp/en/ir/
or
Rakuten Public Relations
Tokyo – Dean Kirkness
Email: pr@mail.rakuten.com
Tel: +81-50-5817-1104

Release Summary

Rakuten, Inc. (JASDAQ:4755) today announced consolidated financial reports for the six months ended June 30, 2012.

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Contacts

Rakuten Investor Relations
investor-relations@mail.rakuten.com
http://corp.rakuten.co.jp/en/ir/
or
Rakuten Public Relations
Tokyo – Dean Kirkness
Email: pr@mail.rakuten.com
Tel: +81-50-5817-1104